OGJ NEWSLETTER

The expanding world of international E&P opportunities grows larger still.

Independent consultants have begun reviewing bids for the Sakhalin Island E&P project. Russian President Yeltsin will have the last say on their conclusions, expected in early 1992.

Meanwhile, the Soviet energy crisis deepens. Aviation fuel shortages closed 100 or more Soviet airports, canceled many flights, and caused unscheduled fuel stops for others.

New Zealand's government will introduce legislation in early 1992 to allow early tax deductions for onshore and offshore E&P spending and to expedite farmouts.

Australia and Indonesia have approved 11 Timor Sea exploration contracts said to involve 55 oil companies under the Timor Gap treaty. The pacts provide for 45 wells costing $360 million during 6 years. Three more concessions will be awarded later.

Several countries are pressing ways to supply Pacific Rim oil and gas demand.

Saudi and South Korean officials have agreed in principle to Saudi plans to stockpile 40 million bbl of crude in South Korea by 1997. The Saudis store oil in the Caribbean for the U.S. market and in Netherlands for European customers.

Meanwhile, the Saudis oppose a Japanese government plan to extend a 1 year increase in its consumption tax on crude and products. The increase, to expire Mar. 31, 1992, helped fund Japan's contribution to the Persian Gulf war effort.

Demand for gas along a proposed 2,000 mile Japanese gas pipeline from Hokkaido to Kyushu could be almost double MITI's estimate of 57 million tons of LNG during 20 years, a 2 year feasibility study shows. The pipeline might be built by 2005.

Indonesia has agreed in principle to hike LNG exports to Taiwan. The two plan to meet soon to iron out details.

Taiwan wants to at least double the 1.5 million tons/year it gets from Indonesia.

Taiwan also has asked Indonesia to participate in joint ventures to develop oil fields and produced unleaded gasoline.

Oil production increases are on tap in several countries in the 1990s.

Kuwait's oil minister said the country's reviving oil industry will be producing 450,000 b/d by yearend, excluding its 140,000 b/d Neutral Zone share, and will increase 50,000 b/d/month thereafter. Kuwait's production will return to its 1.5 million b/d OPEC quota by yearend 1992, he said.

Canadian Oxy and partners declared part of Yemen's Masila block commercial based on the previously announced Sunah, Heijah, and Camaal discoveries.

The Masila fields have about 550 million bbl of oil in place, of which 235 million bbl is estimated recoverable.

The group will submit a $500 million development plan in January 1992 with an eye to start-up in second half 1993. A 120,000 b/d modular central processing unit is to feed a 24 in., 100 mile pipeline to the Arabian Sea.

Petrobras will spend 83.5 billion in 1992, almost double 1991 E&P outlays, to increase Brazil's oil production.

Andean Promotion Corp. approved $50 million in loans to finance energy and industrial projects in Ecuador and Peru.

Petroperu is to receive $24.8 million to develop Chambira oil field in the Amazon region.

Construction is starting on the $5.2 billion project to develop Hibernia field off Newfoundland. First oil is to flow in 1996, peaking at 110,600 b/d by 1998.

Lasmo has won the bitterly contested takeover bid for Ultramar (OGJ, Dec. 16, Newsletter). Lasmo's 1.1 billion ($2 billion) bid was accepted by 54.67, of shareholders.

Lasmo, committed to selling Ultramar's refining/marketing operations in eastern Canada and the U.S. and integrating Ultramar's two upstream organizations, says 10 companies are interested in the downstream assets.

Protracted weak upstream conditions are causing more retrenchment in North America.

Smith International is consolidating further because international growth is not offsetting the decline in U.S. drilling rig activity. Once the consolidation is complete, Smith's worldwide workforce will fall 23% from its 1991 peak. Most of that will occur by yearend.

The number of U.S. drilling permits issued through November 1991 is down nearly 40% year to year, the rig count is barely above 800, and 1992 looks to be the weakest year for U.S. drilling since 1945.

More capital spending cuts are on tap for 1992.

Amoco will spend $3.7 billion, 11% less than in 1991 and

flat with 1990 outlays, and ARCO $2.4 billion, about 10% less than this year. Columbia Gas will spend $370 million, including $99 million for oil and gas activities, down 12%.

Imperial Oil expects a loss on 1991 operations, and Nova plans $675 million after tax charge against fourth quarter earnings, mostly for a writedown of chemicals assets.

Profitability of U.S. majors remained close to the historic average in 1990, despite increased oil prices following Iraq's invasion of Kuwait. API says 20 major firms' return on stockholders' equity rose from 11.6% in 1989 to 12.6% in 1990 vs. median profitability of 12.5% in 1968-1990.

Except for 1988, majors' profitability in 1990 was the highest since 1981 and the first year since 1983 that oil profitability exceeded that of nonoil companies.

A second major NGL pipeline expansion to the Gulf Coast has a green light. Mapco operated Seminole Pipeline Co. will add a 14 in., 535 mile conduit to its NGL system from Gaines County, West Texas, to Mont Belvieu by first quarter 1993. That will hike capacity to more than 300,000 b/d. The system has been running essentially at its 140,000 b/d capacity since first half 1990.

Koch is expanding its Medford, Okla., to Mont Belvieu NCL system to 100,000 b/d from 40,000 b/d (OGJ, Nov. 25, p. 38).

More rules, reports, and projects focus on U.S. environmental concerns. U.S. refiners soon may breathe a sigh of relief if EPA's proposal to stay the effectiveness of the benzene Neshaps rule is approved. EPA reached a proposed settlement agreement with API in which EPA agreed to issue the stay.

Under the proposed settlement, EPA must issue a final rule by December 1992, after which refiners would have 90 days to comply. Comments will be accepted on the proposed stay until Jan. 8 and on the settlement agreement until Jan. 16. Upon pact final approval, EPA by Mar. 2, 1992, will issue a notice of proposed rulemaking for an amended benzene Neshaps rule.

Pennsylvania approved rules requiring most gasoline stations in 13 counties with the worst air quality to install Stage 2 vapor recovery equipment by November 1992. The counties encircle Pittsburgh and Philadelphia.

National Research Council recommends the U.S. restore damaged wetlands to prevent further loss and to add 10 million acres by the year 2010. NRC says ecosystems can be returned to near their condition prior to manmade disturbances and restoration would help solve problems of water quality, declining wildlife populations, and flooding.

DOE says Tinker Air Force Base in Oklahoma will convert 200 gasoline vehicles in its fleet to dual gasoline-CNG capability in the largest federal fleet conversion to date.

DOE also will participate in a program with Tulsa public schools, which purchased 45 CNG fueled buses and are converting 45 other buses to dual fuel operation.

Hoechst Celanese will spend $6 million to install equipment to recycle 30 million lb/year of plastics, including milk jugs, at its Spartanburg, S.C., plant by yearend 1992.

And Goodyear's polyester division got federal approval to use a recycled polyester resin in food packaging applications, including soft drink bottles.