OGJ NEWSLETTER

U.S. Industry Scoreboard 1/9 (9361 bytes)

Worldwide oil and gas E&P spending will jump 5.7% to $58.07 billion in 1995 from estimated 1994 outlays.

While that's modestly better than the 2.4% year to year rise in global E&P spending in 1993, the mix of spending in North America vs. outside North America will change significantly, suggesting a return to the trend toward non-North American activity that dominated E&P during 1988-92.

Those are the chief findings of Salomon Bros.' latest survey of worldwide E&P spending.

The survey found that spending for E&P outside North America will jump 7.5% to $34.65 billion in 1995 following a 3.6% decline in 1994. North American E&P outlays will rise only 3.1% this year compared with an 11% spurt in 1994.

"In particular, U.S. independents and Canadian operators are planning very modest spending increases for 1995 after the dramatic growth in 1994, and majors in the U.S. are planning modest increases after curtailing expenditures in 1994 from 1993 levels," the analyst said.

Companies are basing their 1995 E&P budgets on an average crude oil price of $17.55/bbl for WTI, flat with projections a year ago, and an average natural gas price of $1.80/Mcf on the Texas Gulf Coast vs. $2.14/Mcf a year ago.

With confidence in the U.S. gas market much weaker-only 27% of firms surveyed believe gas markets are in balance year round vs. 45% a year ago - there is a renewed emphasis on drilling for oil. Of companies shifting emphasis in drilling targets, 63% will do more oil drilling in 1995. That compares with 54% increasing gas drilling in 1994 vs. a projected 78% shift in last year's survey.

The survey also found a continuing emphasis on exploration vs. development, drilling vs. buying reserves, and offshore vs. onshore. In addition, oil and gas companies remain overwhelmingly optimistic about the 3 year outlook, with the percentage of optimists climbing to 91% from 85% a year ago.

The recent surge in Canadian drilling activity is the first in 20 years not to rely on federal or provincial government incentives.

So notes Wood Gundy Inc., Toronto, predicting the frenzied drilling pace won't continue in 1995. There will be continued strong emphasis on drilling and less emphasis on land acquisition as companies cut budgets for land acquisition in order to maintain an active drilling program, the analyst says. Wood Gundy also predicts drilling budgets, which swung sharply from oil to gas prospects the past 18 months, will revert to a balance between the two. In addition, Canadian capital spending is likely to be more prudent this year as companies operate under the assumption additional equity capital won't be available.

Has the oil industry dodged a bullet on possible disruption of tanker-borne oil imports into the U.S.?

The U.S. Coast Guard at midweek last week said the number of tankers holding certificates of financial responsibility (COFRs) required to call at U.S. ports beginning Dec. 28 totaled 1,183. While the Coast Guard could not provide an accurate estimate of how many tankers trade to the U.S. - citing industry estimates of 800, 1,500, and 2,000 - the service said the combined deadweight tonnage of the COFR carrying vessels represents a capacity sufficient to supply 1 1/2 times U.S. petroleum needs. As of presstime last week, the Coast Guard said, no vessel had been turned away from a U.S. port for lack of a COFR, which many in the industry feared would cause an oil supply disruption if widespread (OGJ, Dec. 26, 1994, Newsletter).

Increased gasoline storage can help improve flexibility in avoiding logistical snafus such as that which accompanied the introduction of reformulated gasoline (RFG) in the U.S. by Jan. 1.

That's why Texas Eastern Products Pipeline Co. (Teppco) is adding 285,000 bbl of storage capacity at its Baytown, Tex., terminal. Teppco soon will begin construction of two 100,000 bbl tanks for conventional gasoline and RFG, with completion slated for third quarter. Teppco also expects to complete early this year modifications to two high sulfur diesel storage tanks at an undisclosed U.S. Midwest site to store as much as 85,000 bbl of MTBE, supporting its long distance MTBE deliveries to the Midwest.

RFG continues to prop up otherwise depressed gasoline prices in the U.S. In cities selling RFG since Nov. 29, says American Automobile Association, the average price of unleaded self-served regular has risen 0.6/gal, and in cities selling only conventional gasoline, the price has fallen 3.6/gal. In AAA's latest survey, self-serve regular averages $1.23/gal in the RFG cities, $1.105/gal in conventional gasoline cities.

The controversial prospect of privatizing part of Mexico's petroleum sector has resurfaced amid a change in leadership at Pemex and economic crisis.

President Zedillo's emergency plan to limit damage from the abrupt collapse of the peso includes privatization of key state enterprises, according to press reports. Plans call for privatizing Pemex's intermediate petrochemicals business and consideration of privatizing natural gas pipelines. Oil & Gas journal in 1993 reported that leaked government documents showed the government was considering privatization measures involving natural gas pipelines and petrochemicals, but Pemex denied the reports (OGJ, Aug. 16, 1993, p. 26).

Meantime, Adrian Lajous, a 10 year Pemex veteran, takes over as head of Pemex after Carlos Ruiz Sacristan was removed as director general after only 4 weeks at the helm. Ruiz was named communications and transport minister in a cabinet shuffle that followed the resignation of the finance minister in the wake of the peso crisis.

Norway's Statoil has chosen France, not Belgium, to be the terminus of the natural gas pipeline it will lay from the North Sea to continental Europe. The pipeline, to go on stream by October 1998, will cost 9 billion kroner ($1.35 billion). The decision on whether to choose Dunkirk or another point in France as the terminus will come by February. Gaz de France will receive 455 bcf/year from Norway by 2000 via the line (OGJ, July 25, 1994, Newsletter).

China plans to conduct another round of international bidding for onshore oil and gas exploration and production rights this year.

There is little other detail from China National Petroleum Corp. Pres. Wang Tao, who disclosed that a "series" of prospective blocks and oil fields will be put up for bid in 1995 for foreign companies participating in onshore exploration and improved recovery programs. The earlier two onshore rounds attracted about $100 million in foreign capital. Some negotiations are continuing on proposals from the second round, which closed last October.

Meantime, China's crude oil output is expected to average 2.8 million b/d in 1995, up from 2.788 million b/d in 1994, while gas output also will rise slightly (see related story, p. 23).

A group of small U.S. companies and a Kazakhstan sponsored partner expect to decide this quarter whether to seek participation by a major company to explore a 5 million acre tract in Northeast Kazakhstan (see related story, p. 55). Kazakh officials last month granted the group exclusive rights to develop natural resources on the acreage. Oil and gas were included in the agreement after preliminary geophysical surveys indicated large, possibly hydrocarbon bearing structures on the tract. The surveys included digital data generated by hyperspectral remote sensing technology developed by group member Earth Search Sciences Inc., McCall, Ida.

Reports that Russia will scrap oil export quotas but impose new controls over domestic deliveries of crude and refined products have led international lending agencies that have promised billions of dollars in loans to Russia's petroleum sector to reconsider the country's creditworthiness.

The Kremlin, in a decree that was to take effect Jan. 1, dropped export quotas but ruled that producers must set aside at least 65% of their output domestically in order to gain access to export pipelines. In a letter to Russian Prime Minister Viktor Chernomyrdin, IMF's Michele Camdessus said the measures, if taken, would undermine Russia's credibility with IMF, possibly crippling negotiations on promised loans. World Bank says export restrictions could cut Russian's foreign exchange income, crimp tax revenues, and discourage foreign investment, thus leaving Russia less attractive as a borrower.

The money is critically needed to revive Russian oil production. Government estimates are that Russia needs $2.5-3.5 billion/year in capital spending just to maintain its current oil production level. As much as $7-8 billion in foreign oil investment could flow into the country by 1996. Critical World Bank loans/credits are aimed at restoring more than 1,300 wells to production, drilling 84 wells, and replacing 1,000 km of pipeline in three western Siberian areas and helping fund Conoco's Polar Lights joint venture.