OGJ Newsletter

U.S. Industry Scoreboard 8/17 [44,068 bytes]

Dominating energy news is the planned global megamerger of BP and Amoco. The firms are forming a "supermajor," called BP Amoco, with an operations scope on a par with Exxon and Royal Dutch/Shell (see story, p. 34).

At presstime, Associated Press was reporting that BP's U.S. headquarters in Cleveland would be closed, eliminating 1,000 jobs, and another 5,000 layoffs were planned.

Rep. Dennis Kucinich (D-Ohio), who represents part of the Cleveland metropolitan area, objects to the merger. "This proposed merger will cause other companies to merge," he predicted, "perpetuating a cycle of increasing size and market concentration, which can only mean higher prices for oil, gasoline, and all other energy-based consumer products. Clearly, as the largest proposed merger, it should receive the most extensive scrutiny ever by the Federal Trade Commission and the Department of Justice."

The BP-Amoco merger also revived the perennial expectation of a merger of French majors Elf and Total, with the firms' stock prices jumping 3.2% and 1.2%, respectively, last week. While the odds of that happening are remote-the two are fierce rivals and have totally different corporate cultures-either company might seem a tempting acquisition target.

Still, Jean-Paul Vettier, head of Total's refining/marketing division, says the firms are in markets "that are on a far too slow growth trendellipseA company is open to a takeover when its market capitalization does not reflect the results its assets generate." But Vettier insists Total is one of the least vulnerable majors, offering a recent market cap multiplier of 6-7. As for Elf, official sources suggest that Paris would not look kindly upon any merger or unsolicited takeover bid and would probably use its golden share to block one.

Although Kucinich's contention that the BP-Amoco merger by itself will spur others is questionable, more consolidation in the energy business is in the offing (see Industry Briefs, p. 46).

CalEnergy last week announced a definitive merger agreement with MidAmerican Energy. Under terms of the deal, valued at $4 billion, CalEnergy would take the MidAmerican Energy Holdings Co. name and move its headquarters to Des Moines from Omaha. It is reportedly the first takeover of a utility by an independent power producer.

Signs abound that a low oil price environment will persist.

Pdvsa predicts that the average price of Venezuelan oil will remain below $13/bbl for the next 3 years.

It estimates the average price for Venezuelan oil at $12.50/bbl this year, down from an averge $16.49/bbl in 1997. Despite recent budget cuts, the low oil price outlook, and Venezuela's current implementation of production cuts in line with earlier accords with other OPEC and with non-OPEC oil producers, Pdvsa retains a production capacity target of more than 6 million b/d by 2006.

Meantime, crude futures had fallen again in New York at presstime, while oil prices in London were hitting a 10-year low.

On Aug. 11, Nymex crude for September delivery fell 29¢/bbl to $12.76/bbl, while the October contract fell 26¢ on the day, to $13.15/bbl. In IPE trading that day, Brent for September delivery settled at $11.64/bbl, down 27¢.

Sen. Frank Murkowski (R-Alas.), Energy Committee chairman, has asked President Clinton not to swear Energy Secretary nominee Bill Richardson into office, pending further investigation.

Murkowski said Richardson, the U.S. ambassador to the U.N., may have misled the committee when he testified at his confirmation hearing that he offered former White House intern Monica Lewinsky a vacant job in his office. The Washington Times recently reported there was no vacant job to offer Lewinsky at the time. Richardson is due to assume the DOE post in mid-August, replacing Federico Pe?a. The Senate confirmed his nomination July 31.

Russia's insistence on proceeding with the sale of state interests in oil and gas companies is looking increasingly ill-advised (see Watching Government, p. 45).

Add home-grown Gazprom to the list of companies taking a pass for now on the privatization tender for state-owned oil giant Rosneft. Russia still wants to sell 75% of Rosneft in October to raise about $1.6 billion, after two other tenders collapsed this year.

In 1997, Gazprom teamed with Royal Dutch/Shell to mull buying a stake in Rosneft. Gazprom, in the midst of shedding assets itself, says that now is not a good time to be acquiring more assets. Shell also says now that it won't bid for a stake in Rosneft or for the 5% of Gazprom that is also to be sold in coming months. Despite its continued interest in Russia, Shell says, conditions are too difficult and unstable there to consider investing in Rosneft.

As for Gazprom, the stake for sale is too small to interest Shell.

Political and economic disarray in Indonesia likely will delay the proposed $9 billion West Natuna gas project.

The project involves development of gas fields in the West Natuna Sea off Indonesia, laying of a 396-mile gas pipeline from those fields to Singapore, and sales of 325 MMcfd of gas to Singapore for 22 years beginning in 2001 (OGJ, Aug. 3, 1998, p. 24). Conoco leads the field development group, Sembawang the Singapore group.

Industry sources in Singapore claim the window available is too brief to round up needed contractors and equipment, and banking sources there contend that no financial institutions will lend for projects in the economically beleaguered Indonesia now.

Japan's Marubeni has reportedly joined the list of firms planning to take part in a proposed project to export LNG from Alaska's North Slope (OGJ, Sept. 29, 1997, p. 50). The project-at last count involving ARCO, BP, Yukon Pacific, Phillips, and possibly Mitsui and Mitsubishi-has been under discussion for more than a decade. It is expected to cost $12-15 billion and include a 1,300-km pipeline and a 14 million metric ton/year liquefaction plant on Alaska's southern coast.

Marubeni reportedly will take a 17% stake in the project, expected to start LNG production in 2007.

The firm may also sign a 20-year LNG offtake agreement with the partners.

Meanwhile, LNG projects seem to be on a roller coaster ride in India.

Even as Total and India's Tata Electric begin a feasibility study of an LNG import terminal at Trombay, India, near Mumbai (formerly Bombay), the Ministry of Petroleum has dropped plans for a $1 billion, 2.5 million metric ton terminal at Mangalore.

Total and Tata plan to import the daily equivalent of 1.25-2.5 million cu m of gas from Total's operations in the Middle East and build a regasification unit and storage facilities at an estimated cost of $300 million.

Tata plans to utilize part of the imported LNG at its own power plants.

Meanwhile, bids for the Mangalore LNG terminal had to be annulled. The Finolex-Mobil combine had outbid Enron and a group of state oil companies, but the ministry apparently deemed the terminal nonviable. "They failed to find any large customers, and that made the project unworkable," said A. Bhattacharya, ministry adviser. "Also, too many terminals are coming up on the west coast, and the ministry was not in a position to handle all of them."

The prospective project promoters in Mangalore were banking on major power projects, such as Cogentrix and Nagarjuna Power, to switch from imported coal to LNG. However, the project sponsors have decided to stick to coal.

On another upswing, bids for three LNG terminals-at Ennore, Dahej, and Cochin-are nearing finalization. These terminals have already lined up major customers (see related story, p. 42).

Another ambitious project, a proposed gas pipeline between Oman and India, appears to be off. While there has been no official word of its cancellation, the fact that Oman has tied up with Shell for an LNG plant on its own territory suggests that the Persian Gulf nation would hardly be keen to supply the gas to India via pipeline (OGJ, Apr. 6, 1998, p. 29).

India's Cochin Refineries Ltd. (CRL) is planning to expand its only refinery to 270,000 b/d from 150,000 b/d. The project is one of several expansions and new refineries planned in the country (see related story, p. 42).

Preliminary government approval of CRL's expansion was for a capacity addition of 60,000 b/d. The additional 60,000 b/d that CRL wants to add is geared toward maximizing output of LPG, diesel, and naphtha, as southern India, where the refinery is located, is expected to have a large shortfall of diesel and LPG by 2003.

The project is expected to cost $949 million, with CRL investing the entire equity component. It includes a single point mooring, storage terminal, and pipeline for crude oil receipt. Feed slate of the expanded refinery would be 90,000 b/d of Bombay High crude and 180,000 b/d of Persian Gulf crude.