OGJ NEWSLETTER

Prorationing changes: relief for U. S. gas producers or the heavy hand of government skewing markets? Texas will provide the litmus test.

Producers are divided over Texas Railroad Commission's. proposed changes in gas proration rules to better balance production allowables with market requirements. If approved, the new system would end 20 years of debate over plans to revise Texas gas production rules. Rule 29, to be published in the Jan. 17 Texas Register, would end assignment of gas allowables on the basis of monthly purchaser nominations. Instead, TRC staff would use commission data to base monthly allowables on production the preceding 12 months. TRC also proposes eliminating alphabet allowables, formulas it uses to fine tune output from chronic under or overproducers. The rules could take effect on an interim basis Mar. 1 and permanently Sept. 11.

Union Pacific Resources Co. says the new rules will penalize producers seeking to develop new gas supplies in Texas and hurt state service/supply industry by shifting allowables from companies that have developed markets and are willing to sell gas at market prices to producers who have withheld gas to get a premium or whose wells may be incapable of meeting demand. UPRC also contends the changes will spur an influx of cheap imports from other states and Canada.

Texas Independent Producers & Royalty Owners Association hailed the move, which it urged TRC to undertake last year (OGJ, Sept. 2, 1991, p. 45). Tipro says it's the most significant step yet to restore balance and equity to proration rules and end waste it pegs at $3 billion/year.

In another gas arena where government involvement has affected drilling, more coal seam gas is due to be developed in the Arkoma basin of eastern Oklahoma and western Arkansas. Aztec Energy, Dallas, plans to drill at least 60 Arkoma coal seam wells with $10 million in Section 29 tax credit royalty program funds. Reserves are pegged at 16 bcf.

There's little market news to cheer about. Oil futures prices have fallen to their lowest level since the weeks before Iraq's invasion of Kuwait (see story, p. 14). After a brief rally at the new year's outset, crude prices took another tumble as markets reacted to the prospect of Iraqi crude exports resuming. North Sea Brent blend fell $1.10 on the week to $17.05/bbl Jan. 9 as Iraqi officials met U.N. officials to discuss terms for resuming exports. Nymex crude fell $1.25 on the week to $17.87/bbl Jan. 8, the first time it's been below $18 since Operation Desert Storm was in full force and the lowest closing since July 11, 1990.

Smith Barney cut its 1992 WTI price forecast $2 to $19/bbl, saying current market psychology is ahead of market fundamentals.

Salomon Bros. trimmed its 1992 gas price forecast 20 cts. to $1.50/Mcf, noting that despite near normal weather in most of the U.S., January spot prices have averaged about 40 cts. below expectations of $2/Mcf.

Salomon Bros. also estimates world E&P outlays will rise only 1.3% to $53.7 billion in 1992. Outside North America, firms surveyed will hike E&P budgets 9.1%, hut outlays will fall 10.7% in the U.S. and 4.9% in Canada.

In the U.S., majors will pare budgets 12.7% and independents 4.2%.

U.S. refiners soon will get a better handle on new environmental and safety rules and what they will cost.

EPA soon will issue a proposed rule detailing specs for reformulated gasoline. It also will outline programs for certifying reformulated gasoline, credits for exceeding certain requirements, and enforcement.

National Petroleum Council has chosen Bechtel to help estimate U.S. refining industry costs for meeting present and future EPA and OSHA rules as part of an NPC survey. Bechtel and NPC will review data from an SRI International survey. A report is planned in early 1993.

Are more job cuts in store in Mexico's petroleum industry as Pemex continues to reorganize? New Mexican Oil Workers Union Sec. Gen. Sebastian Guzman Cabrera warns union membership could fall to 50,000 as Pemex strives for greater efficiencies. Since February 1989 union membership has fallen to 85,000 from 160,000.

South Korea's petrochemical companies are seeking joint ventures with North Korea as a result of last month's inter-Korean trade agreement.

South Korean olefins producers are conducting feasibility studies of plans to build downstream units in North Korea for which they would supply surplus feedstock. One proposal calls for high density and low density polyethylene plants in North Korea. South Korea produces 993,000 tons/year of HDPE and 663,000 tons/year of LDPE, almost double its current demand.

Marketing operations of Taiwan's Chinese Petroleum Corp. will be privatized, Taiwan newspapers have quoted an official of the state Commission of National Corporations as saying. The Ministry of Economic Affairs plans to privatize all service stations within 2 years, the official reportedly said.

Officials of CPC, which markets through more than 560 retail outlets, say it's news to them.

Indonesia will sign at least 15 production sharing contracts in 1992, Pertamina predicts, vs. 22 signed in 1991 that entail commitments totaling about $3.8 billion (OGJ, Dec. 30, 1991, p. 34) and 19 PSCs in 1990.

The Vietnamese-Soviet joint venture developing Offshore Viet Nam oil fields has agreed to seek a partner to develop Dai Hung oil field off southern Viet Nam. Vietsovpetro, which operates Viet Nam's only commercial oil field, White Tiger, has run into financial problems with the breakup of the U.S.S.R. About 10 foreign companies have submitted bids for E&D in the area 250 km off Vung Tay.

The scramble for business deals with former Soviet republics continues apace. DOE easily filled 100 spots at an oil industry conference it's sponsoring at Tyumen in western Siberia Jan. 27-30. The conference features meetings with local industry officials followed by 2 day field trips into nearby oil fields (OGJ, Oct. 29, 1991, Newsletter).

Russia and the local Sakhalin Island government have formed a new committee to award contracts to develop oil and gas off Sakhalin.

It replaces a tripartite committee embroiled in conflict among Russians, Sakhalin authorities, and Moscow that caused a 4 month delay in awarding development contracts. Nihon Keizai Shimbun reports the new committee will have 15 Russian and five Sakhalin members.

Huffaz Group, Karachi, has signed a joint venture deal with Azerbaijan's Daniz Association for E&D in Pakistan. Initial capital will be 10 million rupees, of which Daniz will provide 60% and Bahrain an undisclosed sum. The joint venture company will begin drilling operations in Sindh, Baluchistan, and Punjab this year. Daniz had explored in Pakistan in the 1960s and 1970s in a venture with state owned OGDC.

Moldova reportedly has asked Romania to assist it with oil and gas E&D and to pursue a processing deal involving about 73,000 b/d of Russian crude. Moldova was once part of Romania.

Turkmenistan has issued some changes in competitive bidding for oil and gas development and production rights in fields in the Apsheron trend of the Caspian Sea. Deadline now is Mar. 31 and minimum bid $50 million. And Turkmenistan plans a second bidding round for remaining onshore acreage in Amu-Daria and South Caspian basins, with a Mar. 31 deadline.

Energy woes plague former Soviet republics and satellites.

Coal shortages threaten to shut down Russian power plants that have dipped into reserves. Radio Russia reports Tyumen oil officials estimate Siberian output will fall further in 1992 after dropping 1 million b/d to 6.1 million b/d in 1991. Citing shortfalls of Russian oil supplies, Ukrainian radio reports Ukraine agreed to exchange scrap metal and machinery for Kuwaiti oil. Tass reports the Estonian capital of Tallinn early last week had only 10 days' supply of fuel oil and cut average temperature in homes to 57-61. Russian deliveries to Estonia are expected to fall to 70% of 1991 levels.

Latvia's buses are operating a minimal service, and its state airline suspended flights to and from Moscow because of fuel shortages, Latvian radio reports. Latvia wants title to 4-6% of Russian oil exported through the key port of Ventspils and has asked Russia to pay in refined products for food supplied to Russian troops stationed in the Baltic republic.

State authorities report Mongolia at the start of the year had only 2 weeks' supply of gasoline and diesel fuel, and the government has imposed 1 gal/week rationing for private vehicles. Imports of Russian products in 1991 fell to 75% of contract volumes. Iran has agreed to supply Bulgaria about 3.5 million bbl of crude under a loan arrangement to offset a Russian supply shortfall if Bulgaria can find a third party to secure the loan.