OGJ NEWSLETTER

OPEC disarray is threatening the oil price stability that's held most of the year. Crude futures prices fell to an 8 month low early last week after OPEC's meeting broke up Nov. 27 with the cartel agreeing to trim production just 400,000 b/d. Nymex light sweet crude for January delivery settled at $19.51/bbl Dec. 1, down 760 in 2 days. Prices fell another 60/bbl Dec. 2, marking its lowest level since closing at $19.44/bbl Mar. 31.

OPEC agreed to reduce production to 24.9 million b/d as of Dec. 1.

The cartel set its first quarter 1993 ceiling at 24.582 million b/d, a goal made easier by the absence of 323,000 b/d from Ecuador, which said last month it will leave the group (OGJ, Nov. 9, Newsletter). And Iran reportedly agreed to cut production by 400,000 b/d to 3.5 million b/d. Venezuela's Oil Minister Alirio A. Parra was chosen as OPEC president.

Oil markets in London were virtually unchanged Nov. 27 on news of the slight production cut. then rallied mildly on reports Venezuelan President Carlos Andres Perez had been ousted. The military coup attempt Nov. 27 was put down the same day by troops loyal to Perez. Officials reported no damage was done to Pdvsa's installations anywhere in the country, and some oil industry activities continued normally the day of the rebellion.

One U.S. oil service company operating rigs in Venezuela said Pdvsa units told service contractors to send their crews to drilling sites on the day of the coup in order to keep an eye on installations, hut to hold off on drilling until the situation returned to normal. This was the second time this year Perez faced an attempted military coup. The first, Feb. 4, was led by units of the Venezuelan army. The most recent attempt, which included support from leftist guerrillas, was spearheaded by the Venezuelan air force.

Argentina's petroleum privatization juggernaut rolls on (see Watching the World, p. 27). A group led by Enron submitted a winning bid of $561 million in cash and debt assumption to own and operate the natural gas pipeline system in southern Argentina. The government tendered 70% of the pipeline company to the Enron group and will retain 30% for itself and current pipeline employees.

Enron expects to invest net equity capital of $75 million after project financing. It will assume operations by Jan. 1 of the 3,800 mile, 1.355 bcfd system, which serves four distribution companies and is supplied by fields in Neuquen and Austral provinces. Enron partners-each with 25%-are Perez Companc, Citicorp's Argentina bank, and a group of 21 other banks.

Pemex plans to build a $1.4 billion, 150,000 b/d refinery at Salina Cruz, Oaxaca State. It will replace the Azcapotzalco refinery in Mexico City that was closed in an effort to reduce pollution in the capital.

Construction is to take about 40 months. Fernando Manzanilla, director of refineries for Pemex, also said the La Nogalera storage/distribution center in Guadalajara will close and he replaced with a plant elsewhere.

A refined products leak from La Nogalera is said to have caused the sewer explosions that rocked Guadalajara (OGJ, May 11, Newsletter). Manzanilla says Pemex plans to start constructing another refinery in 1994. Site hasn't been picked, but Pemex has named it Refineria del Altiplano.

With World Bank funding, Mexico City will launch a $2.52 billion program to control ozone levels. The program will be administered by city government, Mexico state, the Social Development Ministry, and Pemex.

It aims to reduce gasoline volatility by 90%, increase quality control, and produce less environmentally damaging gasolines. About $34.2 million will be earmarked for setting up computerized verification centers to monitor compliance with environmental regulations. Mexico City hopes to reduce by half the number of emissions by installing equipment to control nitrogen oxide emissions and starting a mandatory verification program in the 30,000 metropolitan area industries.

Petro-Canada, Canada's national oil company, launched a $250 million (Canadian) share offering that would increase investor ownership to about 30% from 20%. The 30.35 million new common shares will be priced at $8.25/share.

An initial issue 16 months ago was priced at $13/share. The new issue will advance a policy by the conservative federal government to privatize the company. The new share offering is a bought deal with a syndicate of 12 investment dealers headed by RBC Dominion Securities Inc., of Toronto.

The dealers have an option to buy an added 3 million shares if demand is strong. The offering is expected to close Dec. 15.

Is it time to finally pronounce the gas bubble dead? "Significant declines in new gas well completions and workover activity during 1991 and 1992 appear to have accelerated the reduction of the gas supply surplus that prevailed since the early 1980s," says Petroleum Information (PI).

In a new study, PI looked at U.S. gas productivity in 1981-91 then developed gas production forecast models. The company predicts U.S. natural gas productive capacity will he 15.5 tcf/year by yearend 1995, 2.5 tcf less than at the close of 1991. The study says current shut-in gas productive capacity is negligible, and "Assuming actual capacity is no more than 80% of measured test capacity, there is little spare capacity to meet increasing demand." PI says the gas shortfall likely cannot he offset by added Canadian imports and would require a significant upturn in U.S. drilling and completion activity.

U.S. drilling contractors are seeing some increased action, but is the effort sustainable? Max Dillard, president of DI Industries says all of his company's available small rigs are working. "We have a miniboom on our hands due to operators panicking in an attempt to spud Section 29 gas tax wells before calendar year ending Dec. 31, 1992." Dillard says they have some assurance part of the drilling will extend into 1993, but they expect rig activity will then slump. "This miniboom is excellent news and demonstrates to the American public that drilling will occur when tax and economic considerations are there. We hope to carry this message to the new administration in Washington."

Chiles Offshore is seeing increased action in the Gulf of Mexico.

"The strengthening demand for rigs in the U.S. Gulf of Mexico has given us the opportunity to reactivate rigs at profitable day rates," says C.R. Bearden, CEO of Chiles Offshore. The company recently signed contracts to reactivate three stacked drilling rigs in the U.S. Gulf of Mexico, including the Wasp, under tow from Trinidad.

Prospects are excellent for development of a rare hefty oil strike in onshore southern Italy. Fina Italiana SpA disclosed test results from its 1989 1 Tempa Rossa discovery, reports partner Lasmo. The 1 Tempa Rossa ST sidetrack recently completed, cut a gross oil column of more than 1,000 m and tested 16-22 gravity oil at a combined rate of 7,630 b/d from three zones. The well couldn't be properly tested earlier because of technical problems. Fina, Lasmo, and other partner Enterprise plan to apply for a production license.

The three also participated in a subsequent confirmation drilled by a Total unit and tested at a rate of about 3,500 b/d of oil on an adjoining block, also marked for development (see map, OGJ, Sept. 30, 1991, p. 32). The confirmation cut more than 800 m of gross pay, flowed 116,000 bbl of oil at rates of as much as 1,220 b/d with no drop in flowing pressure or rate.

Former Soviet republics continue to press efforts to export natural gas beyond the C.I.S. Turkmenistan is considering five alternative pipeline projects to transport its gas to Europe, according to Moscow press reports.

Included are possible routes across the Caspian Sea, Iran, or the Carpathian Mountains at costs of $4-6 billion. Turkmenistan's share of C.I.S. gas exports to Europe via Russia's big inch lines is 417 bcf/year, a volume Turkmen officials contend could easily double. Meantime, Turkmenistan and China are discussing the possibility of a gas pipeline via Afghanistan to supply China with Turkmen gas.

Russia and South Korea have signed a protocol for a joint venture to study feasibility of developing gas reserves in Russia's Sakha (Yakutia) republic. The Yakut government and South Korea's Daewoo would participate in the study, to focus on development of fields along the Vilyui River in eastern Siberia and assess bids for a pipeline running southeast through North Korea.

Russian President Boris Yeltsin, during a recent visit to Seoul, emphasized importance of the pipeline project. North Korea has again officially assured it would approve the project, Yeltsin advisors told Seoul newspapers. Yeltsin discussed 23 large projects that could be undertaken in Russia with South Korean aid at a total cost of $20-30 billion. They include a refining/petrochemical complex in the Russian Far East based on oil and gas from Offshore Sakhalin Island and Khabarovsk Territory.