OGJ NEWSLETTER

U.S. drilling is making its usual fourth quarter surge despite uncertain oil and gas prices.

Baker Hughes' tally of active U.S. rigs jumped 22 units to 804 the week ended Sept. 16, the second biggest weekly jump of the year and the first time the count has broken the 800 mark since the first week of the year. The count fell 6% from a year ago, however. Although natural gas drilling still dominates the Baker Hughes count, the big increase Sept. 16 came in oil rigs.

Smith's rig count, using a different criteria, the same week jumped 25 units on the week to 866, compared with 976 a year ago.

Look for the surge to continue. Salomon Bros. says its count of U.S. drilling permits issued surpassed its year ago level the first time since April, rising last month 0.4% from August 1993. The number of permits issued in August rose the fourth month in a row, climbing by 2.2% to 2,166, with sharp advances in Texas and Oklahoma compared with July and year ago levels.

A mild uncertainty continues to mark oil and gas prices.

Nymex crude for November delivery slipped 90 on the day to close at $17.22/bbl Sept. 21. But the expiring October crude contract was up more than 500 on the week at $17.24 Sept. 20, largely on the strength of reports of civil unrest in Saudi Arabia. Riyadh reportedly is cracking down on Muslim militants, arresting hundreds in the northwestern corner of the country last week.

Natural gas futures fell from last week about 130 for October delivery and 40 for November delivery at $1.556/MMBTU and $1.818/MMBTU, respectively, apparently on the strength of AGA's report that U.S. gas storage rose 76 bcf the first full week of September, reaching 87% of working capacity.

It's the same old story: U.S. oil production is down and imports are up. API reports U.S. oil imports rose 17.2% to 9,881,000 b/d in August from a year ago, while U.S. crude production fell 2.9% to 6,563,000 b/d.

U.S. refineries are running flat out, operating at 95.3% of capacity in August, up from 92.7% the prior year.

Two of the biggest, most influential U.S. producer lobbying organizations, Independent Petroleum Association of America and Mid-Continent Oil & Gas Association, have formed an ad hoc committee to study whether a possible merger of the two groups would give the domestic industry more clout in Washington D.C.

Discussions over that possibility still are in the preliminary stages, but MidContinent Chairman John H. Lollar by the end of September hopes to present to his association's committee a short list of issues that would have to be dealt with before the merger could proceed. The two groups plan more talks.

Texaco will fight U.S. government allegations it violated economic sanctions on Haiti in order to preserve market share in the embattled country.

Treasury Sec. Lloyd Bentsen last week ordered an investigation into the Office of Foreign Assets Control's (OFAC) handling of the alleged sanctions violations. OFAC is the agency charged with enforcing the embargo. Associated Press reported government records showed Texaco has distributed refined products within Haiti from at least 26 tankers brought in by the military junta ruling Haiti since October 1991, paying the junta millions of dollars in the process. AP also claimed OFAC's director at the time may have been ordered to drag his feet on the case by then Treasury Sec. Nicholas Brady, despite OFAC staff recommendations Texaco be fined $1.6 million for the alleged violations.

Texaco said it acted in a legal and morally responsible manner in establishing a blind trust to run its Haiti operations. The company stressed all of its Haiti actions followed talks with U.S. government officials and that it earned no profits from those actions. Texaco said it had little choice in seeking to protect its Haitian employees, who were subjected to violence or imprisonment if they failed to supply fuel to the junta. In talks with OFAC and the State Department, Texaco said the only advice it received was to comply with sanctions but not risk safety of its employees.

Mexico will participate in a joint venture to refine oil in Cuba.

Mexpetrol, a group of Mexican state and private companies led by Pemex will take a 49% interest in the 65,000 b/d Cienfuegos refinery. The TV with Cuban state petroleum company Cupet will involve an investment of about $200 million to demothball the refinery, which has been idle for several years, and upgrade it to take Mexican crude.

Russia's oil sector continues to lag expectations.

Official sources estimate oil production this year could drop to 5.84 million b/d from last year's level of 7.04 million b/d. The 1994 projection is 136,000 b/d less than an earlier estimate. About 26.4% of Russia's oil wells are idle, with the rate of shut-ins apparently outpacing workovers by foreign joint ventures. In addition, Russian refineries' throughput was only 4.23 million b/d the first 7 months of 1994, compared with 5.2 million b/d for the same time a year ago.

The industry's biggest problem remains nonpayment of debt by consumers, with oil and gas enterprises owed more than 15.3 trillion rubles.

Meantime, Russia is getting tough again with Ukraine over nonpayment of bills for gas deliveries.

Gazprom Sept. 14 cut deliveries of 3.5 bcfd to Ukraine by about half because Ukrainian users owe it 3 billion rubles for earlier gas deliveries.

Curtailment duration is indefinite. Under an accord signed Aug. 17, Kiev sought to pay one fourth of its energy supply debt to Russia and authorized Gazprom to bill Ukrainian users directly rather than through the government.

A Greek group led by the Latsis shipping and refining group plans to build a $600 million pipeline to transport Russian oil across Bulgaria to Greece.

Governments of Greece and Bulgaria earlier this month signed an agreement in Thessaloniki approving the line, which would take oil from the Bulgarian port of Burgas on the Black Sea coast to the northern Greek port of Alexandroupolis on the Aegean Sea coast. Russian oil would come via the Russian port of Novorossiisk for tanker transport to Burgas, thus avoiding worsening traffic congestion in the Bosporus Straits. Russian, Greek, and Bulgarian state petroleum companies are likely to he involved in the project.

Italy's Agip is pressing a proposal that would expand the Mediterranean area gas pipeline network.

Agip is promoting a pipeline to carry natural gas from North African offshore and onshore fields to Italy. Agip is discussing the proposal with governments of Algeria, Libya, and Tunisia. Possible supply sources include gas found recently near al-Bouri oil and gas field off Libya, and Agip's gas strikes in southern Algeria east of Tunisia's al-Borma oil and gas field - from which an existing pipeline extends to Tunisia's coast. Agip notes al-Bouri, which it operates with Libya's National Oil Corp., produced about 350 bcf of gas last year. A project to double capacity of the existing 1.16 bcfd trans-Med gas line through Tunisia is under way, and Agip is talking with Tunis about boosting gas exploration and developing gas fired power plants in Tunisia.

Egypt's gas prospects are getting brighter. Shell Egypt has found two gas/condensate fields in Egypt's western desert with combined reserves pegged at 1.263 tcf and 78 million bbl. If developed, Obaiyed and Matrouh fields together could produce 500 MMcfd. Shell currently produces one third of Egypt's gas output of 1.2 bcfd. Meantime, Egypt will spend about $80 million for an NGL extraction plant to strip 150 metric tons/day of butane from gas produced from Badr Eddin and Abu Sannan gas fields.

Royal Dutch/Shell and Deminex will step up exploration in Syria.

The two signed a contract to explore in Northeast Syria and soon will conduct geological and seismic work in an area of more than 350 sq km in the Euphrates Rvier basin. Parts of the contract area were relinquished by BP and Total. The contract establishes a new company owned by Syrian Petroleum Co. 50%, Shell 33.3%, and Deminex 16.7%. It will spend at least $10 million on exploration in 36 months with two options to extend 30 months.

Shell and Deminex currently hold interests in Furat Oil Co., which produces 400,000 b/d of light crude from fields near Dayr Azzawr.

The building boom in very large crude carriers (VLCCs) shows no sign of abating.

Kuwait Petroleum Corp. has approved plans by its Kuwait Oil Tanker Co. (KOTC) subsidiary to build three VLCCS. KOTC is to begin preparing bid documents soon for supply of three 280,000 dwt tankers to be delivered in about 2 years. Cost is pegged at about $60 million each, industry analysts estimate.