OGJ NEWSLETTER

U.S. Industry Scoreboard 2/6 (74926 bytes)

U.S. majors continue to show optimism in their capital budgets for 1995.

Mobil has hiked its capital and exploration budget for 1995 to $4.1 billion from $3.8 billion spent in 1994.

Spending will focus on non-U.S. operations, expected to absorb about 65% of Mobil's total budget vs. 60% in 1994. Mobil is earmarking $2.4 billion for E&P, up $200 million from 1994. Its U.S. E&P outlays will be flat with last year's at $600 million, with a focus on Mobile Bay development. Outside the U.S., E&P spending for 1995 is up by $200 million to $1.8 billion, emphasizing Nigeria, North Sea, Indonesia, and the Hibernia project off eastern Canada.

In refining/marketing, Mobil will spend $500 million in the U.S., down about $100 million from 1994, and $800 million outside the U.S., up about $100 million. Major projects include California reformulated gasoline (RFG) and new units at Altona, Australia, and Coryton, U.K. Mobil also will jump chemical outlays by $100 million to $300 million, mainly to double output of paraxylene.

Conoco has boosted its 1995 capital and exploration budget 20% from 1994 levels to about $2 billion. About $1.3 billion is earmarked for worldwide E&P and gas processing, with almost $400 million targeted for exploration. A record $700 million is slated to be spent on refining/marketing and transportation.

Spending is split about two thirds outside the U.S., one third in the U.S. Upstream emphasis is on development of the North Sea's Heidrun and Brittania fields, and the downstream focus is on a grassroots refinery in Malaysia and upgrades at Humber, U.K., and Lake Charles, La., refineries.

A proposed U.S. accounting rule might require major asset writedowns by oil and gas companies, warns NatWest Securities.

The Financial Accounting Standards Board (FASB) proposal would require regular review of long lived assets for impairment-or inability of the reporting company to recover the full book value of an asset. Oil and gas price declines, for example, might lead to impairment of the book value of reserves.

NatWest thinks the rule would especially affect companies that use the successful efforts accounting method, for which impairment requirements have been vague.

An FASB exposure draft would require companies to take an impairment charge when the estimate of an asset's undiscounted future net cash flows falls below its book value. The impairment amount would be the difference between the book value and either the asset's fair market value or its discounted future net cash flows.

For purposes of impairment review, companies would have to group assets at "the lowest level for which there are identifiable cash flows," which might mean field by field.

ARCO will work to overturn the ban on export of Alaskan North Slope (ANS) crude. dropping its long standing neutrality on the issue.

ARCO contends eliminating the ban will have little effect on its operations, which will continue to rely mainly on ANS to operate its two West Coast refineries. It says it will support Alaska's latest push to lift the embargo - spurred by the ascension of Alaskan congressmen to key congressional oversight committee posts - out of concern for the long term economic well-being of the state. Alaska's department of revenue estimates another $185 million/year would accrue to the state treasury if the export ban is lifted.

Industry officials claim the ban forces ANS into a glutted West Coast market, depressing wellhead prices in Alaska and California.

ARCO saw little prospect for passage of a bill eliminating the ban before the Republican sweep of Congress in last November's elections.

Industry seems to take two steps backward after each step forward in California.

Shortly after the Santa Barbara County board of supervisors endorsed the idea of renewed oil and gas leasing in federal waters off the county (OGJ, Jan. 30, Newsletter), a report by a University of California-Santa Barbara committee recommended Mobil's extended reach drilling proposal near Santa Barbara should he denied.

What's critical is that the university recently became Mobil's landlord on a 17 acre parcel meant to be the onshore drillsite from which more than 100 million bbl of offshore oil reserves would be tapped (OGJ, July 5, 1993, p. 20).

The faculty legislature was expected to endorse the report's findings late last month, and UC regents can then reject or accept Mobil's plan before or after the county board of supervisors reviews Mobil's application.

Meantime, a coalition of Santa Barbara environmental groups has denounced the board's action on leasing and will ask Interior Sec. Bruce Babbitt to halt MMS plans to consider a new 5 year leasing program,that would include California.

Unocal has developed an RFG that meets California's 1996 standards for reduced emissions and is offering the patent for license. Those standards will be tougher than current or future federal rules on motor fuel emissions (OGJ, Oct. 10, 1994, p. 23). Unocal expects to have a licensing program in place by the end of April.

In another RFG development, Pdvsa unit Corpoven will produce 13,00017,000 b/d of RFG at its El Palito, Venezuela, refinery this year without imported components. A first shipment from El Palito arrived on the U.S. eastern seaboard early last month. Corpoven plans added outlays at the 105,000 b/d refinery to improve component quality and boost RFG volumes for U.S. markets.

The idea of an LNG export project on the coast of British Columbia has been revived. Pac Rim LNG Ltd., Calgary, plans a pipeline from Prince George, B.C., to Kitimat on British Columbia's northern coast, where it would build a $2 billion gas liquefaction plant that would produce LNG for Pacific Rim markets. Pac Rim has held preliminary talks with Kitimat officials and Haisla natives in the area.

An earlier proposal shelved by a group of Canadian companies had called for a liquefaction plant near Prince Rupert, B.C., with half the gas to come from Alberta (OGJ, Jan. 7, 1985, p. 70).

No oil operations were affected by the sudden flareup of armed conflict between Peru and Ecuador as of presstime last week.

Following what Ecuadorian officials described as massive attacks by Peruvian military forces at several border posts near Southeast Ecuador, the Quito government stepped up security at oil fields near the fighting. Earlier, Peru claimed an Ecuadorian helicopter attacked a Peruvian post near a border set by international treaty settling an old territorial dispute.

Ecuador claims a 210 sq km area in an oil rich area of northern Peru, and the two went to war over it in 1941 and 1981. Ecuador surrendered in the 1941 conflict, then renouncing its claim. An intense diplomatic campaign is being pushed by other Latin American countries to halt the conflict.

The Kremlin has approved 42 draft amendments and supplements to Russia's laws on foreign investment, with the new version effectively granting national tax status to foreign oil companies (see related story, p. 34).

If parliament approves, the hill would provide joint ventures and other investors 5 year relief from any new laws that could hinder business operations, provided the foreign partner has contributed at least $100,000, or 30%, of the charter capital. Projects exceeding a cost of $100 million would be granted a 50% import tax relief if the savings are reinvested in the JV.

JVs also would be exempt from mandatory remittance to the state of hard currency revenues from exports. JVs created before Jan. 1, 1994, and having a minimum of $10 million contributed by a foreign partner, would have a 2 year holiday from paying a 13% federal profits tax.

Other proposed benefits cover import taxes and value added taxes on imports regarded as part of the foreign partner's share of the JV charter capital.

Iraq's return to oil markets will not he a catastrophe for oil prices, says Total Pres. Serge Tchuruk.

"There might be a little flurry at the actual time of Iraqs return, which will very soon die down," he said. "Markets have largely anticipated Iraqs return, and before this happens there is bound to be a preliminary agreement with OPEC."

Tchuruk acknowledged his company is negotiating a deal with Baghdad to develop Nahr Omar field in Iraq, adding, "If we had the possibility of signing before sanctions are lifted, we would do so even if the contracts are implemented only after sanctions have been lifted."

Tchuruk contends sanctions against Iraq will be lifted "in the not so distant future" because there is strong international pressure, including pressure in the Middle East, to lift the embargo.