OGJ Newsletter

U.S. Industry Scoreboard 3/3 [71433 bytes]

Concerns over ethical and employment practices continue to bedevil major petroleum companies.

In the wake of Texaco's recent $176 million settlement of racial discrimination charges (OGJ, Jan. 6, 1997, Newsletter), two more large oil and gas companies-Pennzoil and Coastal-now face lawsuits.

Damages of at least $400 million from Coastal and $300 million from Pennzoil are being sought by a New York law firm handling the class-action suits for 11 African-American Pennzoil and 10 Coastal plaintiffs.

Coastal said, "Based on our investigations so far, we do not believe any of these allegations will be substantiated, except one allegation relating to a co-worker who made racist remarks to one of our employees.

Coastal promptly investigated that claim, and the offender was terminated. Pennzoil said only that it plans "to vigorously dispute'' the claims.

The plaintiffs' attorney, Daniel Berger, was quoted in press accounts as saying that 400-500 African-American employees at Coastal in a total work force of 8,000 "are all lumped at the bottom of the pay grade scale," while more than 100 Caucasians at the firm earn more than $100,000/year.

He also claimed the company has never had minority representation on the board.

However, Coastal noted it has 15,000, not 8,000, employees.

And at the 1996 annual meeting, Coastal shareholders overwhelmingly rejected a proposal calling for greater minority representation on the board.

Records obtained by OGJ of the meeting showed that Coastal has minority members on boards of key subsidiaries, including ANR Pipeline Co. and Colorado Interstate Gas Co.

The records noted at one point that "sex and race were not key qualifications" in board member selection "but rather their business background and experience."

Meanwhile, ethics issues continue to dog Royal Dutch/Shell.

At Shell Transport & Trading plc's annual meeting in May, a group of institutional shareholders plans to table a motion calling on the company to establish new procedures for environmental and human rights issues.

The move by the shareholders group, which holds almost 1% of Shell, is the first of its kind in the U.K., although similar motions are commonly raised in the U.S. against public companies.

The company has been attacked by a number of protest groups, following the abortive Brent spar dumping program and allegations of pollution and close ties with the military junta in Nigeria (OGJ, Jan. 20, 1997, p. 26).

A Shell official said the company has had notice of the motion, which covers a number of issues, including human rights. Shell is preparing a response for the meeting.

Investors' concerns are already being addressed by a review of Shell's general business principles, which is expected to be completed within the next few weeks, the official added.

Major legal and regulatory developments left a big imprint on the U.S. energy industry last week.

FERC gave a green light to the proposed merger of Enron and Portland General, in a decision that could pave the wave for speedier action on other proposed mergers of gas and electric companies (OGJ, Feb. 3, 1997, p. 19).

Applying for the first time its streamlined merger policy, proposed this past December, (OGJ, Jan., 6, 1997, p. 26), FERC found the Enron-Portland deal would not hurt competition and noted the firms pledged not to raise wholesale rates for at least 4 years. The firms also agreed to refrain from passing on merger costs to customers.

"The merger will not lead to undue concentration of market power," FERC said, because Enron's ownership of power generation is "insignificant" in proportion to the overall West Coast power market to be served by the combined company.

FERC also said Enron could not readily deny or delay service to potential electric competitors, because a complaint to the commission could be filed.

The commission noted that Oregon regulators have purview over Portland General's retail rates and is still reviewing the merger.

In other action, FERC reaffirmed its decision to allow gas pipelines to recover 100% of gas supply realignment costs caused by industry restructuring.

This restructuring was prompted by FERC's Order 636 and forerunner rules, which removed pipelines from the business of selling gas and required them to provide open access to transportation. The District of Columbia Circuit Court of Appeals had remanded realignment cost recovery and several minor issues to FERC when it upheld most of Order 636 last summer.

On the environmental front, a Mar. 12 deadline looms for comments on EPA's proposed new air quality standards for soot and smog.

A recent court order allowed 3 more weeks for public comment on the far-reaching changes in the standards.

Facing increasing public opposition to its proposed rule (OGJ, Dec. 9, 1996, p. 34), EPA had sought a 2-month delay in the final rule. The court's action will require a final rule by July 19.

Carol Browner, EPA administrator, recently defended the proposed rule, saying, "This has been the most extensive scientific review and public outreach process ever conducted by EPA for public health standards." Industry, along with states and local governments, is worried over lack of ability to monitor very fine particulates, among other concerns (OGJ, Jan. 6, 1997, p. 18).

Strategic alliance activity continues to proliferate.

Amoco and Shell Oil reached final agreement last week to join forces in a new limited partnership called Altura Energy Ltd., based in Houston.

The combined company will operate the two firms' producing assets in the greater Permian basin of West Texas and Southeast New Mexico.

The final accord came after 2 years of negotiations. It will create the largest oil producer in Texas and the third largest in the U.S., with a total of 6,300 wells producing a 170,000 b/d of oil, 220 MMcfd of gas, and about 20,000 b/d of NGL. Amoco will hold a 64% share of the new venture and Shell 36%.

The new company began operations Mar. 1.

Gas demand for electric generation could increase as much as 45% if competition in U.S. power markets results in premature shutdown of some nuclear power plants, Ingaa Foundation predicts.

A study found that 37 nuclear plants, mostly in the Northeast and Midwest, could face early closure because future production costs could exceed the market price for electricity in their region. It said markets could open for an additional 1.55 tcf if gas-fired capacity replaces nuclear capacity completely.

In 1995, gas supplied 3.46 tcf to the electric generation market.

Natural Gas Supply Association quickly challenged the study.

It said the conclusions are "speculative."

Because the study makes gas seem like a "sure winner" in a restructured electricity industry, "it is likely to reduce the attention legislators are willing to give to our industry's restructuring concerns. And we estimate that, conservatively, failure to achieve balanced restructuring legislation could endanger at least 2 tcf of our current market."

Amoco Corp. and Belgian electric/gas utility Tractebel have agreed with Jordan to build, own, and operate a natural gas grid in that country.

The companies will be responsible for buying, transporting, distributing, and marketing gas through the network. Target customers are Jordan's fertilizer industry, electricity generators, and industrial users.

Amoco has recently reported a number of gas discoveries in the Nile Delta area off Egypt and is considering potential markets for the gas in the region (OGJ, Feb. 24, 1997, p. 37).

Elf is left with only one partner, Germany's BVS, in the planned 170,000 b/d Leuna refinery in East Germany (OGJ, Dec. 23, 1996, p. 41).

The company confirmed that a Russian group that was to take a 24% stake in Midor GmbH, the company established to build and operate the refinery, pulled out due to lack of funds to make a payment due in December.

The Russian group has so far paid only a fourth of its stake.

Elf will foot the 4.8 billion deutschemark ($2.9 billion) tab until the refinery comes on stream.

Elf still expects the refinery to be profitable and that the Russian group will still supply the refinery with crude oil, as planned.

But Elf also will be able to lift crude from other Russian suppliers.

Russian crude will come via the 344-km Druzhba pipeline into the former Czechoslovakia, while other crude will be shipped in through the Baltic ports of Rostock and Gdansk.