OGJ Newsletter

U.S. Industry Scoreboard 11/4 [69761 bytes]

Signs abound that a turnaround for the oil and gas industry is in full swing.

The offshore drilling market is heating, with Rowan Cos. disclosing plans to spend $380 million to build two more world-class jack ups-without first having contracts. The harsh-environment Enhanced Gorilla VI and Gorilla VII-similar to the Gorilla V now being built at Rowan's LeTourneau yard at Vicksburg, Miss.-are next in line at the yard. Gorilla V is being built on spec, as well, and is slated for June 1998 delivery.

The new jack ups are expected to command a premium day rate of $160,000-180,000 because they'll be capable of simultaneous drilling and production and rated to work in 400 ft of water.

Delivery is set for first quarter 1999 and second quarter 2000. Rowan is betting that as more and more semis and other floaters are pressed into deepwater service, there will be increased demand for its units in shallower depths.

In another sign of industry's turnaround, Texaco unveiled a restructuring plan designed to stimulate growth, rather than simply cut costs.

As part of the plan, which takes effect Jan. 1, Texaco will create separate business development units under newly realigned upstream and downstream operations.

Four upstream operating units will be consolidated in Houston covering worldwide exploration, international production, and North American production, with a new business development group to "help us identify and develop new opportunities and revenue sources more quickly, as well as help guide projects more efficiently toward realization," said Texaco Chairman Peter Bijur. Similarly, a business development group also forms an integral part of the international downstream unit, based in Harrison, N.Y., which includes marketing and manufacturing arms.

Texaco also will create a business unit to coordinate certain global areas that will benefit from special emphasis, including a new worldwide natural gas and power group and new a worldwide lubricants group.

The global business unit also will handle oversight of international joint ventures, including the proposed downstream alliance among Texaco, Shell, and Saudi Aramco (OGJ, Oct. 14, p. 29).

Still another aspect of Texaco's restructuring is the formation of leadership councils, designed to share information, speed decisionmaking, allocate resources, and monitor progress across business lines.

Increased gas production off Louisiana will be sufficient to support new ethane-based ethylene plants in the state.

That's a key finding of a study of Louisiana's offshore NGL prospects by Houston consultant Petral Worldwide Inc. Petral's James Cutter predicts offshore gas production could rise to as much as 7.33 tcf by 2010 from 5.26 tcf today.

By 2000, he said, ethane from Louisiana offshore production could support new capacity of 2.5 billion lb/year, if all that ethane were converted into ethylene. He sees the smallest likely plants at capacity of 500-600 million lb/year and contends the market could support two such plants.

Ethane is the most expensive feedstock for an existing ethylene plant, Cutter noted. However, capital costs for a new ethane-fed ethylene plant are considerably lower than plants using heavier feeds.

In addition, ethane is the only ethylene feedstock that yields significant amounts of hydrogen. If producers take advantage of hydrogen co-production, ethane becomes one of the most economical feedstocks for a new ethylene plant.

Advances in information technology (IT) have played a major role in sustaining E&P success in recent years, and IT's role in that success is poised for more growth.

So says Cambridge Energy Research Associates in a new study. The E&P industry spends an average of $6 billion/year on IT, or about 25¢ for every barrel produced, the study found. IT's main influence on E&P comes in two technologies: 3D seismic imaging and bit steering by measurement while drilling.

As IT brings about greater efficiencies for companies, new resources stand to be found. During 1995-2000, CERA projects about 10 million b/d of new productive capacity from "discovered" fields, with 3D helping to account for 75% of that total. The report defines several scenarios to help E&P managers assess evolving IT issues and develop IT investment strategies. "Managing IT is no longer separate from running the business," CERA said.

There's good and bad news for refiners in two soon-to-be proposed rules now wending their way through the U.S. EPA.

In welcome news, EPA has drafted a proposal extending the "opt-out" period for Phase II reformulated gasoline (RFG).

The proposal is designed to avert problems that occurred with the introduction of Phase I RFG in January 1995, when several states exercised an option to use the new gasoline, then promptly "opted out" right as the program got under way. This left refiners with stranded investments in the areas that opted out, because higher-cost RFG had already been manufactured, but those costs could not be recovered at the pump.

Under EPA's proposal, areas now using Phase I RFG voluntarily would have to let EPA know if they want out of Phase II program by December 1997, or 5 months after the final opt-out rule is expected to take effect. EPA is targeting the final rule for July 1997. It soon will be sent to the Office of Management and Budget (OMB) for review and should appear in the Federal Register by January, an EPA official said. Current procedures allow opt-outs with only 90 days notice.

Phase II RFG will enter the market Jan. 1, 2000. Once a state has agreed to use Phase II, it cannot opt out until December 2003.

This gives refiners a better way to gauge the market in advance, as well as a guarantee that "opt-in" areas will use the fuel for 4 full years.

On the other side of the coin, EPA confirms it has sent a proposed rule to OMB to allow former ozone nonattainment areas to opt in to the RFG program. Once they do, however, these areas also could not opt out until 2003. This would make about 30 new areas eligible to opt in to RFG use, an EPA official said.

Areas would probably opt in as a means of making sure they remain in attainment of federal air quality standards, the official said, adding that the second rule will probably be published at the same time as the first proposal.

Only the nation's worst ozone nonattainment areas are required to use RFG. However, areas in the less-severe nonattainment categories have been allowed to opt in.

EPA's rule would be the first time areas now in attainment could opt in to the program. Industry has indicated strong opposition to the proposal.

Quebec plans legislation giving it broad powers to regulate gasoline prices.

Energy Minister Guy Chevrette said gasoline retailers would be required to charge prices at the pump using a minimum profit margin. A new agency, the Quebec Energy Board, would monitor and enforce prices. Chevrette says major retailers in Quebec, such as Imperial, Shell, Petro-Canada, and Ultramar, would be prohibited from posting prices at the pumps below those charged to independent retailers for resale. The proposed legislation follows a price war last summer that independent retailers said was affecting their livelihood.

A pipeline linking Oman with the U.A.E. could co-exist with a competing line between Abu Dhabi and Dubai, contends Tony Barrett, Amoco's Middle East vice-president. Oman is considering shipments of as much as 738 MMcfd to Sharjah, for processing by Amoco to prop growing demand. But Dubai agreed to buy gas produced in Abu Dhabi (OGJ, Oct. 28, p. 26). Dubai has no indigenous gas and has been courted as a gas customer by Iran, Qatar, and Abu Dhabi, as well as Oman. Sharjah now supplies gas to Dubai.

India's new United Front government is putting together a fiscal package to attract investment of $150 billion to its hydrocarbon sector.

The government is expected to make decisions on proposed policies for exploration and the removal of price controls on petroleum products.

India's Petroleum Minister Balu says a system based on market prices should replace current price controls. "Adopting market prices will become progressively more attractive," he said, citing efficiencies from competition and India's soaring petroleum demand. Officials say the government is sensitive to maintaining a level playing field for investors.

Are the chances improving for a megaproject to move gas from Alaska's North Slope to tidewater for liquefaction and export as LNG?

"Timing is right," said Phillips Chairman Wayne Allen at a Houston briefing. Allen is optimistic about LNG, given the outlook for increasing gas demand worldwide, especially in Asian markets. Allen said, "I think it's more a 'when' than 'if'...I'm an optimist." Phillips' Kenai, Alas., LNG plant has operated for more than 25 years and "never missed a shipment," Allen added.