OGJ NEWSLETTER

There are faint signs of recovery in the U.S. petroleum industry.

U.S. drilling permits surged by 21.8% to 2,259 in July for the 29 states Salomon Bros. tracks, nearly matching the year ago level. Texas and Wyoming provided the biggest increases, 267 and 79, respectively.

Salomon Bros. says the July increase, following 3 months of relatively flat activity, represents the first sign in its index that U.S. drilling rig activity could be improving in earnest. It thinks the recent spurt of permit activity could support a rig count of 800 by October and climbing through yearend.

Are California heavy oil producers finally getting price relief--figuring their crudes' real value in the market--they've always sought, now that Alaskan North Slope production has resumed its decline? Kidder Peabody notes that as one plausible explanation for a 54% jump in the state's Kern River marker spot price since March, while WTI spot has risen only 12%.

After eroding steadily in 1990-91, the price ratio of Kern to WTI now stands at 72%. ANS output surged in late 1990 and early 1991 in response to the Persian Gulf crisis. The analyst also sees as a contributing factor OPEC export and production cuts targeting medium and heavy crudes.

Despite some recent slippage in oil prices, Merrill Lynch still sees a strong possibility of $24/bbl WTI in the winter. It puts the call on OPEC oil at 25 million b/d in the fourth quarter and almost 26 million b/d in first quarter 1993, close to available capacity absent Iraqi exports. Assumptions are: a nearly normal stockbuild and drawdown in the second half, year to year gains in oil demand of only 0.5% to 65.9 million b/d in the third quarter and 0.3% to 68.5 million b/d in the fourth, and non-OPEC production flat at about 40.4 million b/d.

EIA expects U.S. natural gas consumption to jump by as much as 5.5% in 1993, with much of the growth to come during winter in the first quarter. Gains in industrial and power sector demand are expected to boost total U.S. gas consumption by 3.5% to 20.1 tcf this year, the highest level since 1979. EIA expects wellhead prices to be 24%, or 30cts/Mcf, higher in first quarter 1993 vs. first quarter 1992, with no significant price increases thereafter for the year, assuming normal weather. For all of 1993, EIA sees gas prices up about 6%, or 9cts/Mcf.

Union Pacific Resources plans to drill another 100 horizontal wells by yearend. The company has completed more than 360 horizontal wells in South Central Texas' Cretaceous Austin chalk.

By end of July, UPR's total Austin chalk production from horizontal drilling had reached more than 58,000 b/d of oil equivalent.

A move to extend the Section 29 tax credit for some tight formation gas has found new life. A grassroots campaign organized by Appalachian basin producers could extend the credit, set to expire Dec. 31, 1992.

Ohio Oil & Gas Association says an amendment to extend the credit 1 year may be inserted in the omnibus tax bill to be taken up by congressional conferees. Possible sponsors Sens. Rockefeller and Dole believe the votes are there to support the amendment. The compromise extension would be for 1 year with current credit rates allowed but only for a well's first 42 MMcf/year of production. The credit would be reduced to 400/Mcf for production of 43-549 MMcf and disappear at a higher rate.

DOE is studying effects of state regulations on U.S. natural gas consumption, following up on a February conference in Phoenix with state regulators. DOE wants input on how state policies and regulations affect the gas industry, seeking to improve coordination of federal and state policies.

DOE says many state regulators admitted their rules, drafted when the gas industry was regulated, are inappropriate for the current partly decontrolled market. DOE wants to explore states' regulatory authority over the gas industry and how gas industry deregulation will affect state rules. The study, to be complete in early 1993, also will explore the role of gas in power generation, state regulatory barriers to gas use in transportation, regulatory impediments to gas E&P, and conservation and production issues.

The Port of Houston Authority has asked the U.S. Foreign Trade Zones Board to declare parts of Shell Oil Co.'s Deer Park refining/petrochemical complex a foreign trade zone. Shell and Pemex just disclosed a joint venture refining deal involving the Deer Park refinery (see story, p. 28).

The step would exempt the refinery from tariffs on foreign products used in its exports. For U.S. sales, it could avoid duties on fuel used in the refinery and choose the finished product duty rate in some instances.

Methanol supply will be sufficient to meet MTBE and TAME demand into 1995, says Crocco & Associates, Houston.

The forecast is based on a conservative global demand estimate of 555,000 b/d in 1995, about 80,000 b/d of which will be required outside the U.S. The study also predicts global methanol utilization rates will remain below 85% in 1992-94 and rise to about 88% in 1995.

China National Oil & Natural Gas Corp. expects oil production from three basins in Northwest China's Xinjiang region to hit 174,000 b/d this year, up 20,000 b/d from 1991, Beijing's Xinhua News Agency reports.

The Xinjiang region is expected to be China's fourth biggest producer in 1993 and the country's top producer by 2000.

The parade of foreign joint ventures in the C.I.S. marches on.

Amoco has signed an agreement with Russia's Gazprom to conduct a feasibility study of potential reserves on the Yamal Peninsula.

Amoco says the agreement is "subject to certain actions Gazprom must take and to endorsement by other government entities," and won't speculate about when the study might begin.

Pennzoil has formed Pennzoil Caspian Corp. to pursue a project to increase production from the Guneshli oil fields in the Caspian Sea.

Pennzoil has signed preliminary agreements for the deal with Azerineft, the main exploration association of Azerbaijan.

Kazakh President Nazarbayev says a route has been agreed upon for the 1 million b/d, 40 in. pipeline that will carry Kazakh oil, notably from Tengiz, for export to the Mediterranean, Eastern Bloc Energy reports.

The pipeline will extend 2,550 km around the northern Caspian Sea, through Astrakhan, cross the Caucasus mountains over the 2,379 m high Pass of the Cross paralleling the Mozdok-Ordzhonikidze-Tbilisi gas pipeline.

From Gori, near Tbilisi, it will head west to Batumi, then cross Turkey to the Mediterranean. About 1,650 km of pipe will be laid in the C.I.S. and about 900 km in Turkey. The line is also intended to transport Azerbaijan and Caspian oil via a 580 km pipeline from Baku to Gori, EBE said.

Nazarbayev believes the pipeline can be completed within 3 years.

Russia's President Yeltsin has authorized a new tax on oil and gas producers aimed at boosting development of difficult to produce reserves. The tax will be levied against oil and gas producing enterprises that are "engaged in the development of the best and the most profitable fields," Itar Tass reported, " and will stimulate more efficient exploitation of wells. The amount of tax and which oil and gas fields it applies to is not clarified, but it apparently will exempt fields that pose geographic or reservoir difficulties.

Nonprescriptive safety objectives will form the basis of the third phase of new safety regulations for the U.K. offshore petroleum industry arising from the 1990 Cullen report into the Piper Alpha accident.

The British Health & Safety Commission has announced plans to review and reform current legislation, with informal consultation with industry to begin in October and final regulations taking effect in summer and fall of 1994. Plans call for publishing draft rules on evacuation, escape and rescue, and fire and explosion protection next summer and on management and construction by yearend 1993.

Satellite oil fields committed for development today could account for as much as 20% of U.K. offshore oil production soon, says Smith Rea. Satellites now represent about 14% of U.K. offshore oil output.

"It is already possible to envisage a time when the majority of U.K. production will come from satellite fields," says Smith Rea. "Some 300 undeveloped discoveries on the Northwest European continental shelf area have been identified, of which some 65 are likely to be developed as satellites in the foreseeable future, and many more are likely to be suitable in due course.

The analyst says current satellites' capital investment is around 1.5 billion ($2.9 billion)/year and is likely to continue at this level.

About 80% of potential spending is earmarked for the northern and Central North Sea, with 75% of this is for subsea developments.