OGJ Newsletter

World crude oil prices will remain low for at least another 6 months, predicts Kuwaiti Oil Minister Saud Nasser al-Sabah. Weak oil prices are forcing the government to reduce spending. Kuwait , which depends on oil exports for 90% of its revenues, will post a $10 billion deficit for the 1998-99 budget year because of low oil prices , he added: "The budget is based on revenue of $12/bbl, whereas our sales are actually $10/bbl." In contrast to the Kuwaiti view, Indonesian officials believe crude

July 20, 1998

8 min read

World crude oil prices will remain low for at least another 6 months, predicts Kuwaiti Oil Minister Saud Nasser al-Sabah.

Weak oil prices are forcing the government to reduce spending. Kuwait, which depends on oil exports for 90% of its revenues, will post a $10 billion deficit for the 1998-99 budget year because of low oil prices , he added: "The budget is based on revenue of $12/bbl, whereas our sales are actually $10/bbl."

In contrast to the Kuwaiti view, Indonesian officials believe crude prices could reach $17/bbl in the fourth quarter.

The country's Mines and Energy Minister Kuntoro Mangkusubroto said he is optimistic that crude prices will reach higher levels. But, he added, "the key factor behind any future price rise will be the maintenance of an agreement" reached among OPEC members to curtail production (OGJ, July 6, 1998, p. 33).

The U.S. oil refining/marketing sector has caught the eye of state-owned Kuwait Petroleum Corp. (KPC), perhaps seeking to join the fray with Saudi, Venezuelan, and Mexican state firms.

With oil prices low, Kuwaiti officials are considering further diversification-especially into U.S. refining/marketing. "This will allow us to sell Kuwaiti oilellipsedirectly to the consumer and no longer be satisfied with just producing oil," said Kuwaiti Oil Minister Saud. KPC is also negotiating to participate in refineries in India, Pakistan, Thailand, and China. The firm already has interests in refineries in Italy, Denmark, and the Netherlands.

An Independent Petroleum Association of Mountain States survey has found the plunge in oil prices is forcing marginal well shut-ins in the U.S. Rocky Mountains. Twenty producers have shut in more than 200 marginal wells and laid off 11 employees, said Ipams. And all 20 have halted exploration.

Ipams Pres. Ray Singleton said, "Virtually every independent company producing strictly oil said their company is in financial peril. Unless prices rise or Congress gives us immediate and substantial legislative relief, the U.S. will lose its production from marginal wells, which accounts for 15% (of U.S. oil output)."

A meeting between oil company executives and Interior officials has failed to produce any agreements to change MMS's pending oil royalty rule (OGJ, July 6, 1998, p. 44). Another meeting is planned, however.

Separately, MMS announced some minor revisions to the regulation. It relaxed provisions affecting affiliate companies, duty to market production, and multiple exchanges of crude.

Top Iraqi oil ministry officials have met with western energy firms, including some U.S. companies, to seek support for an Iraqi plan to export natural gas to Turkey, says Middle East Economic Survey.

Iraqi leaders hope to create an international consortium to join with Turkish firms to develop and construct a 900-mile pipeline from five gas fields in northern Iraq to Turkey's Anatolia region. Baghdad and Ankara signed an accord in 1996 allowing Iraq to deliver as much as 350 bcf/year of gas.

The gas outlook for the Far East still looks promising.

Northeast Asia gas development will usher in better economic relations among Russia's neighbors as a historic transnational pipeline project grows closer to becoming a reality (OGJ, July 6, 1998, p. 27).

Russian Premier Sergei Kiriyenko said a feasibility study to develop Kovyktinskoye gas/condensate deposits in eastern Siberia's Irkutsk region are closely tied to the construction of the first trunk pipeline across Mongolia and China to the Pacific coast. Proposals have been made to extend the pipeline to South Korea and Japan. The feasibility study should be completed by July 31.

Meanwhile, prospects for China's gas sector continue to brighten with a newly discovered giant field (see related story, p. 27).

Reserves in Kaijiang field in the eastern Sichuan basin are estimated at 3.15 tcf. The area already has 11 wells producing 17.5 MMcfd. Geologists continue to study the 4,500 sq km area for additional development.

Mobil is reportedly considering a plan to invest as much as $580 million to build a LNG terminal to feed new power plants expected to be built in the area of Taiwan's Hsinchu science park. If built, the facility would have the capacity to import 2 million tons/year of LNG for delivery to five power plants planned there.

The Thai government may opt to sell its stake in Exxon's Thai assets to a strategic partner, rather than selling it back to Exxon. The government estimates its 12.5% interest in Esso (Thailand) could bring about $250 million-a far cry from the $168 million initially estimated by a financial consulting firm commissioned to evaluate the government's Esso Thai holdings.

Consultants for the government and Exxon will present reports in September, but sources say early estimates are well below the $250 million sought. Esso's Thai assets include the 45,000 b/d Sriracha refinery, about 800 service stations, 10 petroleum terminals, and the Esso Tower in Bangkok.

National Energy Policy Office Sec. Gen. Piyasvasti Amranand, a key architect of Thailand's energy privatization efforts, is credited with the proposal. Sources say his rationale stems from a recent deal where Hong Kong's China Light & Power bought a stake in Electricity Generating Authority of Thailand at more than double its market price.

Although western majors have pulled out of bidding for stakes in Russian oil producer Rosneft (OGJ, July 13, 1998, Newsletter), Shell and ENI are each considering a $1 billion stake in Russia's gas giant Gazprom.

Gazprom official Alexander Semenyaka confirmed Shell and ENI may purchase shares in the company. However, he could not nail down a time frame for the proposed sale. He said the sale follows Gazprom's strategy to form strategic alliances with major integrated western firms and isn't related to the company's enormous tax troubles.

Russia's continued tax-collection fiscal headache just got worse.

The government learned that it cannot crack down on many tax-delinquent oil companies' access to export pipelines because the firms' exports were pledged as collateral against foreign loans, says Deputy Prime Minister Viktor Khristenko.

Shell and Mobil have declined to commit to development of the giant Camisea gas field complex in the Peruvian jungle, citing a lack of agreement with authorities on how to bring the gas to market. Peru had given the venture partners a July 15 deadline for making a decision on a massive development program that would involve delivering gas and liquids by pipeline to Lima, 500 km away, and building a 600-MW power plant.

Details of how Shell and Mobil will proceed were unclear as OGJ went to press, but the companies issued a statement saying they will continue to explore on their Peruvian licenses, including fulfilling obligations on Block 75, where the Camisea discoveries were made.

Camisea interests are Shell 57.5% and Mobil 42.5%. They have spent $250 million exploring and appraising Camisea (OGJ, Nov. 18, 1996, p. 17).

Will Angola be next to join the 1 million b/d club? (Brazil was the latest, in 1997.)

Angolan Minister of Petroleum Albina Assis said offshore oil production will reach 1 million b/d by 2000 and 1.3 million b/d by 2003. She said nine offshore oil fields are estimated to have more than 5 billion bbl of reserves.

Meanwhile, Elf's giant new development in the superhot deepwater theater off West Africa may hold even greater potential than that ascertained so far. Its Block 17 off Angola, where it has detailed development plans for the 1 billion bbl Girassol oil field (see related stories, p. 42), holds subsequent Elf discoveries Dalia 1 and 2 and Rosa that could hold even greater reserves than Girassol, according to preliminary estimates.

A Dalia development concept is under study, and one appraisal well is planned this year. Depending on the results, investment decisions will come in 1999. Elf is assessing seismic data from Rosa, and one or two appraisal wells should be drilled in 1999. A development plan could be scheduled for 2003.

Rand Paulson Oil Co. was to spud a relief well late last week near a Wayne County, Miss., Jurassic wildcat that blew out and was ignited June 30. The gas contains hydrogen sulfide, but most of about 40 people initially evacuated from a 1-mile radius around the drillsite had returned. No injuries were reported. The rig was destroyed. At presstime, the operator was attaching a new wellhead stack to 7-in. casing flange at the still flaming 1 Bazor 13-1. Flow was to be diverted to pits pending connection to a nearby gas line. Gas and condensate are flowing up drill pipe inside 7-in. casing cemented at 16,425 ft. Plans were to truck condensate production, estimated at 6,000-10,000 b/d.

Drilling was 4 ft into Smackover when the well hit high pressure and was shut in at about 17,000 ft to circulate out the kick. It blew out and was immediately torched. Pressures were estimated at 14,000-17,000 psi, although most Smackover reservoirs around Wayne County are normally pressured. High pressure could cause downhole problems if the well were shut in.