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U.S. Industry Scoreboard 4/24 table (75520 bytes)

Things are looking up for the petroleum industry pretty much across the board.

Oil prices are at their highest level in almost 9 months, and natural gas prices seem to have bottomed. Drilling activity is robust in key sectors, and day rates continue to firm for contractors. Refining margins are poised for recovery, and petrochemicals demand growth shows no sign of slacking.

Iraq's insistence on completely lifting sanctions could not have come at a better time for crude oil prices.

Bullish fundamentals were underlying oil markets ahead of Baghdad's rejection last week of a U.N. resolution allowing it to sell $2 billion worth of oil, with some of the proceeds going to buy food and medicine for Iraqis hit by more than 4 years of a crippling embargo. The measure would have added another 800,000 b/d of crude to world supply for at least 6 months.

Strength in gasoline propelled by supply tightness ahead of the summer driving season has been putting upward pressure on products and crude futures in recent weeks. At the same time, OPEC has held the line on quotas, and crude supplies are apt to tighten a bit in weeks to come as North Sea production gets shut in for the summer maintenance season.

Still, even the possibility Iraq might accept the U.N. resolution, sponsored by the U.S., U.K., and Argentina, recently undercut oil prices, which lost almost $1 in mid-April. Last week, Baghdad made it official, rejecting the Security Council resolution. The Revolutionary Command Council said the offer was an attempt by the U.N. to avoid lifting the full sanctions it imposed against Iraq during the 199091 Persian Gulf crisis. Crude futures responded by more than making up the previous week's losses, with Nymex crude for May delivery closing Apr. 19 at $20.41/bbl and IPE June Brent closing at $18.50 Apr. 19.

Contributing to oil price strength is continued bullishness in gasoline markets. U.S. gasoline stocks fell again the week ended Apr. 14, by 553,000 bbl to 213.21 million bbl, which in turn is 635,000 bbl less than last year's level. U.S. output and imports of gasoline also fell that week.

That's a marked contrast with first quarter U.S. products demand figures. API notes 10% warmer weather than a year ago cut first quarter petroleum product deliveries 2.7% from first quarter 1994, with 75% of the 473,000 b/d drop due to residual fuel declines. API also notes U.S. crude production outside Alaska increased for two consecutive quarters for the first time in 4 years. Lower 48 output was up 35,000 b/d from the fourth quarter of 1994, which in turn was 30,000 b/d higher than in the third quarter.

Despite poor results in the first quarter, Merrill Lynch expects a major rebound for refiners. The analyst notes margins have started to recover from depressed levels because of strengthening gasoline prices, a process it expects to accelerate when the driving season gets under way. Merrill Lynch cites below normal gasoline inventories in the U.S., the persistent surplus of product inventories in Europe being drawn down to normal levels as demand perks up after being flat for 3 years, and the worldwide glut of middle distillates eroding as demand remains firm despite warm weather.

On the upstream side, Global Marine reports offshore drilling markets improved in all major markets last month.

Glomar's worldwide summary of current offshore rig economics (Score) rose 2.5% from February and 7% from March a year ago. Score reflects current offshore mobile drilling rig day rates as a percent of estimated day rates contractors need to justify new construction. Glomar notes the improvement reflects continued strength in the North Sea as well as modest improvements in the U.S. Gulf of Mexico and Southeast Asia.

MMS and Shell Oil Co. have arranged an unusual swap involving offshore lease claims. Shell dropped claims against the government alleging breach of contract and unconstitutional taking of its leases off North Carolina, Florida, and Alaska. MMS dropped royalty claims related to two offshore gas contract settlements Shell made resolving price disputes with its purchasers.

The U.S. Supreme Court has heard arguments in the most important environmental case in years, which asks if the 1973 Endangered Species Act is meant to protect not only wildlife but also their habitat. Babbitt vs. Sweet Home Chapter involves harvesting timber in Oregon. Lawyers for timber interests argued if the government wants to protect habitats, it should purchase them. The court could issue a ruling before it recesses in late June.

One of the biggest privately held U.S. oil companies could face $54 million in fines related to numerous oil spills into the waters of six states since 1990.

The Justice Department filed a civil suit in Houston federal court against Koch Industries, Wichita, and several subsidiaries for allegedly discharging more than 54,000 bbl of oil in more than 300 spills into the waters of Oklahoma, Kansas, Texas, Louisiana, Missouri, and Alabama. The suit, one of the biggest filed under the Clean Water Act as amended by the 1990 Oil Pollution Act, seeks penalties and a court order requiring Koch to prevent future spills. Most of the spills occurred mainly from breaks caused by corrosion in gathering lines. Koch says it is "extremely disturbed and confused" regarding the suit, finding it unusual for the government to aggregate cases of spills and not try to negotiate a settlement. A Koch official said the complaint contains much inaccurate data and noted the company has thoroughly cleaned up every spill.

"We've done what we could all along to maintain our system and prevent spills and will continue to do so," the official said. "We've reduced the number of spills on our system 70% in the past 5 years while increasing mileage 25%."

TransCanada PipeLines has filed applications with Canada's National Energy Board seeking to construct in 1996-97 $271.9 million (Canadian) worth of pipeline and compression facilities on its main line transmission system, most of which would be complete in 1996.

Involved are 174.1 km of pipeline, 28,300 kw of compression, and relocation of a 6,300 kw portable compressor. The work would allow TransCanada to meet requests for new long haul firm gas transportation services totaling 45.6 bcf/year, including about 30 bcf/year for Canadian markets.

Tanzania is trying to attract explorationists. State owned Tanzania Petroleum Development Corp. is negotiating with Australia's Worldwide Exploration, Dubai's Kiosa, and Ireland's Dublin International Petroleum Ltd. to look for oil in the underexplored African nation. While oil seeps and seismic and other data point to strong indications of hydrocarbons, only two dry holes have been drilled in the most prospective areas. Average wildcat costs are $10 million.

At least 17.5 tcf of potential gas reserves have been identified in Northwest China's basins, says Beijing. Gas potential is pegged at 3.85 tcf in southern Xinjiang, 5.95 tcf in northern Shaanxi, and 5.25 tcf in eastern Sichuan provinces. In addition to supporting a burgeoning downstream industry, including petrochemicals, plans call for pipelaying to begin this year on major trunk lines to carry northern Shaanxi gas to Beijing and central Xinjiang gas to Urumqi.

More gas is turning up off Viet Nam.

A group led by South Korea's state owned Pedco found gas and condensate instead of the targeted crude oil in the Con Son basin. The discovery well, the second of a planned three wildcats, flowed at rates of 43 MMcfd of gas and 1,365 b/d of condensate. Pedco says 2-3 more years of exploration are needed to assess the area's potential, and the discovery's commerciality may not be feasible unless developed in conjunction with other gas finds in the area.

Jordan wants to produce electricity from oil shale. It is negotiating with U.S. and Australian multinationals to burn the shale directly to generate electric power rather than try to process it into shale oil. A feasibility study found the idea viable-vs. producing shale oil at a cost of $22-25/bbl. Jordan's oil shale resource is pegged at 40 billion metric tons with an average oil content of 10 wt %. Plans also call for using shale ash in Jordan's construction industry.

Nigeria wants to increase its oil reserves by more than 4 billion bbl and productive capacity by 500,000 b/d by 1999 and plans its first major acreage offering in 4 years toward those ends. It aims to jump crude reserves to 25 billion bbl from the current 20.52 billion bbl and productive capacity to 2.5 million b/d from the current 2 million b/d. Nigerian production is averaging 1.865 million b/d, its OPEC quota. Plans call for stepping up offerings of offshore and onshore acreage to foreign and domestic companies. The last broad offering was in 1991. While Nigeria added 5.16 billion bbl of reserves in 1991-94, topping its goal of 4 billion bbl, industry officials fear the government's liquidity problems could hamper efforts to duplicate that feat. The new petroleum minister, Dan Etete, wants the government to make prompt payment of government cash calls, needed to fund exploration efforts, a top priority. Government arrears in payments to joint venture partners have crippled E&D spending in recent years.