OGJ NEWSLETTER

There's been a lot of fretting about softening oil prices recently (OGJ, Aug. 2, p. 32), but Kidder Peabody thinks markets could be very tight late this year if Iraq does not reenter the market. Even if OPEC produces 25.5 million b/d in the fourth quarter, after cutting flow from about 24.3 million b/d now, stock draws could total a steep 1.1 million b/d by then, implying a 3 day drop in inventories from last year's level. Says the analyst, "These are nearly tectonic shifts in oil supplies."

It's still a buyer's market for U.S. oil and gas reserves, according to a survey of first quarter transactions among U.S. companies by Strevig & Associates Inc., Houston. U.S. reserve values fell to a median $3.92/bbl of oil equivalent (BOE) in the second quarter from $4.14 in the first quarter, only the second time in 9 years the median value has dropped below $4/BOE.

Total value of transactions was $716 million in the quarter vs. $518 million in the first quarter. Natural gas accounted for 50% of the deals and more than 59% of the reserves for a median price of 70/Mcf, up 2 on the quarter. Ratio of reserve values to wellhead prices remains below the historical average of about 30%, but buyers are frustrated about the quantity and quality of reserves, Strevig says. Second quarter action suggests majors are wrapping up rationalization programs, with remaining packages likely to go to auction.

Shell has pulled its Huntington Beach field properties off the market after looking at offers. Put up for sale late last year, the properties produce about 7,000 b/d. Shell is taking a longer look at expanding waterflooding and other options to boost recovery from the 1 billion bbl-plus, 73 year old field. When put up for sale, the properties held proved producing reserves of 28.7 million bbl of oil and 13.2 bcf of gas. Proved undeveloped reserves were pegged at 31 million bbl and 6 bcf. Under consideration are thermal and CO2 EOR, with estimated incremental recovery of 30 million bbl and 56 million bbl, respectively.

Mobil and Ohio State University will study how zeolite catalysts form in outer space under a 3 year NASA grant. Until their project orbits on a space shuttle sometime after 1996, Mobil scientist Charlie Kresge and OSU Prof. Prabir Dutta will conduct terrestrial experiments on enhancing capability to design catalysts for specific applications.

U.S. petroleum companies rank Viet Nam near the top of their prospective Asian investments, according to a survey by East-West Center (EWC), Honolulu. In terms of total foreign investment, Viet Nam ranked fourth after China, Indonesia, and Thailand in the survey of 34 firms. Although non-U.S. companies are firmly entrenched in Vietnamese oil and gas, holding more than 90% of the most promising offshore acreage, there is a bright spot for U.S. firms, says EWC's Charles Johnson. He cites Hanoi's repeated interest in U.S. industry participation in its oil and gas sector because of U.S. companies' access to capital and technology needed to explore and develop deepwater potential far from shore. Another factor is desirability of having a U.S. major operating in Vietnamese waters near the disputed border with China in the South China Sea. Hanoi feels this would reduce risks of overt Chinese action against Vietnamese E&D activity in the area, Johnson says.

China continues to expand its international efforts at participating in foreign joint ventures. State owned China National Petroleum Corp. (CNPC) signed an accord with Marubeni Corp. to cooperate in the oil business throughout Asia, reports Tokyo daily Nihon Keizai Shimbun. Involved are possible E&P, refining, and oil and gas marketing deals in Southeast and Central Asia and the Middle East. CNPC will provide engineers, material, and equipment and Marubeni funds and commercial development. In a first step, the two will help Uzbekistan build a 100,000 b/d refinery by 1996. In June, CNPC and China National Packaging Import & Export Corp. agreed to a venture with Itochu Corp. to process plastic resins.

Taiwan will allow state owned Chinese Petroleum Corp. to enter into ventures with mainland Chinese firms. Initially, such cooperation will be limited to offshore E&D in 50-50 deals. To comply with Taipei's policy of no official contact with China, CPC must limit such ventures to privatized Chinese subsidiaries.

China's efforts to include Taiwan in development of Pinghu gas field in the East China Sea have been rebuffed, however. Taiwan's state owned Chinese Petroleum Corp. wrote Texaco, claiming Taiwanese jurisdiction over Pinghu, which Texaco plans to jointly develop with China's Shang-hai Oil Co. in a $400 million project. Taipei also plans to protest the project to Beijing.

Petrocorp. is negotiating with three undisclosed foreign partners to step up oil and gas exploration off New Zealand. Plans call for spending more than $100 million on offshore E&D in the next 3-5 years, with an emphasis on the Taranaki basin. Petrocorp expects an agreement by yearend and 5-10 wells at a cost of about $10 million/well.

Marathon continues to be optimistic about its Sakhalin Island project, in which it has a 30% share, says USX Chairman Charles Corry. But he wouldn't want the stake any larger. Originally, Marathon had a one third share in the project. Last negotiating session on the project was in April, according to Ray Clements, Marathon vice-president of Russian E&P operations. A new Russian negotiating team is being formed now, and Clements expects negotiations to resume soon on the $10 billion project. About $8090 million has been spent to date during 3 years of negotiating. First oil would be produced 6 years after an agreement, first LNG in 7 years. Reserves are estimated at 750 million bbl of oil and 12 tcf of gas.

The Chevron-Kazakh joint venture developing Tengiz supergiant oil field in the Caspian Sea off Kazakhstan let a 3 year contract to Bechtel to assist it in infrastructure development. The contract - value undisclosed - involves construction of offices, housing, roads, and power generators.

Azerbaijan's refining crisis is deepening as reduced crude deliveries from Russia and Kazakhstan add to woes created by the continuing fall in Azeri oil production. Russia and Kazakhstan each delivered only about 5.1 million bbl in first half 1993 vs. 21.9 million bbl and 15.3 million bbl, respectively, the same time last year.

Azeri refinery utilization fell to 30% the first 4 months of 1.993, and diesel fuel output by Baku area plants plunged by 30% in the first half.

Alberta has ended a 1 year royalty holiday on completion of oil development wells. The program had been extended several times. It had been scheduled to end June 30 but was extended to July 31 because wet weather prevented some well starts. To the end of July, the program had provided royalty breaks worth as much as $400,000/well to more than 1,900 oil wells. Canadian Association of Petroleum Producers Pres. Gerry Protti said the Alberta government is now open to looking at industry conditions and other jurisdictions in oil and gas in setting royalty levels.

South Africa's Mossgas synthetic fuel plant is unlikely to produce great returns and its life expectancy has been overestimated, according to a report commissioned by Henry Kluever, the government's auditor general.

The plant takes gas and condensate from a number of offshore fields in the Bredasdorp basin, about 100 km south of the coastal town of Mossel Bay, for conversion to diesel fuel and gasoline (OGJ, June 7, p. 27). After discounting the project's $2.4 billion historical cost as a sunk cost, the best outlook was for Mossgas to be cash positive from 1994 until 2000, when further capital outlay is required, reports London's Financial Times. Less than 2 years ago Mossgas' life expectancy was put at 25 years. The report estimated available gas reserves implied a lifespan of only 10-14 years.

The privatization of Elf has begun with the replacement of Pres. Loik Le Floch-Prigent with Philippe Jaffre, general manager of Credit Agricole bank, to pilot the privatization process. Le Floch-Prigent was appointed president of Gaz de France, replacing Francis Guttmann, who is expected to be appointed president of Institut Francais du Petrole.

A group studying feasibility of a 290 million ($440 million) pipeline to export gas from U.K. to continental Europe says projected demand indicated by potential users is greater than the line's initial planned capacity of 530 bcf/year. Study manager Arthur D. Little suspects some duplication in estimates, however. Preliminary engineering design is to begin Oct. 1, and a tariff would be set by the end of September. The 36 in. line would link Bacton, U.K., and Zeebrugge, Belgium (OGJ, May 31, Newsletter).