OGJ Newsletter

• U.S. industry scoreboard 9/7 [44,085 bytes]

The latest addition to the heap is a memorandum of understanding between Royal Dutch/Shell and Texaco to merge their European refining and marketing operations.

The announcement came as OGJ went to press and follows speculation about a potential across-the-board merger of the two firms, in the wake of the stunning BP-Amoco merger announcement (OGJ, Aug. 17, 1998, p. 34).

Shell and Texaco have already combined, together with a Saudi Aramco unit, their U.S. downstream operations, and last week announced the purchase of regional rival Texaco Natural Gas by Shell Gas Direct, a U.K. industrial and commercial gas supplier.

Shell has interests in refineries in 11 European countries, with combined crude distillation capacity of almost 2 million b/d. Texaco owns a 190,000 b/d refinery in the U.K. and has a 35% interest in a 140,000 b/d plant in Rotterdam. Shell operates 1,459 retail stations in Western, Central, and Eastern Europe, while Texaco has 1,065 retail sites and a 50% stake in a venture with Norsk Hydro that operates 993 Hydro-Texaco branded outlets in Denmark and Norway.

Shell said the proposed alliance would not involve the companies' other European activities or their coolants, LPG, and international aviation and marine products businesses. The firms plan to have the venture operational by mid-1999. It will be owned 88% by Shell and 12% by Texaco and will market products under both firms' brands. A Shell official said the companies' combined European R&M market share last year was 14%, giving the merged operation an apparent larger market presence than its main rivals, Exxon and BP Amoco, but not enough to cause problems with European Union monopoly laws.

The official told OGJ this is as far as merger talks between the two firms will go: "There are no other talksellipsein progress, nor are any expected."

Despite this pronouncement, speculation about oil industry mergers appears in no danger of waning. Speaking at the ONS conference in Stavanger late last month, Andersen Consulting's Vernon Ellis said the BP-Amoco deal is the thin end of a very thick wedge: "How will Shell and Exxon respond? Are the gloves off now? Who will buy Conoco from Du Pont? Will mergers and acquisitions play a more significant role in Statoil and Norsk Hydro's international expansion strategies, or could Saga, currently in a period of transition following its Santa Fe acquisition, become a pawn in someone else's expansion strategy? Should we believe BP Amoco is the shape of things to come?

"My response is that what we are seeing is only the beginning."

OPEC members are again ogling further production cuts in an effort to bolster falling oil prices. Saudi Arabia is considering reducing oil exports in October, but less than it will in September, says Middle East Economic Survey.

Saudi Aramco's export reductions are expected to total 9-13% in October vs. 18-19% in September. The cuts are driven by increased domestic oil demand, said MEES, as a result of a hot summer and some refinery expansions.

Kuwaiti Oil Minister Sheikh Saud Nasser Al-Sabah said further action depends on whether Brent reaches $17/bbl by October. "Pushing Brent to the $17/bbl level is still the objective," he said. "If it could not be realized, OPEC, according to its last agreement, must move to reconsider its policy."

Meanwhile, Iraq is expected to undergo a forced output reduction as a consequence of its inability to get the spare parts it needs for its dilapidated oil sector. MEES said Iraqi oil exports would fall by about 10% in the next 3 months, despite U.N. approval of a reported nine spare parts contracts.

The first shipments are not expected to arrive until October.

The Gas Research Institute's latest baseline projection of U.S. supply and demand predicts natural gas will expand its share of the U.S. energy market from 24% in 1997 to 28% in 2015. GRI said gas demand would grow 2%/year from 22 tcf in 1997 to 32 tcf in 2015 and that 75% of the increase would come from electricity generation and industrial applications.

GRI did not speculate on increased demand from carbon-reduction mandates if the Kyoto climate change treaty were implemented. It says that reaching a U.S. gas supply level of 32 tcf in 2010 calls for a 0.8 tcf/year growth rate-a level industry reached in the mid-1950s to early 1970s.

U.S. Energy Sec. Bill Richardson is planning to appoint an adviser on oil and gas issues to help DOE promote U.S. oil production.

Richardson said, among other things, the adviser would seek ways to provide relief for marginal wells threatened by low oil prices (see Editorial, p. 25).

Conoco and Pdvsa have announced first oil from their $2.4 billion Petrozuata extra-heavy oil project in Venezuela's Orinoco belt. Production began on time, as planned 3 years ago.

Conoco's Rob McKee called it "a historic hour for the Orinoco belt-the world's largest discovered reserve of extra-heavy crude oil." The oil has begun moving through a 200-km pipeline to Jose, Venezuela, where an upgrader is being built. It will take 20-30 days for the pipeline to fill and the oil to reach Jose, said Conoco. The Petrozuata JV has drilled 31 horizontal wells on the tract, and 45 more are in various stages of development (OGJ, Mar. 16, 1998, p. 34).

A spate of extremist acts threatens the safety of Canadian oil workers. Four people were arrested Aug. 24 following a bomb blast at a Suncor Energy well site north of Hinton, Alta. The incident was the latest of more than 160 acts of vandalism against energy, forestry, and utility companies in northern Alberta's Peace River area since 1996.

No one was injured in the explosion, which destroyed a separator building but did not damage the well. Police charged a local farmer, Wiebo Ludwig, and three others with mischief endangering life. Ludwig claims sour gas wells have killed livestock and that people are being gassed and getting sick.

Other recent attacks include bombing of a sour gas well near Demmitt and a bomb explosion targeting a building and drilling equipment at a sweet gas well site near Beaverlodge. No one was hurt in these incidents. Alberta Energy, which owns a well site and pipeline recently hit, said the vandalism has caused more than $2 million in damage, in total. The company said extra security, damage, and lost production have cost it more than $1 million in 2 years.

Affected companies include Crestar Energy, Rigel Energy, and Union Pacific Resources. Acts have included sniper fire, spiked tires, punctured gas lines, and plugged wells. The Royal Canadian Mounted Police said a militant group of environmentalists is suspected in some of the recent bombings.

Police warned someone will be maimed or killed if the attacks continue.

Elf has found oil yet again on Angola's prolific offshore Block 17, and test results suggest it may be another big one.

Since 1996, Elf's Girassol, Dalia, and Rosa oil finds on Block 17 have turned the deepwater area off Angola into the world's hottest play. Early estimates put oil reserves in each of these finds at more than 500 million bbl.

The operator is planning an FPSO development of Girassol, which has estimated reserves of more than 1 billion bbl of oil, and is preparing to exploit the others (OGJ, July 20, 1998, p. 42).

The fifth wildcat on the block, Lirio-1, 32 km northwest of Girassol in 1,365 m of water, flowed 11,000 b/d of "good quality" oil on test. Elf said, "Further work is necessary before a development scheme is determined."

On a rare wildcat note, Israel has given U.S. firm Samedan drilling rights in an area of the Mediterranean off the city of Ashkelon.

Geologists identified a 4,000 sq km area thought to be highly prospective. Drilling is slated to begin next April, with gas being the expected target.

Singapore consortium Sembawang Gas says its $8 billion deal to buy 2.6 tcf of natural gas from Indonesia's West Natuna field over 22 years continues on track, clarifying that a reported 3-year postponement of the Natuna project by Pertamina refers instead to the less-viable East Natuna field (OGJ, Aug. 18, 1998, Newsletter).

Sembawang Director Cheong Quee Wah says negotiations are continuing on the deal to take 325 MMcfd via a 640-km subsea pipeline.

The gas is slated to start arriving at Jurong, Singapore, in April 2001.

To dispel market concerns that the project would stretch Sembawang's financial resources, Cheong said the group would have to invest only $60-65 million in the pipeline. This is because the negotiated gas price covers its landed cost at Jurong, which means the bulk of the pipeline costs ($400-500 million for the Indonesian portion and $80 million for the 10-km Singapore portion) will be covered by the production-sharing contractors.

Eight international groups have submitted bids for construction of the pipeline.

The construction contract is to be awarded by November, said Singapore Economic Development Chairman Philip Yeo. SembaGas comprises Sembawang Engineering, Tuas Power, and EDB International-all of Singapore-and Belgium's Tractebel.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.