OGJ NEWSLETTER

The plummeting U.S. dollar has become a factor in world oil markets and petroleum company financial results.

The U.S. dollar, which generally has lost value against most major currencies since the mid-1980s, came under intense pressure in late August, reports Kidder Peabody. The analyst notes the big spread in European vs. U.S. interest rates combined with President Bush's campaign pledge to cut taxes seems to have precipitated the recent drubbing the dollar has taken in foreign exchange markets.

Big winners with a falling dollar are major oil buyers such as Germany and Switzerland, which have taken advantage of the sudden bargain in oil by moving into the futures market this summer to stock up on cheap oil for the winter.

Oil sold for cheap dollars generally is helping financial performance of majors with a heavy non-U.S. downstream presence.

Kidder Peabody notes majors' non-U.S. products marketing operations are doing well in local currency terms because of the decline in the local currency cost of their most important raw material.

OPEC's purchasing power in petrodollars has plunged as the U.S. dollar fell to historic lows against other major currencies.

Shearson Lehman said, "As far as OPEC's concerned, they've maintained the same production since their May meeting, and the dollar's down about 10%. Oil prices are only marginally higher. They must be sick."

In the past, OPEC hiked prices to compensate for a weaker dollar.

But most analysts contend current market fundamentals--ample supplies and weak demand--won't support an oil price hike anytime soon.

And the Saudis, still at the OPEC helm, don't want to encourage the group's price hawks in a sluggish world economy.

Shearson Lehman predicts that if the dollar remains weak, OPEC might try to price crude in a basket of European currencies to hedge against big swings in currency exchange rates. But that hasn't worked in the past and isn't likely to now, the analyst contends.

There are more signs of encouragement in the U.S. upstream.

PaineWebber has boosted its 1992 gas price forecast again, by 15% to an average $1.55/Mcf, compared with $1.42/Mcf seen in 1991.

It said, "As gas prices sank to near historic season lows in February-March, it was unthinkable to project an up year for 1992."

Now the analyst thinks its most recent forecast could he topped as well, given strong gas demand and futures market quotes. For 1993, PaineWebber predicts $1.65/Mcf, up 10% from its earlier estimate. And that bodes well for U.S. independent producers whose reserves and production portfolios are dominated by natural gas. PaineWebber hiked its estimates of cash flow by 15% in 1992 and 8.4% in 1993 for a group of independents it tracks.

Meantime, Baker Hughes' U.S. active rig tally jumped 38 units the week ended Sept. 4 to 706 active rigs, split about evenly between oil and gas.

Oklahoma added 13 rigs and Texas 11.

However, signs of retrenchment still abound.

Atwood Oceanics will write down certain drilling rigs and equip-by about $17 million in its fiscal fourth quarter ending Sept. 30. About $10.5 million of that is attributable to the Richmond submersible drilling rig, the company's only rig remaining in the Gulf of Mexico. Atwood said although the rig is in excellent technical and operating condition, it has not found profitable contract work in more than a year. The writedown is expected to result in an $11.2 million after tax loss for the company in fiscal 1992.

Sun plans to explore options for its coal and cokemaking assets, managed by Sun Coal Co., which include an estimated 720 million tons of proved and probable high quality coal reserves at mines in Kentucky, southwestern Virginia, Utah, and Wyoming. During first half 1992 Sun Coal produced about 12 million tons of coal and 320,000 tons of coke and posted earnings of $13 million against revenues of $184 million.

Ottawa has implemented legislation, deemed among the world's most stringent, to improve safety of Offshore Canada petroleum operations. The amended Oil & Gas Corporations Act is a response to the 1982 Ocean Ranger tragedy. It covers 138 recommendations, many implemented by earlier agreements. They include:

Operators must obtain a fitness certificate from an approved independent body prior to approvals for oil and gas operations.
An oil and gas administration advisory council will be set up to promote consistency and improvements in administration of regulations. An installation manager, trained and experienced in marine and industrial operations, will be in charge of each facility at all times.
An offshore oil and gas training standards advisory board will encourage development of uniform requirements for training, qualifications, accreditation, and course assessments.

Venezuela's Corpoven keeps racking up the big strikes in the light crude prone area of northern Monagas state (see related story, p. 35).

Its SBC-10E wildcat flowed a combined 22,000 b/d of 27-29 gravity crude and 11 MMcfd of gas from four zones at undisclosed depths. Total depth is 17,150 ft. Corpoven's preliminary estimate of reserves for the find is 300 million bbl of oil and 400 bcf of gas. The discovery also extends the El Furrial-Musipan-Carito-El Tejero play to the south. If preliminary estimates are borne out, the discovery would raise Corpoven's proved/probable/possible reserves in northern Monagas to about 4.1 billion bbl.

Brazil will import 280 MMcfd of gas from Bolivia beginning in 1995 under a supply agreement signed last month (OGJ, May 11, p. 30). The gas will move via a $1.89 billion, 3,400 km pipeline from Bolivia to Campinas in Sao Paulo state, including trunk lines to Belo Horizonte, Minas Gerais state, and Curitiba, Parana state. Brazil hopes to boost the natural gas share of its energy mix to 10% by 2000 from the current 2%.

Norwegian Energy Minister Finn Kristensen has emerged unscathed from a reshuffle of government ministers by Prime Minister Gro Harlem Brundtland. If anything, he gained. The Department for Oil and Energy is now larger, having been merged with Department for Industry.

This can be taken as tacit approval for Kristensen's plans to reduce state participation in Norwegian production licenses to be awarded next year in a bid to encourage long term gas developments.

The push to reduce gasoline consumption in Europe gathers steam.

France and Germany's environmental ministers agreed last month to submit to the European Commission their proposal to cut motor gasoline consumption to an average 5 1/100 km by 2005 from the current 7.05 1/100 km at an average speed of 90 k/hr. The two ministers also agreed all vehicle materials should be fully recyclable within the next 5 years.

Transforming the former Soviet oil industry continues to be rocky.

Russia's government has lost control of state owned oil exports, London's Financial Times quotes Alexander Shokhin, deputy prime minister for foreign economic relations, as saying. Moscow urgently needs to regain that power to meet obligations to foreign customers. Shokhin says Moscow wants to buy oil direct from producers to meet deliveries to customers within and outside the C.I.S. but is not receiving all it should under the present procurement system. Some deliveries intended for Moscow were diverted to meet fuel shortages in northern Russia and for harvest.

C.I.S. republics are finding it difficult to break up the former centralized Soviet oil industry, with even the sectors in the richest republics still heavily interdependent, says East-West Center.

The center contends the gradual shift to a market economy ultimately could mean the C.I.S. will have to begin importing about 200,000 b/d of oil by 1994 to meet projected demand of 8.2 million b/d.

Japan has rebuffed Russia's request for additional economic aid to bolster its beleaguered oil and gas industry.

President Yeltsin last week called off his planned Sept. 13-16 visit to Japan after talks in Tokyo broke down over Russian efforts to secure another $1.5-2 billion from Japan on top of the $2.65 billion in low interest credits and export insurance Japan pledged earlier (OGJ, Sept. 7, Newsletter). A sticking point remains the disputed Kuril Islands, seized by the Soviets in 1945.

The Spratly Islands tiff heats further. China and Viet Nam are stalemated over their territorial dispute in the South China Sea (OGJ, July 13, p. 20), with Beijing rejecting Hanoi's demand to remove two drilling vessels from the Gulf of Tonkin, both near a block Viet Nam awarded to Idemitsu. Hanoi earlier this month said the use of force "was not out of the question" and called on its navy to "take all appropriate measures" to ensure safety of Vietnamese vessels in the area, reports Agence France Presse. Taiwan also recently reasserted its claim to the area (OGJ, Sept. 7, Newsletter), claimed at least in part also by Philippines, Brunei, and Malaysia.

Taiwan's government has approved use of LPG as motor fuel, but only in purpose-built vehicles. Conversions of gasoline powered cars are banned. Major Taiwan automakers Ford Lio Ho and Yue Loong plan to produce the first LPG vehicles within a year, and Chinese Petroleum Corp. will provide LPG at selected outlets beginning in mid-1993. Rebuffing Economic Ministry claims that CPC will sell LPG at a reduced price as an incentive, CPC says even at current prices, the average cost, in U.S. currency, to fuel a car with LPG would be only 2.280/km vs. 5.740/km for gasoline.

Privatization continues to surge around the globe.

Petroleum Authority of Thailand has endorsed a plan to divest 30% of its upstream arm PTT Exploration & Production to the public to avoid a capital drain on the state owned parent. That involves issue of 90 million shares, each with a par value of 10 baht, to raise Pttep's registered capital to 3.1 billion baht from 2.2 billion baht. Forty million shares will be offered initially, with the balance later.

Pttep Pres. Viset Choopiban pegs his company's capital outlays at $352 million the next 5 years for its interests in six projects: Sirikit oil development and related gas processing plant at Kamphaeng Phet, Nam Phong onshore gas development at Khon Kaen, Unocal III gas development in the Gulf of Thailand, exploration on offshore Block B5/2, development of Bongkot gas field in the gulf, and oil exploration in Central Myanmar.