U. S. Industry Scoreboard 3/6 (73144 bytes)
Depressed natural gas prices and volatile oil prices are continuing to create hard times for a number of petroleum companies.
Royal Dutch/Shell this month will disclose broad plans for restructuring its central offices in London and The Hague, with job losses likely, in an effort to cut operating costs at the two offices that run $1 billion/year. The firm shed 11,000 of its 106,000 worldwide jobs last year, mainly in Europe.
A leaner Royal Dutch/Shell plans capital outlays of $11 billion/year to 2000, of which about $1 billion/year will be earmarked for exploration split 80% in proven areas and 20% in frontier areas.
The company in 1994 spent $10.5 billion, up 8% from 1993 and split 46% upstream, 44% downstream, 7% chemicals, and 3% other sectors.
Gulf Canada laid off 54 employees, including some senior managers, as part of a previously disclosed restructuring intended to cut operating and overhead costs (OGJ, Feb. 20, Newsletter). The company's 1,200 regular, temporary, and contract workers are to learn by mid-March how the restructuring will affect them. Gulf Canada expects to lay off about 40% of its staff in Canada.
Plains Petroleum Co., Lakewood, Colo., will broaden its study of potential business combinations to expand the list of possible merger partners and include a possible acquisition of Plains for cash or a combination of cash and securities. "The indications of interest and preliminary proposals we have received as part of our previously announced stock for stock merger transactions reflect the currently depressed market for the stock of companies in our industry," Plains Chairman James A. Miller said. "No proposal has developed that the board is prepared to recommend to our stockholders."
Mitchell Energy & Development Corp, The Woodlands, Tex., is cutting staff by 12%, or at least 300 jobs, citing depressed market conditions for natural gas and other energy products. The cuts are expected to save the Texas independent at least $21 million/year. Most cuts are planned for the Houston office, but offices also will close in Dallas, Midland, Tex., and Columbus, Ohio.
Mitchell set fiscal 1995 capital spending at $228.7 million vs. spending of $221.6 million in fiscal 1994-which in turn was about 9% less than budget and well below average capital outlays each of the preceding 3 years.
Mitchell is cutting its drilling budget by $8.7 million from a year ago to $67.2 million because of low gas prices.
Have U.S. natural gas prices finally bottomed?
Natural Gas Clearinghouse's survey of U.S. spot gas prices shows March prices averaging 2 more than February's average of $1.32/MMBTU but still far below March 1994's average of $2.20/MMBTU. Prices for the first quarter have averaged $1.40/MMBTU, compared with first quarter averages of $2.12 in 1994, $1.79 in 1993, and-when spot gas prices were at a record low-$1.26 in 1992.
Salomon Bros. has lowered its spot gas price forecast for 1995 to $1.50/MMBTU from $1.65/MMBTU, compared with $1.72 in 1994 and $1.97 in 1993. The analyst sees high gas storage levels leading to a weak refill season and depressed prices in the second and third quarters. That will continue to undermine gas drilling activity.
Baker Hughes' tally of active rigs fell 28 units to 696 for the week ended Feb. 24, with gas rigs at 355 accounting for 75% of the drop.
As gas drilling activity continues to fall-perhaps to the low 300s from a recent peak of 471 in September 1994, says Salomon Bros.-that will lead to a tighter supply/demand balance later this year, with prices likely to rebound in late 1995 and 1996. So the analyst predicts spot prices will average
Some industry relief from government may be on the way.
The Clinton administration has given a strong boost to legislation to allow exports of Alaskan North Slope (ANS) crude oil, one of industry's key issues in Congress (see related story, p. 21).
Deputy Energy Sec. Bill White told a Senate energy committee hearing administration support will be forthcoming if the bill requires exports to be in U.S. flagged and crewed vessels but not U.S. built vessels.
West Coast producers contend the ban depresses crude prices there, and a DOE study finds allowing exports will boost output of ANS by 50,000-70,000 b/d and California production by 30,000-50,000 b/d. California independent refiners dispute those claims.
Alaska Gov. Tony Knowles last month unveiled legislation that would let his state cut its royalty for marginal oil and gas fields if the Alaska commissioner of natural resources finds a rate cut is needed and in the state's best interest.
Independent power project (IPP) opportunities continue to sizzle for the energy industry. PG&E and Bechtel agreed to form an electric energy company to develop, own, and operate projects outside the U.S.
It will combine international power activities of Bechtel and J. Makowski Co. (TMC), a leading IPP developer Bechtel and PG&E acquired in 1994. Initial focus will be on Asia-Pacific, Southwest Asia, and Latin America IPP opportunities, plus selected projects in Europe. PG&E/Bechtel's new company, US Generating Co. (USG), Bethesda, Md., and JMC will combine their U.S. power and related natural gas operations. USG has more than 4 million kw of power capacity in operation or under development in the U.S. as well as interests in U.S. Northeast interstate gas pipelines and gas storage facilities.
U.K. North Sea oil and gas production hit a combined high in January, following a comparable milestone for 1994 (OGJ, Feb. 20, p. 100).
Average combined output in January was 4.4 million b/d of oil equivalent, says Royal Bank of Scotland. Oil production fell to 2.61 million b/d in January from a 7 year high of 2.71 million b/d in December. Gas production was a record 10.6 bcfd in January, up from 8.5 bcfd in December.
Harsh winter weather accounted for the oil shortfall by disrupting loading from fields relying on tanker exports but at the same time sparked an increase in gas consumption.
Combined revenues rose 10% to an average $75.5 million/day, the highest level since 1985 and due partly to a 4% rise in the price of Brent crude.
Sweden claims to be the first country to totally ban use of leaded gasoline, under a law that took effect Mar. 1.
Other European countries have been phasing out leaded gasoline for some time, but Sweden's ban is intended to eliminate rogue imports. The petroleum industry and Sweden's Environmental Protection Agency agreed last year to replace leaded gasoline with gasoline containing other additives.
Italy is warning oil companies about a territorial dispute it has with Malta over exploration blocks in the Mediterranean Sea.
Malta offered blocks designated as Areas 3, 4, and 5 to operators last October, but Rome asked Malta to withdraw the license offer because of Italian jurisdiction and interests in the acreage. Italy's warning follows a second refusal of the Maltese government to accept its claim the license offer is illegitimate.
Europe's LNG imports probably will double by 2010, says Purvin & Gertz's London office. Michael J. Corke, P&G senior analyst, didn't estimate the projected volume, but European LNG imports recently have been running at about 15 million metric tons/year, or about 20% of Europe's gas supply.
Corke notes western Europe's eight LNG terminals use a little more than half their capacity, and three more are under design or construction.
Gas buyers in Europe are stressing diversifying supply, given upheaval in major gas suppliers Algeria and the former Soviet Union, and are looking at supplies in Qatar, Nigeria, and Venezuela. Such long distance suppliers need to consider incentives to offset the longer shipping distances, Corke says.
Russia's oil industry must undergo a major overhaul to become competitive with industry worldwide.
How it can achieve that is laid out in recommendations by Boston Consulting Group (BCG) in a study commissioned by World Bank and Russia's Ministry of Fuel and Energy and funded by the U.S. Agency for International Development. BCG recommends a wide range of measures to move Russia's oil industry toward a more deregulated, market based structure.
It also proposes significant changes in regulating Russia's financial markets to encourage internal investment related to further privatization, which could see the Russian oil industry's current $15 billion capitalization jump significantly.
Among other steps, BCG wants to see Russia make more E&P licenses available, upgrade the oil pipeline infrastructure, restructure the massively underutilized refining sector, privatize or restructure all geological/geophysical and oil field service contractors, make storage/distribution facilities common carriers, and end marketing monopolies.
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