OGJ NEWSLETTER

Even an attempted ouster of Russian President Boris Yeltsin last week, in response to his dissolution of Russia's parliament, barely fazed markets glutted with OPEC oil. Crude prices jumped 420/bbl Sept. 21 to $18.12/bbl, the highest level since late last month, then dropped back to $17.59/bbl Sept. 22.

Sept. 27, 1993

8 min read

But is $10/bbl oil around the corner? Not likely, says Kidder, Peabody. "As we have seen time and time again, OPEC's leaders function best--indeed, they function only--when the price wolf is at their door," the analyst notes. OPEC was to meet starting Sept. 25 in Geneva, with Venezuela Oil Minister Alirio Parra calling for a "credible" agreement this time. Kidder, Peabody's production strategy for success calls for raising the OPEC production ceiling to 24.5 million b/d from the currently discredited 23.6 million b/d and assigning Kuwait a quota that it can live with, about 2.2 million b/d, in return for its endorsement of the quota system. The analyst pegs current OPEC production at 24.7 million b/d but notes world oil demand is rising seasonally and cyclically thus a credible fourth quarter OPEC agreement should not be impossible to achieve.

Weak oil prices may steal some steam from rosy conditions in the U.S. natural gas industry. Fuel switching is likely to lead to weakening natural gas demand, rising natural gas storage, and increased pressure on natural gas prices, Salomon Bros. predicts. Low cost fuel oil is already stealing some natural gas customers, and if crude prices remain near current levels, the analyst notes, low sulfur fuel oil and therefore natural gas prices could fail to increase seasonally. The analyst says low storage levels and a strong storage refill season boosted natural gas prices all spring and summer, with storage already recovered to near the below average levels of a year ago. With impending reduced demand for natural gas the next several months, storage could continue to rise, limiting the winter price increase.

EIA reports U.S. natural gas reserve replacement declined again in 1992. Statistics from EIA's report show yearend 1992 U.S. gas reserves were down 1.2% to 165 tcf vs. 1991 when reserves declined 1.3%. U.S. gas reserve life index fell to a 25 year low of 9.5 years in 1992 vs. 9.7 years in 1991, total reserve additions accounted for 88% of production vs. 87% in 1991, and total discoveries were only 40% of production compared with 44% in 1991 and a 15 year average of 71%. Paine Webber says abysmal reserve replacement coupled with uncharacteristically high prices gives credence to its position that natural gas deliverability is less than originally perceived.

Payroll cuts and other downsizing measures have produced an average 20% gain in productivity and revenues for many companies in the Canadian oil industry, an energy analyst says. A survey by Ziff Energy Group, Calgary, reports a 20% increase in production and revenues per head office employee based on data from 42 companies that produce more than 50% of Canada's oil and natural gas. Head office costs for producers declined 16% in 1992 to average $2.10/bbl (Canadian) oil equivalent (BOE). The report says medium sized independents averaged less than $2/BOE for head office costs, large independents $2.15/BOE, and majors $2.25/BOE. The survey says head office staff in Calgary is down an average 21% since 1991.

Meanwhile, an industry survey by Nickle's Oil and Gas Statistics Quarterly, Calgary, reports Canadian company profits up substantially in first half 1993 vs. the same period in 1992. A total of 79 companies reported first half profits of $714 million compared with losses of $275 million in first half 1992. The report pegs improvement on increased production and higher oil and natural gas prices. Companies reported crude production up an average 38,000 b/d to 1.53 million b/d in first half this year and gas production up 12% to 9.95 bcf. Crude prices averaged $18.78/bbl (Canadian) the first six months vs. $17.64/bbl for the same period in 1992. Average gas prices climbed 27% to $1.61/Mcf from $1.26 in first half 1992.

Support is increasing for a proposed settlement to a long standing dispute between Alberta natural gas producers and California buyers. The Canadian Association of Petroleum Producers (CAPP) supports the deal and has asked the National Energy Board to approve it. The agreement between an Alberta supply pool and Pacific Gas & Electric offers producers cash settlements in return for dropping long term supply contracts. Gas sales of as much as $1 billion/year (Canadian) are involved. Daniel Fessler, president of the California Public Utilities Commission, agrees the settlement is encouraging. During the dispute, NEB put controls on gas exports to California on a request from CAPP. Producers and PG&E are now negotiating contracts to be in place Nov. 1, start of the heating season and start-up of a 75% capacity addition to PG&E's Alberta-California pipeline system.

Only sketchy details are available on a rare hydrocarbon discovery in Paraguay. Local firm Primo Cano Martinez reportedly drilled the gas discovery, capable of producing 2 MMcfd, in the northwestern Chaco region near the Bolivian border. Paraguay imports all its hydrocarbon needs.

Nigeria President Ernest Shonekan dissolved the boards of Nigerian National Petroleum and its subsidiaries Sept. 13 in a move to oust nonexecutive directors appointed by ex-President Ibrahim Babangida. NNPC is said to owe about $450 million to exploration and production joint venture companies. The company reportedly sold a stake in its largest oil field to Ste. Nationale Elf Aquitaine in July for about $500 million. In April Nigeria LNG Ltd. called for fresh bids to build an LNG export plant at Bonny Island, after cash shortages halted the planned contract award and board changes led to a change of mind over plant technology (OGJ, Apr. 19, p. 36).

Austria's oil giant OMV will cut 1,600 jobs in the wake of an expected $392 million loss this year. Of the cuts, 650 will be made from OMV's chemicals unit and 400 from the refining sector. OMV has lost 20% of its personnel in the last 2 years. General Manager Richard Schenz says OMV plans to restructure, separating its refining and distribution sectors.

Njord field at the south end of Haltenbanken off central Norway could begin oil production in 1997 under a revised plan to be prepared by operator Norsk Hydro. The project to develop reserves of 150 million bbl of oil and 350 bcf of gas was shelved in 1991 due to high costs. A Hydro spokesman says the company plans to declare the field commercial in mid-1994 and submit a development plan to the government by yearend 1994.

Indonesia will resume talks with Exxon over development of Natuna gas field in the South China Sea. Pertamina Pres. Faisal Abda'oe says a meeting is to be held with Exxon early next month. Pertamina last July called off talks on the project with Exxon over concerns about profit sharing taxes and legal items. Exxon asked to resume talks in August (OGJ, Aug. 23, Newsletter). Natuna reserves are pegged at 21 tcf.

Amoco is among winners of rights to develop reserves in the Khanty Mansiisk area of western Siberia (see story p. 33). Amoco will develop Priobskoye oil and gas field, the largest of the fields put up for bidding. Interfax News Agency reports Amoco and Russian partners Yugraneft and Yugranskneftegaz will spend $183 million on the project and expect to produce 2.5 billion bbl of crude the next 20 years. The venture agreed to pay a $60 million bonus to the region for drilling rights, as well as a 10% royalty on profits the first 20 years and 14% thereafter.

Russian joint venture Polar Lights has secured $200 million in loans to fund development of Ardalin oil field in the Timan-Pechora region. European Bank for Reconstruction & Development is to provide $90 million, while International Financing Corp. and Overseas Private Investment Corp. agreed to provide $60 million and $50 million, respectively (OGJ, May 31, Newsletter). Total project cost is estimated at $350 million. EBRD says the project includes drilling 24 wells, building central production facilities, and laying a 40 mile pipeline. Half the pipeline work is reportedly complete. Production is to peak at 26,000 b/d of oil, while project life is estimated at 20 years. Polar Lights is a 50-50 joint venture of Conoco and state owned GP Arkhangelskgeologia. EBRD says joint venture staff will total 200.

Meantime, Russia continues its efforts to find a balance between declining production and increasing exports. Late last month the external economic relations and energy ministries cut to 10 the number of companies licensed to export crude and oil products (OGJ, Sept. 6, p. 36). Early this month OPEC News Agency (Opecna) reported spokesmen for the ministries said in addition to the 10 main exporters, 28 firms would have restricted authorization to import and export crude, while 670 companies would have restricted licenses to import and export petroleum products. Opecna reports domestic demand is falling faster than production, fueling the increase in exports. The European Community is concerned marketing chaos and corruption in Russia could jeopardize its supply security, Opecna reports.