OGJ Newsletter

• U.S. Industry Scoreboard 9/2 [69196 bytes]

The U.S. oil and gas industry is in its best shape in more than 15 years and is poised for a period of sustained growth.

That's the underlying conclusion Arthur Andersen derives from its latest analysis of U.S. reserves disclosure data.

In reviewing 1995 operating and financial data of 231 U.S. public oil and gas companies, the analyst found double digit growth rates in U.S. and non-U.S. capital spending and production replacement rates, as well as continuing declines in reserve replacement costs.

U.S. E&D spending last year by the group rose 8% to $17.3 billion, the highest since 1991.

In a startling turnaround, the entire $1.3 billion increase came from majors, which in recent years were doggedly shifting E&D dollars outside the U.S. Still, since Andersen's measure of oil and gas company health hit a recent low in 1992, independents have increased U.S. E&D spending 47% and majors 21%.

Companies in Andersen's universe replaced production at an average rate of 99% vs. 84% for the preceding 3-year average. The group's reserve replacement costs from all sources dipped 6% to $4.44/BOE-the lowest since 1987 and 30% less than $6.04/BOE in 1991.

Andersen's Victor Burk says companies pacing the promising patterns are creating value by improving operating efficiencies, reducing cost structures, and effectively applying ever-better technological capabilities.

Gas continues to garner more attention around the world as a preferred energy source.

In Canada, rampant merger and acquisition activity and the spread of royalty trusts in first half 1996 are bidding up gas acquisition prices. Sayer Securities says the median price for reserve acquisitions this year through June jumped to 58/Mcf (Canadian), up 7/Mcf from first half 1995.

The median price of oil reserves acquired was unchanged at $5.72/BOE.

The value of Canadian oil and gas M&As in first half 1996 totaled $5.24 billion, compared with $2.34 billion a year earlier. Second quarter deals alone were worth an estimated $3.96 billion.

Sayer says six new royalty trusts formed this year through June acquired assets valued at $940 million.

Under a federal technology commercialization program that could help boost U.S. gas use, DOE has awarded grants to 15 companies to help purchase and deploy environmentally clean, gas-powered fuel cells.

Among recipients, Brooklyn Union got $400,000 to buy two 200 kw fuel cells to supply electricity and thermal energy to a Sun Chemical plant at Staten Island, N.Y.

Connecticut Natural Gas, Hartford, Conn., got $200,000 for a 200 kw unit to provide power for its downtown office and heat for a district heating and cooling system run by a ConnGas subsidiary.

Close on the heels of gas supply and pipeline megadeals with Iran-targeted by U.S. sanctions for its reputed support of international terrorism-energy starved Turkey is courting a $2.4 billion LNG-power pact with Royal Dutch/Shell and a $1.1 billion gas pipeline project with Gazprom.

Pending Ankara's approval, Shell and two undisclosed partners reportedly will begin studying plans for an LNG terminal and 2 million kw power plant complex.

The first proposed electric power unit would have capacity of 650,000-700,000 kw. A European-Japanese group already is planning a 480,000 kw gas-fired plant near Marmara Ereglisi LNG terminal, 90 miles west of Istanbul.

State pipeline company Botas and Gazprom are to meet in September to work out details on a 720 mile, 565 bcf/year gas line through eastern Turkey and expect to sign an agreement by month's end. The deal would increase Turkey's purchases of Russian gas to nearly 1.1 tcf/year by 2010 from 212 bcf currently.

Botas says partners this year will complete design of the line and begin construction in 1997.

The U.S. trade sanctions law raising questions about Ankara's gas deal with Tehran drew fire last week at the ONS conference in Stavanger from Mobil's Lucio Noto.

Noto said the oil industry's future success depends on creating and sustaining global alliances, but Washington's threats of trade sanctions alienate and penalize U.S. trading partners and do little to promote democracy in targeted countries.

"Forcing us to leave accomplishes nothing," he said. "Private companies, operating to the highest standards of business ethics, social responsibility, and environmental safety and health protection can be a major, positive influence and turn things around."

Noto also charged Washington's new stance on climate change-which endorses binding commitments from developed countries for specific emissions reduction targets and timetables-was taken without a clear idea of its environmental and economic effects.

"Any effective and binding commitment should permit a nation to make serious contributions without causing severe damage to its national welfare," he said.

While many other countries are laying out plans to boost gas use, Malaysian electric utility Tenaga Nasional Bhd. is considering plans to scale back gas-fired power capacity and increase reliance on coal and hydro.

Following a 12-15 hr power outage that triggered official outrage and embarrassment-the country's second major blackout in 4 years-Kuala Lumpur has replaced Tenaga's chairman and is hiring a foreign consultant to review the utility's operations.

Officials blame a faulty power station circuit breaker for the problem, which cut off power to the national transmission grid.

Prior to the blackout, gas turbines generated more than 62.9% of the power available on the national grid.

Malaysia already is altering its mix of generating capacity, with the $5.5 billion, 1.8 million kw Bakun hydroelectric dam and two coal-fired plants to come on stream in the next few years.

A regional supply glut is diverting more Asian gasoline supplies to world markets.

In the past, little Asian gasoline found its way outside the region, largely because of price and quality differentials. But the boom in refining capacity, notably in Thailand and South Korea, is outpacing demand for gasoline in the region, where diesel and kerosine often are the dominant refined products.

In recent weeks, refiners and traders have arranged for gasoline cargoes to be shipped to Africa, Europe, and the U.S. Often these shipments are blended to meet octane and oxygen requirements, notably in the U.S.

A Singapore refiner recently slated big cargoes of gasoline for shipment to Africa and Europe after blending. Thailand, following the start-up of more than 275,000 b/d of refining capacity at two new refineries this year, is expected to export about 1.3 million bbl/month of gasoline.

And in a first, an Australian firm sold a cargo of gasoline to a U.S. refiner last month.

The Deepstar group is heightening its focus on solving problems arising during subsea production and transportation of paraffinic crudes.

Operators and offshore contractors say paraffin is one of the major impediments to deepwater development in the Gulf of Mexico (see related story, p. 23). A unit of Molecular Simulations Inc. (MSI), San Diego, is working under a 12 month Deepstar contract to develop molecular models of paraffin and paraffin inhibitors, which in turn can be used to develop more effective chemical treatments. MSI's work will help industry predict the effectiveness of new inhibitors.

Caracas this month reportedly will sign a $2.3 billion heavy oil agreement with Mobil, Venezuela's third such megaproject since last November.

The deal will call for Mobil and Pdvsa unit Lagoven, beginning early in the next century, to ship 8 gravity Orinoco crude from the Cerro Negro area to Jose, Anzoategui, for upgrading to 16 gravity feed for Mobil's Chalmette, La., refinery.

Partners in preparation for the project recently processed a shipment of Cerro Negro crude at Chalmette.

Last month, ARCO and Corpoven disclosed a $3.5 billion heavy oil deal in Orinoco's Hamaca area (OGJ, Aug. 26, p. 29); Conoco and Maraven in late 1995 agreed to a $1.4 billion Orinoco crude project in Zuata region (OGJ, Nov. 20, 1995, p. 21).

The Orinoco oil belt's heavy oil potential reserves are estimated at 270 billion bbl.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.