OGJ Newsletter

• U.S. Industry Scoreboatd 7/6 [44,485 bytes]

That meeting yielded promises of cuts for 1 year totaling 1.355 million b/d, in addition to cuts totaling 1.245 million b/d disclosed in March.

OPEC's second largest producer, Iran, has pledged an additional 10% production cut. Tehran earlier said it would slash production by 305,000 b/d in July. Nigeria disclosed an additional cut of 100,000 b/d. Currently, the country produces about 2.033 million b/d. Nigeria slashed 125,000 b/d from production in March. Algeria will reduce output by 30,000 b/d on top of its 50,000 b/d cut pledged in March. Indonesia is cutting output by 30,000 b/d to 1.28 million b/d for a 12-month period beginning this month.

Non-OPEC producers are also giving assurances that falling oil prices must be addressed by all producing countries. After the June OPEC meeting, Oman pledged a 50,000 b/d cut in its 900,000 b/d production. Russia's fuel and energy ministry reports that the country's oil producers will cut back oil and oil products exports by as much as 100,000 b/d in July.

Skepticism over whether the full cuts will be forthcoming continues to depress the outlook for oil prices.

Dresdner Kleinwort Benson cut its average Brent spot price forecast for 1998 to $14.50/bbl from $16, and to $16 from $17 for 1999. It cited continued weak demand from Asia and the earlier failure of OPEC to deliver its proposed cuts in full as the major reasons for downgrading its forecast.

As Russia's financial crisis deepens, officials weary of the government's inability to collect taxes from some of the biggest and most powerful oil and gas companies are taking dramatic steps to ensure that federal taxes are collected.

Russia's government has put the squeeze on gas giant Gazprom over unpaid taxes, according to reports emerging as OGJ went to press. Prime Minister Sergei Kiriyenko has ordered Gazprom assets frozen. Kiriyenko apparently seized control of Gazprom's bank accounts in a bid to force the firm to pay its massive tax debt. He also sacked Gazprom's board.

Moscow said it must redeem almost $60 billion of short-term treasury bills, which require payment at the rate of more than $5 billion/month-50% more than it has been collecting in taxes-if it is to stem the cash flow crisis.

The Russian government is denying access to an oil export pipeline to five oil companies for nonpayment of taxes, reports Itar-Tass. Russian Vice Premier Viktor Khristenko said the government intends a serious crackdown on oil companies failing to meet their tax obligations to the federal government. Affected are: Bashneft, Sidanco, Tyumen Oil, Tatneft, and Onaco. There was no word on how long pipeline access would be withheld.

Brazil's new National Petroleum Agency (ANP) at presstime last week was scheduled to issue an international tender for a company or group to promote bidding rounds and evaluate bids for exploration, development, and production of oil and gas in the country. ANP is overseeing the parceling out of upstream properties that had previously been the exclusive domain of state-owned Petrobras to private foreign and domestic companies (OGJ, June 29, 1998, Newsletter). The tender is to be complete by mid-August.

ANP Executive Director David Zylbersztajn, who said prior to the tender that he had received death threats urging him to stop "meddling" in the petroleum business, on July 2 was to disclose the properties that Petrobras is to retain. The first bid round is expected during the first 4 months in 1999.

Disappointment clouds some closely watched key wildcats.

The second Falkland Islands wildcat is a dry hole.

Desire Petroleum, London, partner in the Block 14/13-1 well drilled by license operator Lasmo, said drilling was suspended at 1,500 m TD: "The well penetrated potential reservoir formations but did not encounter hydrocarbons. Data from the well, together with that from the Amerada Hess well 14/9-1, will now be analyzed for leads to further drilling locations." Lasmo's well was the second of five to be drilled off the Falklands by a group of operators (OGJ, June 8, 1998, p. 34). Next to drill will be Shell E&P, said Desire.

A multinational group is disappointed after a second well on its Karabakh prospect off Azerbaijan in the Caspian Sea failed to find oil. Group member Pennzoil had said the Karabakh prospect had postulated reserves equivalent to about 100 million bbl of oil. But the first wildcat drilled on the acreage last year flowed only natural gas (OGJ, Apr. 13, 1998, p. 34). The group, which reported that the latest well flowed on test 53.18 MMcfd of gas and 722 b/d of condensate, is mulling a third well on the prospect.

Denmark and Greenland have approved a second exploration license off western Greenland, in the Sisimiut area, to a group of Phillips, Statoil, Danish state firm DONG, and Greenland's Nunaoil. The group also won a license covering the Fylla area off Nuuk, western Greenland, in December 1996.

Another big lease sale off Alaska's North Slope is on tap next month.

MMS slated Beaufort Sea Sale 170 for Aug. 5 in Anchorage. The area being offered for lease includes about 241 whole and partial blocks covering 1 million acres. Sale 170 concentrates on areas near existing oil and gas activity and leases, extending from the Colville River area east to the Canning River. The sale area is adjacent to that offered by Alaska in its November 1997 offshore sale and last month's onshore sale.

Sale 170 will not include blocks off the Arctic National Wildlife Refuge.

Despite MMS opposition to industry's royalty in-kind program for crude oil produced from federal leases (see Watching Government, p. 44), MMS plans an RIK pilot sale of 3,700 b/d of royalty crude oil from federal leases in Wyoming under a competitive bidding process that was to start July 1.

The sale involves royalty production from 185 federal properties in the Bighorn and Powder River basins. The invitation for bid documents for the first 6 months of production under the pilot will be posted to the Internet home page of the MMS Royalty Management Program.

Purchasers may bid on production from individual properties and/or on the entire packages of Wyoming sweet (1,000 b/d), Wyoming sour (900 b/d), or Wyoming asphaltic sour (1,800 b/d). Bids will be due to MMS and Wyoming by July 31, and MMS will notify winning bidders by Aug. 15.

The Wyoming pilot is anticipated to last 2-3 years. The first phase of the pilot will market royalty production taken in-kind by competitive bidding over two successive 6-month terms. MMS and the state will retain marketing agents to sell the royalty production in the second phase of the pilot beginning on Oct. 1, 1999.

North Australian Gas Venture partners Woodside Petroleum and Shell are accelerating plans for a $10 billion (Australian) LNG project in Darwin to handle natural gas supplies from prolific Timor Sea discoveries (OGJ, May 4, 1998, Newsletter). The companies said first sales of LNG into Asia's markets are expected in 2004, a year ahead of their previous schedule.

China and India are the project's primary LNG markets.

Europe's refiners will be able to plan with more certainty to meet forthcoming fuel specs after a European Union agreement was reached behind closed doors. EU's parliament and council failed to agree on what tighter fuel standards should apply (OGJ, Jan. 12, 1998, p. 21), so a "conciliation committee" set mandatory limits for sulfur and aromatics for 2000.

The new specs to be met by 2000 are as follows: for gasoline, benzene 1%, aromatics 42%, olefins 18%, sulfur 150 ppm, and oxygen 2.3%; for diesel, cetane number of 51, density 845 kg/cu m, polyaromatics 11%, and sulfur 330 ppm.

Wood Mackenzie, Edinburgh, says standards for 2005 are not fixed and will be drawn up in the second phase of the Auto-Oil initiative by EU, auto makers, and refiners. Some limits for 2005 have been agreed upon. Gasoline maximums for aromatics and sulfur will be 35% and 50 ppm respectively, while the sulfur maximum for diesel will be 50 ppm. The analyst says the 2000 specs are those proposed by the council of ministers last year. A group of "green" MEPs pushed for tighter regulations, but refiners promoted using a cost-benefit analysis rather than wish-lists in the drive to improve European air quality.

Look for happy refinery workers in Lima, Ohio, now that BP has unexpectedly found a buyer for its 170,000 b/d capacity plant there.

BP vowed to close the plant at yearend, having spent 18 months trying to find a buyer. The Lima unit and its other two least profitable refineries were put up for sale last year (OGJ, Jan. 15, 1996, p. 32). BP will sell the plant to Clark USA for $215 million, pending approval by the FTC. BP expects the deal to go through in the third quarter. Iain Conn, senior vice-president for BP Oil in the U.S., said BP Chemicals will soon start building a $100 million world-scale 1,4 butanediol plant at the Lima site. Meanwhile, BP Oil plans to spend $235 million to modify its Toldeo, Ohio, refinery to process sour crudes.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.