OGJ NEWSLETTER

The global juggernaut of privatization rolling through the petroleum industry is hitting a few speed bumps with the workers it displaces.

More than 25,000 employees of India's state owned ONGC went on a 1 day strike Sept. 1 to protest new government policies allowing foreign and private companies to explore for and develop oil and gas fields in India.

New Delhi is accelerating efforts to lure more private investment in Indian E&D to wean itself of 75% oil dependence.

Separately, in a major policy shift, India's government decided to allow foreign companies to conduct speculative seismic surveys with an eye to upgrading data on hydrocarbon potential of the country's unexplored sedimentary basins. Previously, this right was restricted to state owned ONGC and OIL. Available under a first round are 21 offshore and 14 onshore blocks covering 620,000 sq km. Qualified contractors can conduct surveys at their own risk, with resulting exploration acreage to be put up for bid.

Basin data packages, including exploration history, are available.

Meantime, India's government also is targeting a highly unusual source of investment capital for sorely needed oil exploration: unreported income. Indian citizens that have hidden income to avoid paying taxes will he granted legal immunity if they invest the funds in oil exploration.

So-called black money runs into trillions of rupees, according to independent studies, and a recent World Bank study estimates Indians have stashed about $59-79 billion in secret Swiss bank accounts alone.

Finance and petroleum ministries are working up investment/data packages for black money investors. The government has offered other schemes in the past to legitimize black money, with little success.

Pemex plans to slash its work force still further, to 50,000 by the time President Carlos Salinas de Gortari leaves office in December 1994, reports Mexican newspaper La Jornada. Since 1989, Pemex has laid off about half its work force, or about 120,000 workers. In addition, Cuahtemoc Santa Ana, new Pemex administrative corporate director, says 12,500 workers employed in affiliated medical and telecommunications operations will become employees of independent subsidiaries, effectively trimming the Pemex work force further to a little more than 100,000. Protests by the laid off workers have plagued Mexico's state oil company for more than a year, mainly over what they deem inadequate severance pay. They include a takeover of Pemex headquarters last month for several hours. Santa Ana accused the former workers of looting and damaging the offices in the takeover.

Nigeria's oil workers' strike has ended, pulling the props from under oil prices. Workers had threatened to disrupt Nigerian oil exports in a protest over a voided June 12 presidential election and privatization measures that included an end to domestic fuel subsidies. Nigerian dictator Gen. Ibrahim Babangida resigned under pressure after 8 years and on Aug. 26 appointed crony Ernest Shonekan to head the government, annulling the election victory of businessman Moshood K.O. Abiola. When the new government promised to investigate the elections, the oil workers ended their 11 day strike Sept. 6. Other Nigerian workers ended their strike the previous week when the government promised to scrap plans to raise fuel prices 1,000% as part of its push to end domestic petroleum subsidies. The strike paralyzed Nigeria, but oil production and exports remained unaffected.

Fears of disrupted Nigerian oil exports, however, pushed Nymex light sweet crude for October delivery up more than $1 to as much as $18.80/bbl, its highest level since July 1. The strike's end helped take that closing price to $17.03 Sept. 8, the lowest Nymex crude settle since July 11, 1990, just ahead of Iraq's invasion of Kuwait. Other factors were the rumor mill stirring again about a resumption of Iraqi oil exports, IEA cutting its estimate for the fourth quarter call on OPEC oil by 300,000 b/d to 25.6 million b/d, and API and DOE reports of relatively weak crude and distillate stockbuilding.

OPEC continues to trim output but remains above its 23.58 million b/d quota. Middle East Economic Survey (MEES) cites cuts of 300,000 b/d by Iran and 200,000 b/d by Saudi Arabia contributing to a 450,000 b/d drop for OPEC in August. However, OPEC last month remained 753,000 b/d above quota, says MEES, and the Iranian cut appears related only to marketing snafus with traders moving Iranian crude via Egypt's Sumed system, with production likely to rebound this month.

There are more signs of a U.S. petroleum sector nudging into recovery.

Mitchell Energy & Development has jumped its E&P budget for the current fiscal year by $15 million to $235.4 million. Of that, $10 million will go for drilling. It cites sharply improved gas prices, good drilling results this year, and a big inventory of prospects.

Baker Hughes' count of U.S. active rigs is the highest since mid-January. The tally jumped another 12 units to 834 the week ended Sept. 3, up 18% from a year ago and the highest since 838 the week ended Jan. 15.

Natural gas drilling overtook oil drilling in the latest count, reversing a trend since the start of summer.

U.S. spot gas prices remain strong. Natural Gas Clearinghouse's survey puts the September average spot prices at $2.24/Mcf, up 28 from last month and the third highest level of the year. NGC's average hovers at $1.99 year to date, compared with $1.68/Mcf in 1992.

U.K. gas industry regulator Ofgas warns British Gas it can't fund expansion abroad at the expense of the home market. This follows the report of the U.K. government's Monopolies & Mergers Commission, which recommended sale of some U.K. distribution networks to competitors, in a bid to open the gas market to competition (OGJ, Aug. 23, Newsletter).

"We applaud the desire by British Gas to make a success of international developments," said James McKinnon, Ofgas director general.

"We do believe that these aspirations will be more securely founded on the basis of success in a competitive home market. However, we have to ensure that, as far as the tariff market is concerned, customers must receive value for money ... if other ventures prove to be unsuccessful, there can be no question in these circumstances of raising the tariff prices to balance losses elsewhere."

BG didn't respond directly but pointed out the MMC report warned

BG's fixing of tariffs within the current regulatory formula may operate against the public interest.

"We have seen no evidence that British Gas, to date, underinvested in the U.K. nor that the U.K. gas supply business has been adversely affected by the growth of British Gas' overseas interests," MMC's report said.

The report also suggested that Ofgas' increasing involvement in technical issues of regulation of transportation and storage "...may merit a somewhat different approach from the confrontational stance sometimes adopted by the parties in the past. "

Kazakhstan is targeting the Cumcol basin in the country's western Turgai region for underpinning reduced reliance on Russian crude oil and refined products. Kazakh Prime Minister Serguei Tereshenko said the basin's oil production is targeted to climb to 40,000 b/d by yearend and 80,000100,000 b/d in 1994-95 from the current 36,000 b/d. Russian Minister of Geology Lev Trubnikov put Cumcol identified oil reserves at 2.19 billion b/d, which he said could support output of 120,000-160,000 b/d, with another 60,000-80,000 b/d prospective. Trubnikov described two joint ventures in the basin, one each with Canadian and German firms, as "inefficient" and called for a tender offering of remaining acreage. Plans also call for revamping two Kazakh refineries with a third slated for privatization with Russian participation. In addition, Kazakhstan, Turkmenistan, and Azerbaijan are mulling a pipeline that would move Kazakh oil south across Turkmenistan and Iran to Azerbaijan to be delivered to Azeri and Turkmen refineries.

Kazakhstan's Pavlodar refinery recently was shut down when Russia halted deliveries of western Siberian crude to the plant.

That follows Tyumen province late last month slashing crude deliveries to the plant to only 1.4 million bbl from a promised 4.7 million bbl be-cause the refinery's debt to Tyumen producers had soared to 62.9 billion rubles as a result of currency transfer snafus. The cutoff is especially serious because it comes at the height of the Kazakh grain harvest. The refinery supplies about 60% of Kazakhstan's products demand.

The shakeup in Italy's refining/marketing sector continues. Milan's Banca Internazionale Lombarda plans to sell refining company Cameli Petroli & Co. SpA to avoid bankruptcy. Cameli has a 50,000 b/d refinery at Mantova and a 20% interest in the 232,000 b/d Isab refinery at Priolo Gargollo. The offering will come by the end of this month, and potential customers include Italian refiners Erg and Api-Tamoil, Switzerland's Hoffman Group, and Saudi Engineering. Erg with 60% interest in Isab has a preemptive right to buy Cameli's 20%. Cameli has losses totaling $1.13 billion this year.

Meantime, Esso Italia plans to streamline and restructure its marketing operations after spending more than $112.6 million this year for revamps at its refineries at Augusta, Sicily, and Trecate (Sarpom), Italy. It plans to slash the number of service stations as well as seek longer operating hours for the surviving outlets to offer nonpetroleum products and services.

Taiwan's Chinese Petroleum Corp. (CPC) plans to form a private joint venture company to build its third refinery, a 200,000 b/d grassroots plant.

The move, in keeping with the company's planned privatization, would entail CPC holding 30-35% of the stock in the new company, with local or foreign petroleum concerns holding the rest.

Tension flares anew in the South China Sea's highly petroleum prospective Spratly Islands. Taiwan will increase its naval patrols in the region the next 5 years and is considering a new military airstrip on Taiping Island, the only island in the 60 island group it now occupies.

The step is intended to counter China construction of a new airstrip on Woody Island in the Paracel Islands 500 km north.

China National Petroleum & Natural Gas Corp. Pres. Wang Tao says his company expects to invite foreign companies to bid for development projects in 10 provinces late this year or early next year.

Wang said 68 companies from 17 countries are considering participating in tenders to develop oil and gas reserves in the Tarim basin of Northwest China, Tokyo's Nikkei Weekly reported.