OGJ NEWSLETTER

There's a new buoyancy in Canada's upstream sector.

Canadian drilling activity is expected to jump by more than half this year from last year's depressed level. However, Canadian drilling contractors are still just breaking even. Canadian Association of Oilwell Drilling Contractors (Caodc) issued a revised estimate forecasting 7,400 wells drilled in western Canada this year, up 54% from the 4,776 drilled in 1992.

Caodc says 3,302 wells were drilled the first 5 months of 1993, the highest January-May total since 1988's 3,548 wells. Factors for the drilling surge include a royalty tax holiday in Alberta, confidence that oil prices will average $20/bbl, and higher natural gas prices. Gas demand for the upcoming winter heating season is expected to sustain strong drilling activity. Caodc says much of the new drilling is shallow development, but there won't be a surge in deep drilling in the Alberta foothills.

Caodc contends 8,000 wells are needed to hike utilization to 60% in the 428 rig fleet and thus enable contractors to make a profit. Drilling 7,400 wells will keep an average 210 rigs active, about 50% utilization.

A lease auction near a hotly rumored oil strike in Alberta's Kananaskis foothills has sparked high prices and strong industry interest.

Exploration rights were sold on 473,986 acres in an area south of Moose Mountain, where Husky Oil and Rigel Energy are reported to have made a major oil discovery. An initial test indicated a 230 ft oil column. Detailed testing cannot be done until October for environmental reasons. Rigel has attempted to dampen investor speculation about the discovery.

The government land sale raised $34.5 million (Canadian), biggest in 3 years. Husky unit Millport Hydrocarbons Inc., Calgary, topped bids with $8.2 million, or $2,476/acre, for a 32 section parcel about 6 miles south of the Rigel well. Exploration activity is opposed by environmental groups in the largely recreational area.

Northstar Energy reports a significant gas discovery in the Wolverine area of Alberta, 93 miles northeast of Peace River, where it plans to spend $40 million on additional drilling.

Northstar pegs potential reserves in the discovery area at 150 bcf, based on 13 wells drilled and tested and on extensive seismic data. Construction of a pipeline tie-in is scheduled this summer, and development drilling will continue this winter. Northstar expects to produce 35 MMcfd this winter and increase production to 45 MMcfd after additional drilling.

If rising prices spur development of Mexico's largely undeveloped gas reserves, Mexican gas could serve its northern industrial regions and be shipped north to compete in California with Canadian and U.S. suppliers, says Canadian Energy Research Insitute (CERI).

CERI has begun a year long, detailed study of the Mexican gas market. It says the North American Free Trade Agreement (Nafta) makes Mexico an important area but its market potential is largely unknown. In essence, the study looks at a continental gas market and how Mexico could affect it, the Calgary institute says. CERI has signed up six Canadian firms to sponsor the study and is now seeking U.S. participants in Houston.

A Washington, D.C., federal court judge may have derailed Nafta.

U.S. Dist. Judge Charles Richey ruled the Clinton administration could not submit Nafta to Congress until it prepares an environmental impact statement on the treaty, which he contends the National Environmental Policy Act requires. The Clinton administration is considering whether to appeal the ruling. Meanwhile, Canada's Senate approved Nafta 47-30, ratifying a similar action by the House of Commons.

Environmental pressures continue to close U.S. refining capacity.

Marathon last week said it will temporarily idle its 50,000 b/d Indianapolis refinery, citing poor plant economics amid a backdrop of ever increasing environmental spending needs. Marathon will continue to operate products storage and terminal facilities at the plant and expects to begin shutdown about Oct. 1 and complete it by yearend.

Sunbelt Refining Co. will temporarily cease operations by Aug. 1, thus shutting down its 8.500 b/d Randolph, Ariz., refinery.

Parent Huntway Partners L.P. blames poor margins resulting from very low asphalt prices in Arizona on top of protracted legal and technical costs associated with a continuing environmental investigation and lawsuit by the state. Huntway will take a $6.6 million charge in the second quarter ended June 30 for costs related to the shutdown and is considering a processing agreement or sale of the refinery. The shutdown will continue until market conditions improve and environmental issues are resolved.

Are pension funds the new mother lode for U.S. petroleum industry capital? Enron Capital Corp. (ECC) and California Public Employees Retirement System (Calpers)--biggest pension fund in the U.S.--have agreed to form a joint energy development limited partnership. ECC as general partner and Calpers as limited partner each will contribute as much as $250 million/year in 3 years to purchase or invest in natural gas assets and projects or purchase Enron stock. The partnership will consider intrastate gas pipelines, storage projects, reserves acquisitions, and other investment opportunities related to ECC parent Enron Gas Services' business.

U.S. drilling assets continue to change hands.

Noble Drilling signed a letter of intent to buy nine jack ups, associated equipment, and related contracts from Western Co. of North America for $150 million cash. Subject to financing and approvals, a final agreement is expected to close by Oct. 15. The buy would almost double Noble's jack up fleet and hike its total offshore rig fleet to 32, excluding management contracts for 15 rigs in the U. K. North Sea.

Colombia's Ecopetrol has approved BP's declaration of commerciality on Cusiana and Cupiagua fields, giving a green light to the project. Estimated reserves for both total 2 billion bbl of oil. Approval will trigger development that will ramp production to 150,000 b/d by the end of 1995 and as much as 800,000 b/d by 2000. Ecopetrol takes a 50% stake in development, with BP and Total 19% each and Triton 12%. (OGJ, May 10, p. 30).

BP has passed its target of $2 billion of assets disposal in 1993 with two deals. Transactions are scheduled for completion in the third quarter. Statoil agreed to buy BP's Swedish marketing business, involving 240 gasoline stations and a 20% stake in distributor ODAB, in a deal believed to be worth $160 million. Transfer is scheduled for the end of September, with rebranding of service stations to be complete by early 1994. BP's aviation, lubricants and chemicals businesses in Sweden are not involved. BP also sold for $425 million its Purina Mills animal feeds business, based in St. Louis, to Sterling Group Inc., a Houston financial group. This brings nutrition division divestments to more than $1 billion (OGJ, Mar. 22, p. 30).

Operators continue to find North Sea satellites that promise to keep facilities humming for years. A Conoco operated well confirmed "the presence of a potentially large accumulation of reserves that could extend the life of our Beryl field infrastructure," reports interest owner Mobil. Block 9/19-10 appraisal flowed 28 MMcfd of gas and 1,636 b/d of condensate through a 40/64 in. choke constrained by surface equipment from the same pay that is the primary production in Beryl field. Drilled to 13,060 ft about 12 miles from Beryl field, the well is being sidetracked to test another fault block, and a second appraisal is planned later this year. Conoco, Mobil, and Repsol each own 33.3% interest in the well.

Azerbaijan has reversed its decision to award eight western oil companies a contract to develop Azeri, Chirag, and Guneshli fields in the Caspian Sea as one project. Gaidar Aliyev, the republic's leader since President Abulfaz Elchebey fled Baku (OGJ, June 28, p. 33), canceled the unitization deal announced June 5 (OGJ, June 14, P. 18, and June 21, p. 34).

Now the Azeris intend to return to developing the three fields separately in ventures involving the original groups of western companies. The U.K. Foreign Office said Aliyev reassured British companies involved they would continue to play a leading role in developing Azeri resources. Although companies will continue to negotiate through State Oil Co. of Azerbaijan Republic (Socar), senior executives have been changed. Socar head Sabit Bagirov reportedly resigned, saying he received indications from Aliyev's government he was no longer wanted. His deputy is also believed to have quit.

Meanwhile, the Azeri government under Aliyev returned a vote of no confidence in Elchebey. Aliyev, now in line to ]De president, is continuing talks with rebel leader Surat Husseinov over leadership of government. Husseinov still has troops stationed in and around Baku.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.