OGJ NEWSLETTER

A depressed gas market continues to batter North American company operations beyond plunging first half earnings.

Anticipating lower gas prices will persist for the foreseeable future, Nicor is cutting drilling outlays to focus only on projects consistent with the current market.

Accordingly, it also will restructure and cut staff by about 30, closing its Tulsa office in the process and consolidating marketing activities in Houston and Denver. Because of the downturn, Nicor sees more opportunities to acquire producing gas properties, so it will expand its acquisition group.

Alamco, expecting a third quarter loss, plans to accelerate an extensive workover program to take advantage of contract sales prices about double current spot gas prices'

It plans no additional development drilling and instead will hold drilling prospects in inventory for now. Alamco also will continue to seek producing property acquisitions.

Is a depressed gas market driving a record level of worldwide oil and gas reserve transactions? Mergers and acquisitions totaled $3.15 billion in the second quarter, says John S. Herold, Greenwich, Conn. They represented 527 million bbl of oil equivalent of proved reserves with an implied unit value of $5.97/BOE. Herold notes second quarter M&A reserve values fell in the U.S. and shifted to oil everywhere except in Canada.

Nova's review of initial customer requirements for additional firm gas transportation service on its Alberta system for the next 2 years shows a 60% drop from last year to 1.9 bcfd.

U.S. drilling's nosedive deepens with the gas doldrums.

The Baker Hughes weekly active rig count fell 35 to 796 the week ending Aug. 10, a drop of 18% vs. a year ago and the first time it has dipped below 800 since June 19, 1989.

Using a different criteria, Smith's tally dropped 31 units to 880, a slide of almost 22%, from a year ago.

The gas slide fallout is hitting the E&C sector as well.

McDermott, posting a first quarter fiscal 1992 loss of $2.9 million, plans to cut overhead costs by $50 million in fiscal 1992-93. Every unit may be affected, including a possible cut in size of its offshore construction fleet. Layoffs are under way, with more expected. It also plans to cut capital outlays and pull out of businesses unlikely to generate a decent return.

There are a few bright spots on the gas scene.

Devon doubled gas output in the first half, with coal seam gas accounting for 4 bcf of the increase to 7.6 bcf, enabling it to boost gas sales about 23%. At the same time, Devon was able to slash unit production costs about 40%, reflecting very low lifting costs at its coal seam project in New Mexico.

Western Gas Marketing has signed a sales contract with Natural Gas Pipeline Co. of America that represents a significant departure from previous agreements. The contract runs to Oct. 31, 2000, and covers as much as 171 MMcfd of gas.

Instead of a fixed price for a term, the contract will track an index of competing gas supplies to set a competitive monthly price. Western says the contract will give producers a higher load factor and the stability of a 10 year agreement.

Coal bed methane gains wider interest worldwide.

Spain has awarded a hydrocarbon permit to Union Texas Espana calling for a 6 year exploration program on the 93,700 acre Villamanin prospect area in Leon province, where UT Espana plans to explore for and recover coal seam gas.

UT plans to spud the first wildcat by yearend and spend $2.3 million on exploratory drilling the first 3 years.

Nigeria is mulling its first methanol plant with an eye to exports. Talks are under way among Nigerian National Petroleum Corp., Gulf Oil Nigeria, Mannesmann, ICI, and Pencol International. Under a proposed venture, NNPC and Gulf would supply associated gas to a plant to be built by the other three firms.

Royal Dutch/Shell is the latest bidder for action off Sakhalin Island in the Soviet Far East.

An unnamed company in partnership with Shoseki Overseas Oil Development Co., a unit of Showa Shell Sekiyu KK, is interested in conducting a feasibility study with Sakhalinmoreneftegas. Shell says if the two are selected to carry out the feasibility study, they will be joined by Mitsubishi and Nissho Iwai.

Others bidding for the offshore work are Exxon/C.Itoh, McDermott/Marathon/Mitsui, Ralph M. Parsons and a South Korean group, and Sodco of Japan.

South Korea is stepping up the hunt for domestic oil.

State owned Pedco was to spud a wildcat about 270 km west off Kunsan this month. The $9.6 million well is programmed to 8,858 ft. Also under way by Pedco is exploration southwest of Kunsan with Marathon 50-50 and south of Sogwipo with Ultramar and Kirkland. A prospect off Ulsan probably will be offered to a foreign company solo.

One of the world's most ambitious gas projects is having start-up problems. Qatar General Petroleum Corp. shut in supergiant North gas field off Qatar within a week of Aug. 3 start-up because chemicals leaked into one of the pipelines to shore.

It may take 3 weeks to resolve the problem.

North field, with 150 tcf of reserves, is the world's largest offshore gas field under development. QGPC originally planned to reach a peak of 800 MMcfd by end of September, when all 16 development wells in the $1.3 billion project were to be on stream. In addition, leaks from several wells have been reported, with gas seen bubbling to the surface near platforms.

Algeria turns more to foreign investment in its oil and gas sector to help it out of dire economic straits.

Middle East Economic Survey reports Prime Minister Sayed Ahmed Ghozali predicting economic disaster if Algeria doesn't earn $6-7 billion from advance oil sales by yearend.

Ghozali says Algeria's foreign exchange reserves can cover only 10 days' imports and the government can no longer borrow to service foreign debt, MEES reported. Algeria's new oil policy calls for granting production rights to foreign companies in return for cash payments and investment in the oil sector.

That has stirred controversy with reports the government might sell Hassi Messaoud oil field to foreign interests.

French Finance Minister Pierre Beregevoy, visiting Algeria in July, said Total is about to sign a deal with the government covering investment in Hassi Messaoud, a 1956 Total find.

Meantime, the World Bank approved a $100 million loan to Algeria for promoting exploration by foreign companies, technical aid and training in drilling and EOR, and related studies.

The Bush administration has announced a new wetlands policy that streamlines wetlands permitting and relaxes protection for marginal wetlands. The policy narrows the wetlands definition to lands with 15 straight days of standing water or 21 straight days of saturated soil, opening 33 million of the 100 million acres currently under protection in the Lower 48 to potential development. Environmental groups assailed the new policy, and Congress is expected to examine it closely.

EIA predicts U.S. energy demand will begin to increase next year, assuming the recession ends and the weather returns to normal. For 1992, it sees oil demand up 1.6-2.8%, assuming crude oil prices remain at $16-22/bbl, and U.S. crude output falling to 6.9-7.3 million b/d from 7.4 million b/d in 1991.

For now, however, a sluggish economy has taken its toll.

API reports U.S. petroleum product demand was 16,721,000 b/d in July, down 2.17, from the same month a year ago. That compares with a 4% decline for much of the first half and "is not inconsistent with the apparent bottoming out of the economic recession." U.S. oil production rose 3.7%, to 7,435,000 b/d, with most of the increase coming from Prudhoe Bay field.

Oil imports were 7.9 million b/d in July, down 1.15 million b/d from the same level a year ago and reflecting much smaller stockbuilding as well as higher production vs. a year ago.