OGJ NEWSLETTER

Political controversies swirl around embryonic privatization moves around the world.

Oil is at the eye of a political storm in Brazil just as that nation takes early steps to privatize its petroleum sector. Press charges of corruption involving cabinet ministers have led President Collor de Mello to ask six ministers to resign, including Infrastructure Minister Joao Santana, charged with oversight of energy and other sectors. One close aide to Collor, Secretary for Strategic Affairs Pedro Paulo de Leoni, was accused of corruption and influence peddling at Petrobras. Conservative newspaper O Estado de Sao Paulo alleged Leoni participated in improper sales of oil products to the detriment of Petrobras. The state oil company set up a special commission to investigate charges of irregularity among Petrobras employees allegedly involved in the multimillion dollar deals. A positive note: Collor kept Economy Minister Marcilio Moreira Marques, whose championing of privatization and increased foreign investment in Brazil put him at odds with Santana.

Pdvsa has a new president. Venezuelan President Carlos Andres Perez late last month named Gustavo Roosen to head the state oil company a few hours after Andres Sosa Pietri resigned with a blast of criticism of government oil policies. Sosa, who presided over 2 years of Pdvsa expansion and strong profits, often clashed on oil policy with former Minister of Energy and Mines Celestino Armas, replaced last month by Alirio Parra. Roosen, a respected businessman from outside the oil industry, is expected to have a smoother relationship with Parra as they keep Pdvsa expansion and efforts to attract foreign investment to the petroleum sector on track.

Pemex E&D investment may be flagging at home (see related story, p. 21), but not in other countries. Pemex agreed to spend $55 million during 4 years for E&D in Argentina's El Porton and Punta Ranquil areas, part of Argentina's aggressive petroleum privatization plan. Mexico refuses to open its upstream oil and gas sector to foreign ownership.

Russian Federation cohesiveness is under severe strains, scrambling the outlook for petroleum joint ventures. Late last month oil rich Tatarstan, one of more than 30 increasingly restive ethnic enclaves in Russia, voted more than 60% for greater independence from Moscow. President Yeltsin denounced the referendum, and Russian courts ruled it invalid.

Tatarstan, once the U.S.S.R.'s top producer until surpassed by Tyumen province in the early 1970s, now produces about 560,000 b/d, down from 640,000 b/d in 1991. Total, one of several foreign firms active in Tatarstan, is trying to revive flagging output in supergiant Romashkino field (see story, p. 44).

Other Russian enclaves that are key petroleum centers and seeking more autonomy from Moscow are Tyumen's Yamalo-Nenets district, Bashkir, Komi, and eastern Siberia.

Overseas Private Investment Corp. soon will sign a bilateral agreement with the Russian government enabling OPIC to issue financial and political risk insurance for U.S. projects there.

OPIC says 300 U.S. companies have registered projects totaling $3.5 billion they have proposed for insurance coverage. A breakout on the types of projects involved was not immediately available.

Azerbaijan's new law on protecting foreign investment is seen as the most attractive one adopted to date in the C.I.S.

Azerbaijan, aggressively courting foreign investment in its Caspian Sea oil and gas fields and huge petroleum equipment industry, is one of only four C.I.S. states that are self-sufficient in oil. Leading Azeri government officials say the new legislation guarantees any future laws detrimental to foreign investment won't affect existing enterprises for 10 years.

Iran's Muslim fundamentalists may have control over developing relations to attract foreign investment and promote oil industry modernization in Azerbaijan and other mainly Islamic Muslim republics in the central Asia area of the C.I.S., says Izvestia. That would come from a compromise between moderate and reactionary forces that also would allow "pragmatist-technocrat" forces to dominate in pursuing the same agenda with Europe and Japan, says the Moscow newspaper.

The latest strike in the western Bohai Sea off China is a big one.

State owned Bohai Petroleum Corp. said its Qikou 18-1-1, about 31 km off Tianjin, has a "production capacity" of 10,215 b/d of oil and 8.19 MMcfd of gas. The well cut five oil and gas zones en route to 3,600 m TD. BPC cites use of advanced foreign technology and drilling equipment.

Oil markets have reacted nervously to the U.N. imposition of sanctions against Libya over its refusal to turn over suspected terrorists.

Brent near term crude rose 350 on the day to $18.30/bbl Apr. 2. Expectations of sanctions helped buoy Nymex crude, up 620 on the week at $19.84/bbl for May delivery Apr. 1.

Oil isn't on the embargo list, but traders noted remarks from Libya's Gaddafi in an Italian magazine that any country participating in the embargo against Libya won't be allowed to import Libyan oil.

Many of the foreign oil companies working in Libya anticipated the sanctions and withdrew families of staff throughout March. Companies with interests in Libya include Wintershall, Deminex, Veba Oil, Elf, Petrofina, OMV, Lasmo, and International Petroleum Corp. Agip, with the biggest stake in the country as operator of Bourri, Libya's only offshore oil field, says the situation is very delicate. The U.S. Treasury Office of Foreign Assets Control reportedly has issued warnings to about 80 Americans in the oil business known to be working in Libya or traveling to the country regularly.

While markets are skeptical Libya will cut the flow of its major source of foreign exchange, the report added to market queasiness started by inconclusive talks between U.N. and Iraqi officials over Iraq resuming oil exports. The talks have progressed on mechanics of selling crude and products on the international market but not on how food and medical supplies purchased with oil revenues should be distributed in Iraq. Several more rounds of talks may be needed before either side is ready to seek approval from Baghdad and the U.N. Security Council for final proposals (see Watching the World, p. 34). The U.N. side has tentatively agreed that once exports begin the Mina al-Bakr terminal in the Persian Gulf can be used in addition to the pipeline to the Mediterranean through Turkey. It also agreed to allow exclusion of costs of production and imported spare parts for damaged oil field equipment from the $1.6 billion worth of crude oil Iraq will be allowed at first to export to raise revenue for humanitarian purposes. Biggest sticking point is Iraq's insistence Baghdad should be in charge of identifying types of humanitarian purchases and distributing them, which the U.N. opposes.

Japanese officials are studying plans for a trans-Asian gas pipeline network stretching from Russia and Japan to Indonesia and Australia, OPEC News Agency reports. The system would take about 20 years to construct. A $25 billion first phase would include a 3,300 km pipeline linking Sakhalin Island with Japanese islands of Hokkaido, Honshu, and Kyushu. Second phase would include extending the network south to the Korean peninsula and China via Yakutsk-Harbin-Beijing. The pipeline could be extended farther to Shanghai, Hong Kong, Bangkok, Singapore, Jakarta, and Northwest Australia.

Alberta plans to scrap a ban on burning natural gas to generate electricity, says Energy Minister Rick Orman.

He says the change will trim power prices for consumers while boosting gas prices, could produce new sales of $250 million/year for gas producers, and jump cogeneration gas demand to 80 bcf/year.

U.S. House energy committee leaders are threatening to legislate against producing states' moves to prorate natural gas production.

Reps. John Dingell (D-Mich.), Phil Sharp (D-Ind.), and Norman Lent (R-N.Y.) said prorationing is "an OPEC style price support plan" designed to decrease natural gas output, not protect production. "Statewide prorationing is unwise, anticompetitive, anticonsumer, and will jeopardize our nation's economic recovery. After years of debate on the merits of price controls on natural gas, it would be ironic if downward federal price controls are replaced with upward state price controls." Rep. Mike Synar (D-Okla.) defended prorationing and said it was a coincidence the new Oklahoma law comes at a time of record low prices. "It is not intended to curtail supplies to any degree that would interfere with market prices."

More big job cuts loom for U.S. oil companies. BP Alaska will slash its workforce of almost 1,600 by more than 400 by yearend 1994, with a cut of 170 this year. Focus will be on voluntary severance packages, retirements, and transfers. In addition, many remaining employees face cuts in pay and service. BP is looking at other belt-tightening measures to help it compete in a climate of declining North Slope production.