OGJ Newsletter

U.S. Industry Scoreboard 12/29 [44,543 bytes]

London's Centre for Global Energy Studies (CGES) says there is room in the market in 1998 for Iraqi exports under the U.N. oil-for-aid deal or for extra OPEC production, but not for both.

CGES says the OPEC oil quota total agreed to in Jakarta recently appears to be too high at 27.5 million b/d (OGJ, Dec. 8, 1997, p. 21).

"The key question," said CGES, "is whether Saudi Arabia will insist on producing up to its new quota (8.76 million b/d). As a guide to Saudi intentions, watch how they set contract prices."

CGES described one view of the country's output strategy: "Saudi Arabia has already upped its output to the 8.4 million b/d-plus level in response to requests from its existing contract holders prior to the OPEC meeting, so why should it not reduce production if it meets with increasing customer resistance? This school of thought believes that Saudi Arabia has hit on a new method of coping with the rising production of others in OPEC: if you cannot beat them, obtain the appropriate license to join them when conditions permit."

Brent futures have fallen by almost $2.20/bbl since the Jakarta meeting began, as worries over loss of Iraqi oil exports faded because of an expected hike in OPEC production. If Iraqi exports resume at their recent 700,000 b/d level, and if OPEC members throttle back on capacity growth, CGES reckons Brent will trade at an average $18.60/bbl, $18.20/bbl, $17.40/bbl, and $17.90/bbl, respectively, in the four quarters of 1998.

"The situation would become particularly difficult," said CGES, "should the U.N. increase Iraq's oil export revenue target by 50%, which is possible. This would add 350,000 b/d to Iraq's output, leaving the rest of OPEC to supply just 25.9 million b/d on average in 1998 to meet demand and desired stock changes: 500,000 b/d less than they are already producing."

In this case, CGES predicts that Brent futures will fetch $18/bbl on average in first quarter 1998, falling to $15.80/bbl in second quarter, $13/bbl in the third, and $12/bbl in the fourth.

Helping to pull up crude oil prices again this month, Nymex gasoline futures rose sharply in mid-month after Amerada Hess shut down the 130,000 b/d gasoline-making FCC unit at its 535,000 b/d Virgin Islands refinery. The unit suffered an unknown mechanical problem but was expected to be running by presstime. The refinery sells reformulated gasoline into northeastern U.S. markets.

Iraq has drafted a new distribution plan for its oil-for-aid deal with the U.N. The new plan is being submitted to U.N. Sec. Gen. Kofi Annan.

Baghdad has complained of U.S. interference with the aid distribution program and has halted sales of its oil on international markets under the deal until a new scheme is approved.

President Saddam Hussein reportedly issued a statement promising that, "Baghdad will not remain handcuffed before this repeated American ploy to win time and keep postponing the subject of sanctions."

Despite the latest agreement between the U.N. and Iraq earlier this month, which ended growing tension between Baghdad and Washington, Saddam has continued to deny U.N. weapons inspectors access to Saddam's palaces, as is required under the U.N./Iraq agreement.

Meanwhile, Iraq has discovered two oil fields that it says could significantly boost the country's reserves.

One of the finds-the first in Iraq's western desert bordering Jordan and Saudi Arabia-is also thought to hold commercial gas deposits.

The other discovery was in northern Iraq.

Iran will need to invest heavily in its oil industry during the next decade to prevent a decline in production.

"If production decline (in oil) is to be averted in the next 10 years, $90 billion will have to be invested," Manoochehr Farhang, head of the Association of Iranian Energy Economics, told Iran Daily. Farhang also said Iran should permit more foreign investment in its petroleum sector.

"Participation of foreign companies in Iran's oil projects is not tantamount to forfeiting national independence," said Farhang. "If said investments are not providedellipsecrude output will decline by 200,000 b/d,'' he was quoted as saying.

Iran-the world's third largest oil exporter behind Saudi Arabia and Norway-obtained a production quota of 3.94 million b/d at November's Jakarta OPEC meeting.

Meanwhile, National Iranian Oil Co. is preparing a list of upstream projects in undeveloped and currently producing fields, onshore and offshore, for offer to international firms, says Middle East Economic Survey (MEES). It reports that a number of projects are expected to be considered during the Tehran budget-setting program for the year beginning Mar. 21, 1998.

MEES said the tender list is expected to include projects in the northern Arabian Gulf, the Straits of Hormuz, and the Caspian Sea. Onshore projects are expected to be limited to marginal developments.

"While it may be too early to expect big onshore structures to be put on offer," said MEES, "senior NIOC officials have indicated that it is only a matter of time before foreign companies are invited to participate in enhanced oil recovery projects in Iran's largest producing fields" (OGJ, Dec. 22, 1997, p. 15).

In Iran's gas sector, Total says it will start delivering 90 MMcfd of gas from Sirri field to Dubai in mid-1999. Total official Christophe de Margerie said a price formula had been agreed on with Dubai, but declined to provide details.

U.S. officials reportedly objected to the deal. In 1995, President Clinton snatched Sirri from Conoco's grasp with a move that coincided with the start of U.S. trade sanctions against Iran (OGJ, Mar. 27, 1995, p. 25).

Just as things seemed to be calming down a little in Nigeria, the military regime in Lagos has thwarted an attempt to overthrow Gen. Sani Abacha, reportedly led by his deputy, Lt.-Gen. Oladipo Diya, who is now under arrest with fellow alleged conspirators. Reports of an earlier attempt to kill Diya and the death of another senior officer in prison are thought to suggest another purge is under way by the dictator Abacha.

Although the latest turmoil apparently has not affected the country's oil operations so far, Abacha's brutality has in the past sparked international protests against petroleum companies operating in Nigeria (OGJ, Nov. 20, 1995, p. 37).

Industry mergers and acquisitions are continuing to pile up (see related stories, pp. 24, 25).

Just at presstime, Ocean Energy (OE) and United Meridian (UM) announced approval of a definitive merger agreement that will create a $3.1 billion Houston-based oil and gas company. The new company will be owned 53.6% by OE's shareholders and 46.4% by UM's. Management will own about 15% of the common stock of the combined company.

The combine will retain the name Ocean Energy. The two firms say it will be the world's ninth largest independent oil and gas company.

UM Chairman and CEO John Brock will chair the new firm, while OE Chairman, CEO, and Pres. James Flores will be president and CEO. Both will have long-term employment agreements with the new company, a condition of the merger.

"The merger will be accounted for as a pooling of interests and is expected to close by the end of March 1998," said the companies.

Current combined production for the companies is about 58,000 b/d of oil and 350 MMcfd of gas. The combined proved reserve base would be about 250 million boe.

HeereMac has agreed to pay $49 million in criminal fines in the U.S. for rigging bids for marine construction services during 1993-97. The price-fixing charges were tied to heavy-lift barges used to construct offshore oil and gas drilling rigs and related marine construction services.

HeereMac was formed in the Netherlands in 1989 as a 50-50 joint venture of subsidiaries of McDermott International and HeereMac Offshore Construction.

McDermott terminated that joint venture last week (see Industry Brief, p. 30). Both companies have agreed to cooperate with a federal grand jury and a continuing U.S. Securities and Exchange Commission investigation related to anti-competitive practices.

Watch for a dramatic push into gas-fired power generation projects by Shell, now that it has secured an eagerly anticipated deal.

Shell International Gas Ltd. (SIGL) bought from Bechtel a 50% stake in InterGen, a leader in developing private power projects worldwide. InterGen, founded in 1995, has four power plants with combined capacity of 2,145 MW and a 700 km gas pipeline under construction, plus a further 7,100 MW of generating capacity under development.

For Shell, the deal is seen as key to its drive to become a major player in power generation and complements a recent push into renewables (OGJ, Nov. 24, 1997, p. 29).