OGJ Newsletter

U.S. Industry Scoreboard 10/14 [70410 bytes]

Concerns over production outages in the Gulf of Mexico from tropical storm Josephine have helped boost already-strong oil prices to their highest level in 5 years.

Nymex November crude closed at $25.54/bbl Oct. 8. But the Nymex price plunged 47¢ to $25.07 Oct. 9, after API's weekly report showed a build in distillate stocks. Distillate stocks rose 1.3 million bbl to 113.647 million bbl for the week ended Oct. 4 but are still 17 million bbl below year-ago levels.

Mirroring reaction to the stock report, November Brent in London also fell Oct. 9, to $24.27/bbl from a close of $24.58/bbl Oct. 8.

The U.K. and Norway are expected to resume talks over new imports of Norwegian gas to U.K. (see related story, p. 23).

In recent years, the U.K. government blocked Norway from sending gas from new field projects through its Frigg pipeline to the U.K. As a result, the pipeline has operated well below capacity. Britain's new energy minister, Lord Fraser, has apparently decided that blocking new gas from Norway damages the U.K.'s credibility in pushing for gas market liberalization in mainland Europe. Companies with interests in the Interconnector pipeline, about to be built from U.K. to Belgium, are trying to sell their gas on the continent.

The European Council will request Oct. 16 that the World Trade Organization in Geneva establish a dispute settlement panel to hear challenges of U.S. laws aimed against Cuba, Iran, and Libya.

The Helms-Burton law permits U.S. owners of property confiscated during Cuba's 1959 revolution to sue non-U.S. firms that now use the assets. The D'Amato Act would extend U.S. sanctions against foreign firms that help Iran or Libya develop energy properties.

Conditions continue to deteriorate in Nigeria, spurring talk of additional sanctions against the military regime. U.S. officials specifically ruled out a blanket oil embargo, however.

U.S. Secretary of State Warren Christopher, on a five-nation trip to sub-Saharan Africa, said Nigeria will be a discussion topic with leaders in Mali, Ethiopia, Tanzania, South Africa, and Angola. But he didn't elaborate on suggested additional sanctions.

Foreign petroleum companies waiting on passage of production-sharing contract legislation by Russia's parliament appear to be taking the news of President Boris Yeltsin's questionable health in stride.

Groups led by Royal Dutch/Shell and Exxon are itching to start work on major developments off Sakhalin Island but are waiting while draft PSC rules become law before they start (OGJ, May 27, Newsletter).

Shell says reform of Russia's laws is a very important process, which has been going on since the days before Yeltsin came to power: "We don't see it as dependent on one particular person."

On the technology front, the U.S. and Russia will combine their fuel cell R&D efforts in order to speed the technology to market. Both nations originally developed the technology for their space programs. Fuel cells convert energy released by fuel oxidation directly into electricity. By producing energy without combustion, they release much less CO2 than does conventionally burning fossil fuels.

Meanwhile, Russia's Gazprom has signed a 25-year gas supply agreement with Poland. The agreement will increase Poland's imports of Russian gas to 490 bcf/year from 210 bcf/year today. New gas supplies are expected to come from the Yamal peninsula in western Siberia, once a 4,000-km pipeline has been built to take gas to Poland and Germany.

The U.S. Ex-Im Bank has approved a $134.6 million guarantee to support sale of equipment and services by Compressor Controls Corp., Des Moines, to Gazprom. The deal was the first under a memorandum of understanding (MOU) Ex-Im Bank and Gazprom signed in November 1994.

The deal will enable Gazprom to improve compression station efficiency and reduce consumption of pipeline gas. Under the MOU, Ex-Im Bank will provide medium-term guarantees of commercial loans for U.S. sales to Gazprom under the bank's regular guarantee program. Repayment of the loan will be made in five tranches, beginning in July 1998.

Ex-Im Bank also approved $391.4 million in project financing to support sale of equipment and services by a Bechtel unit to Atlantic LNG Co. of Trinidad and Tobago. Atlantic will build, own, and operate an LNG export plant at Point Fortin, Trinidad. Another Bechtel unit will handle the project's local onshore work. Ex-Im Bank's support consists of a political risk-only guarantee of loans made by commercial lenders for $391.4 million.

Romania's efforts to reorganize its oil and gas industry have become a political hot potato. Private sector oil importers and processors in Romania complain that the National Oil Co. of Romania (NOC), formed in August out of various state oil firms, threatens their independence.

Traders, including General Consulting Procurement (GCP) and General Trade & Investment (GTI), have in recent weeks formed their own oil company, Petrogas, which has start-up assets of more than $150 million vs. NOC's almost $300 million.

Founders of Petrogas claim they are endangered by firms such as Compet, which runs most of Romania's oil pipelines and Rafirom, which handles most of Romania's refining. Private firms do their importing, transporting, and processing through such firms, with almost no facilities of their own.

Petrogas founders told Bucharest of their plans to buy a stake in NOC. A Nov. 3 election for both parliament and president makes the issue controversial. An election winner is uncertain, but President Iliescu and his PDSR party are almost certain to lose their hold on power.

But observers question the free-market credentials of Petrogas. Heads of GCP and GTI are close friends with members of parliament, and the firm's investors also appear to be linked more by personal connections with public officials than any grouping logically built around oil importing. And foreign private investors-Amoco, Enterprise Oil, and Shell-exploring for hydrocarbons under established concessions have not joined in with Petrogas' criticism of NOC.

IPAA says 19 oil and gas associations are cosponsoring a series of seminars this month to ensure industry makes the most of opportunities on public lands. The meetings also will enable associations to survey members as to which issues should be placed on the public lands agenda for the next Congress. The seminars will explain how producers can benefit from changes such as royalty reform legislation, deepwater royalty relief, incentives for heavy oil and marginal production, states' expanding role in public lands, and increasing producer access to public lands.

Meetings are scheduled for Denver, Oct. 14; Roswell, N.M., Oct. 16; Farmington, N.M., Oct. 17; Bakersfield, Calif., Oct. 22; Midland, Tex., Oct. 24; New Orleans, Oct. 25; Houston, Oct. 28; and Dallas, Oct. 31.

Merger, acquisition, and divestiture activity continues at a brisk pace in Canada.

Norcen Energy will sell half its interest in Superior Propane in a $250 million (Canadian) royalty trust offering and apply proceeds to expand investment in its oil and gas business. Superior is Canada's largest propane dealer.

MAAP Investments sold its 32.9% interest in Encal Energy for $93.9 million to TMI-FW, advisor to Ontario Teachers' Pension Plan Board, and Tundra Investments LP, owned mainly by the Bass family of Fort Worth.

Numac Energy paid $51 million in cash and shares for Smart On Resources Inc. Smart On, formerly CN Exploration Ltd., is owned by Hong Kong investors.

Avatar Energy agreed to a $4 million takeover by Neutrino Resources. The merged company would have production of about 2,000 b/d. United Rayore Gas hired First Energy Capital Corp. to seek potential buyers. United Rayore has about 1,900 b/d of oil production: 1,400 b/d in Saskatchewan and 500 b/d in California.

U.S. oil and gas industry acquisition and divestiture (A&D) activity in the second half could push the 1996 total to the high end of the $5-7 billion range for the third year in a row, forecasts Randall & Dewey.

During first half 1996, A&D transactions totaled $2.9 billion. "The continued high transaction volume-179 total transactions in the first half with 149 announcing consideration-indicates that stronger performance by both oil and gas prices...has kept the market well-oiled, enabling sellers to execute their programs while keeping buyers and lenders confident," Randall & Dewey said.

But despite strong prices and ready availability of capital, average reserve value for first half 1996 transactions (including those under consideration) fell to $4.12/bbl of oil equivalent (BOE) from $4.80/BOE in the first quarter and $4.54/BOE in 1995. Contributing to the downtrend were second quarter transactions in Alaska and the Rockies with mostly longer-lived gas reserves.