OGJ Newsletter

• U.S. Industry Scoreboard 3/23 [44,238 bytes]

Oil prices rebounded by about $1 at presstime on reports that Pdvsa Pres. Luis Giusti in Europe said Venezuela is in talks with other producer countries to discuss cutting a total of 2 million b/d from world oil markets.

Given the previous reluctance of Venezuela to consider cutting production, the comment augurs well for a meeting of OPEC's ministerial monitoring subcommittee that was intended to reassess recent oil market changes. The meeting was postponed to Mar. 30 from Mar. 16. There reportedly have been intensive discussions among OPEC's ministers. OPEC's secretariat is also more closely following the crude oil market and is expected to make recommendations at the meeting.

However, Pdvsa board member Remigio Fern ndez contends, "Prices are going to have to come down a long, long way before production will have to be cut." Pdvsa's cost of production last year, including some high-cost marginal fields, was about $2.15/bbl, says Fern ndez. He also said he considers the current price slump "a blip." Speaking to reporters at the annual NPRA meeting in San Francisco last week (see story, p. 37), Fern ndez said that the production cuts that would have to be made by OPEC in order to change prices would bankrupt OPEC countries, adding that the problem is not going to be resolved unless everyone cuts output. Venezuela and Saudi Arabia agree that OPEC alone cannot solve the price problem. "We are only 35% of the market," said Fern ndez.

However, he says he doesn't believe Pdvsa's plans to increase production in the coming years are out of line with shareholders' objective of greater profits, given today's low oil prices.

Pdvsa says about $50 billion will be invested in Venezuelan E&P during 1998-2007. The company will be responsible for about 70% of the investments, while 30% is expected to come from international oil firms working in Venezuela under risk and profit-sharing contracts, operating contracts, and strategic associations. Pdvsa's goal is to raise crude and condensate output to 6.3 million b/d by 2007, up from around 3.4 million b/d in 1997. Total Pdvsa investments for the 10-year period are projected at just under $74 billion.

Low oil prices have prompted Canada's Imperial Oil to suspend development work at its Cold Lake Phases 1-10 operations.

"All field development work, including drilling and construction of field facilities, has been temporarily halted," said Imperial. "In addition, discretionary field operating expenses, including steaming operations, are being evaluated.

"Low crude oil prices, wide light-heavy spreads, and high diluent costs are putting pressure on the profitability of the Cold Lake operation," said Imperial's Howie Dingle. "We believe it is prudent to take these actions in light of current business conditions." Imperial says the move will have "no significant impact" on near-term production volumes.

The Alliance pipeline project group has pledged that there will be adequate ethane feedstock for the petrochemical industry in Alberta.

The group, which plans a $3.7 billion (Canadian) high-pressure natural gas and liquids pipeline from British Columbia to the Chicago area, has disclosed a Dec. 16 letter to Alberta Energy Minister Steve West. The letter says that, "in the unlikely event" that Alberta ethane requirements exceed the supply available from sources other than those linked to Alberta gas production delivered to Alliance, the group would build an ethane extraction plant on its proposed pipeline near Fort Saskatchewan, Alta.

The project is currently before Canada's National Energy Board.

Alliance said earlier this month that its project will be delayed because the regulatory process is taking longer than expected, and a summer start on construction was postponed (OGJ, Mar. 16, 1998, p. 42).

Canadian firms are preparing to begin drilling off Iran, a move that may draw secondary sanctions from the U.S. (see related story, p. 30).

Calgary's Bow Valley Energy plans to drill five wells in Balal oil field off Iran. Initial production will be 50,000 b/d. Bow Valley let contract to Titan Projects, also of Calgary, for project design, engineering, construction, and installation work at the field. Titan's work will involve a wellhead platform, production platform, living quarters, flare tower, and 14-in. subsea pipeline.

National Iranian Oil Co. signed a deal in 1997 with Bow Valley and Bakrie Minarak Petroleum for development of the field.

Shell Oil and Unocal's Spirit Energy 76 unit have resolved a lawsuit Shell filed regarding protection of its proprietary E&P data. Shell agreed to dismiss the lawsuit it filed in September 1997.

The lawsuit was brought by Shell out of concern that its intellectual property might be used or disclosed after Unocal hired a number of former Shell employees. Following in-depth talks, Shell has concluded that the settlement accord assures that safeguards are in place and that its proprietary data have been and will be protected from use or disclosure.

"We questioned how Spirit Energy 76 would utilize their skills, but at no time did we question the ethical or professional conduct of the former Shell employees," said Shell E&P Technology Pres. John Krebs. "We are prepared to move forward and resume our business relationships with Spirit Energy 76."

Shell has moved into the direct energy marketing business with the establishment of a new firm to sell electricity and natural gas directly to homes and businesses. Shell Energy Services Co. LLC expects to begin retail sales in selected deregulated markets by yearend.

"A growing number of states are adopting policies to establish the competitive retail sale of electricity and natural gas to residential and small commercial customers," said Shell. Through its ownership in Coral Energy, Shell already has a presence in the wholesale electricity and natural gas market.

"Coral will continue to be Shell's interface for energy sales and services to industrial and large commercial customers."

Shell is also developing a strategy for entering the power generation business through its Tejas Gas affiliate.

Shell Oil CEO Philip Carroll said, "The extension of the Shell brand into the retail energy market represents a logical progression of our growth strategy."

Despite the attraction of South America and the Caspian region, international oil companies consider the U.K. the most favorable country for new E&P ventures, says Robertson Research International.

For the second year running, Robertson's poll of E&P operators outside North America ranks the U.K. first, followed, in order, by Australia, Brazil, Kazakh- stan, Indonesia, Algeria, Venezuela, Argentina, Egypt, and Azerbaijan.

Regional preferences lean toward the Far East/Australia, although individual countries in the area ranked generally lower than in recent years. In contrast, Robertson said, "The central Asian republics have all increased in popularity this year as agreements regarding the transport of hydrocarbons out to markets are emerging." Of the 105 companies that responded to the poll, 73% will have budgets exceeding 1997 levels, 21% will remain unchanged, and only 6% expect a decrease (see special report, p. 40).

An average oil price of $18.60/bbl was used when calculating 1998 budgets, suggesting that spending plans may change as the year goes on.

As part of a joint venture arrangement, several directors of Russian oil firm Sidanco have stepped down to make room for some BP executives.

According to an Agence France Presse report, Vladimir Potanin, president of Oneximbank, a majority stakeholder in Sidanco, said, "We asked British Petroleum to send us their managers so that they can train Russian specialists to run Sidanko within 18 months or 2 years."

BP acquired a 10% interest in Sidanco from Oneximbank last November (OGJ, Nov. 24, 1997, p. 42). This latest move comes just as the Russian firm reported a 9.5% increase in revenues for 1997, to $4.8 billion, and a 36% rise in profits, to $246 million. BP also has agreed to participate in the Sakhalin 5 oil project along with Sakhalinmorneftegaz. The project involves exploration and development of prospects in the Sea of Okhotsk off Sakhalin Island.

China National Petroleum Corp. signed a contract worth about $325 million with privately held Monde Group, Houston, for a major project to improve oil recovery in a key onshore oil producing area in China.

Monde Group will take over operation of 800 wells in five sections of Zhongyuan oil field near Puyang, Henan province. The Zhongyuan complex, operated by CNPC's Zhongyuan Petroleum & Exploration unit, includes 4,500 wells that produce 90,000 b/d, down from a peak of 150,000 b/d in 1989. The field is about 400 miles south of Beijing and 300 miles west of the Bay of Bohai.

Under a 25-year contract, Monde Group will use advanced technologies and management practices, including improved drilling and completion techniques, 3D seismic, and reservoir management, to improve oil recovery.

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