OGJ NEWSLETTER

As oil market analysts dust off crystal balls again with the onset of the new year, the trend seems to be to join the bears' bandwagon.

Salomon Bros. sees an oil price slump as nearly unavoidable because the Saudis are unlikely to cut production a required 2.5-3 million b/d to offset expected effects of rising Kuwaiti production and resumed Iraqi exports in the first quarter.

And that means oil touching $15/bbl or less the next several months before economic recovery and multilateral production cuts stabilize oil prices again, Salomon Bros. says.

County NatWest, which dropped its first half 1992 projection for WTI $2.50 to $20.50/bbl, doesn't see a fall to as low as $15-16/bbl as sustainable because of its outlook for stronger economic recovery in the period.

Standard & Poor sees lower crude prices limiting an expected rebound in U.S. oil companies' profits.

Overall, it expects earnings for the companies it tracks to fall 10% in 1991 and rebound 11.6% in 1992, helped by the absence of big restructuring charges that have chewed up profits in 1991 and widening refining/marketing margins.

S&P contends gasoline and other products prices will slip in 1993 but lag the fall in crude prices, which it projects down $2 to $15/bbl for average refiners' acquisition cost.

Will early alarms in OPEC stem the slide? Algeria's call for an emergency meeting ahead of the currently planned Feb. 12 ministerial meeting to review output levels and consider a 10% across the board cut buoyed oil prices last week.

IFE Brent and Nymex light sweet crude for February delivery rose 18-19/bbl to close at $17.83 and $18.97, respectively, on a shortened trading day Dec. 24 after Algeria's call, but some U.S. WTI postings jumped 50.

The week before, both crudes added another $1 to a slide of about $4 since early November.

Amid signs of North American industry's gathering gloom:

API says U.S. products demand in November was "unusually feeble" at 16,693,000 b/d, citing in part the U.S. economy. For the third time in 4 months, Lower 48 oil production fell from a year ago level. Alaskan output rose 1%, but total U.S. production slipped 1.6% to 7,266,000 b/d.
Amoco Canada slashed exploration and capital spending to about $338 million in 1992 from $493 million spent in 1991.
DeKalb reduced capital spending about 35% to $30 million in 1992, reflecting depressed gas prices. It also plans layoffs in January, with significant layoffs expected in its Denver and Houston offices. First to go is Pres. Thomas Neel, resigning Dec. 31 by mutual agreement with DeKalb to pursue other industry opportunities, with Chairman Bruce Bickner assuming both titles.
Encor cut its estimates of proved reserves of gas by 17%, or about 190 bcf, and NGL by 10%, or 2.7 million bbl, reflecting, the deteriorating outlook for gas prices, disappointing field performances, and reassessment of shut-in gas reserves.

Not all companies are slashing North American E&D spending while boosting outlays outside the continent. Bucking the tide is Norcen, with spending for E&D and marketing at $259 million (Canadian) in 1992 about flat with 1991. That breaks out to a 35% cut in spending outside North America to $29.5 million, a 6.2% drop in U.S. outlays to $66.5 million, and a 14% jump in Canadian budgets to $135 million. That continues Norcen's policy of focusing on assets in western Canada and the U.S. and maintaining a controlled investment program elsewhere.

Competing proposals are on the table for use of a mothballed oil pipeline between Sarnia, Ont., and Montreal.

Petro-Canada, Esso Canada, Shell Canada, and Nova have asked National Energy Board for approval to use the line to move imported crude from Montreal to Ontario refineries. The line, operated by Interprovincial, was mothballed this year for lack of demand for western Canadian crude by Montreal refineries.

Saskatchewan Oil & Gas, Norcen, and PanCanadian want a pilot program to reactivate the 497 mile line to ship western Canadian heavy crude to Quebec City. Alberta and Independent Petroleum Association of Canada say if the line is reversed, users must pay entire cost of the system. NEB scheduled a hearing on the toll design issue Jan. 14.

Meantime, NEB will begin hearings Feb. 24 on a natural gas contract and price dispute between Alberta producers and California regulators (OGJ, Dec. 23, p. 31). Intervenors have until Jan. 24 to file submissions with the board. It took no immediate action on requests by Canadian industry associations to block new spot sales to the California market.

Gas pipelines and users have urged FERC to hold a technical conference on mega-NOPR, its pending pipeline rate design rule. Making the request were AGA, Ingaa, United Distribution Companies, and American Public Gas Association, saying they are anxious to minimize regulatory uncertainty under mega-NOPR.

Meantime, FERC has nominated a committee to negotiate a rule governing communications between its staff and outside persons. FERC says it needs clearer guidance on ex parte prohibitions in trial type and adjudicatory proceedings and cites the negotiated rulemaking process as a good way to draft guidelines. The committee would recommended a rule to FERC by Apr. 16, and FERC would use it as the basis for proposing a rule by May 15.

Federal efforts to consolidate states' environmental regulatory authority into a single agency pose a special threat to U.S. oil and gas operations, Oklahoma Natural Resources Report quoted industry and political officials as saying. The comments came in recent testimony before an Oklahoma task force studying reorganization of the state's environmental management. State Energy Sec. Charles Nesbitt predicts creation of a single agency charged with environmental matters "won't save a penny for the state and will create a costly statewide bureaucracy."

Classifying oil field waste as hazardous is EPA's ultimate goal, and "then this single agency and the legislature will be charged with dismantling the oil industry of Oklahoma," the Tulsa newsletter quoted Nesbitt as saying.

Despite opposition from environmentalists, Texaco has received a permit to drill a 10,000 ft wildcat in southern Maryland.

Location is 1.4 miles from the Potomac River and about 14 miles north of a dry hole Texaco drilled in Virginia in 1989.

The company is looking for gas production on almost 400,000 acres of leases it holds in the Taylorsville basin.

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.

Foreign upstream ventures in Venezuela continue to mark progress. Mobil and Pdvsa have signed letters of intent to study development and upgrading of Orinoco heavy crude and other E&P opportunities in Venezuela. Joint study teams will make recommendations about possible next steps in 6 months.

India's state owned ONGC plans to restructure its financial base by making 20% of its equity shares available to the public through mutual funds. That will help ONGC meet foreign exchange needs of about $4 billion under its eighth 5 year plan.

To date, ONGC has lined up $1 billion of that foreign exchange funding from World Bank, IMF, and Japan's ExImBank. To meet its target of boosting oil production to 880,000 b/d by 1996-97 from the present 560,000 b/d, ONGC plans a 5 year budget of $22 billion. Meantime, India's government is negotiating for $950 million in funds from World Bank, Asian Development Bank, and Japan's government to pay for oil imports in the 1991-92 fiscal year, currently pegged at 412,000 b/d of crude and 180,000 b/d of products. That's in addition to a $500 million structural adjustment loan from the World Bank and $250 million ADB will provide for restructuring India's petroleum industry.

British Gas continues to press its expansion into eastern Europe. It has signed a cooperation agreement with Casky Plynarensky Podnik, the Czech republic's gas company due to be privatized in 1992. The two will extend the Czech distribution network, converting it from town gas to natural gas, supplant other fuels with gas, out energy use, and upgrade or replace portions of the system. Also to be sold are Transgas, which operates the national gas network, and the Slovak gas company.

Expect a flurry of steps by members of the Commonwealth of Independent States to implement efforts to stimulate oil and gas production growth. Azerbaijan has established state owned Azerineft, incorporating former producing associations for onshore, Azneft, and offshore, Kaspmorneftegaz. Baku officials blame the republic's oil industry crisis, in which output has fallen to less than 240,000 b/d, on "decades of colonial type exploitation" by the former Soviet central government.