OGJ Newsletter

U.S. Industry Scoreboard 1/27 [71173 bytes]

Baghdad is stepping up efforts to line up E&P projects for the time when sanctions are fully lifted.

Iraq has forged a new development deal with India's ONGC and advanced negotiations with Russia's Lukoil and Malaysia's Petronas, Middle East Economic Survey (MEES) reports.

ONGC and Indian private firm Reliance Industries gained approval from Baghdad to develop a 14,000-sq km block that includes Halfaya field, with estimated reserves of 4 billion bbl of oil. Halfaya, in southeastern Iraq, has capacity to produce 220,000 b/d of 28 gravity oil. The field, discovered in 1977, saw development interrupted by the Iraq/Iran war. Lukoil and Russian partners Zarubezhneft and Machinoimport are expected to sign a $3.8 billion production-sharing agreement in February.

Lukoil aims to resume development of West Qurna field in southern Iraq, the country's largest oil field with estimated reserves of 19 billion bbl. Production facilities in the field were badly damaged in early 1991 when Iraqi forces were chased out of Kuwait. MEES also reports Petronas is talking with Iraq over development of Ratawi field in southern Iraq, with estimated reserves of 4 billion bbl of oil. Petronas also is thought to have signed an exploration agreement for Block 1 in Iraq's unexplored western desert.

In addition, Iraq signed a production-sharing agreement with China National Petroleum Corp. for further development of Ahdab field, which has estimated reserves of 1.4 billion bbl of oil and production capacity of 80,000 b/d. And Iraq is talking to Turkey over feasibility of developing six gas fields and building a 10 billion cu m/year gas export pipeline (OGJ, Jan. 20, 1997, p. 30).

Higher crude and natural gas prices, along with solid upstream performance, spurred strong earnings growth in 1996.

Many companies are reporting annual profits records for 1996, including Amoco with more than $2.8 billion and Shell Oil with $2.021 billion, highest in the company's 84-year history. Fourth quarter 1996 profits also broke records for many companies, including Exxon, which recorded a 49% rise to $2.49 billion in the last 3 months of 1996 alone. The strong finish for 1996 comes on the heels of a hefty increase in profits for the first 3 quarters of 1996 (see story, p. 40).

Independents shared the big gains. Among them, Pogo reported net income of nearly $32.8 million last year, up from about $9.2 million in 1995.

Vastar's earnings rose 114% to a record $220 million. Oryx says its fourth quarter 1996 earnings will jump fivefold from the prior year to $50 million.

Strength of the profits jump was accompanied by triple-digit production and reserve replacement gains, with some independents reporting particularly strong increases.

Among the top gainers was Parker & Parsley, which registered a 314% reserve replacement rise in 1996 to 302 million bbl of oil equivalent (BOE) from 227 million BOE in 1995.

Triton increased its hydrocarbon resource base by 134% last year, while LL&E replaced 131% of 1996 worldwide production.

Triple-digit reserve replacement increases were enjoyed by some majors as well. Among them was Mobil, which replaced 133% of its oil and gas production with new proved reserves in 1996. Major output increases came from Norway, off eastern Canada, Nigeria, Equatorial Guinea, and Kazakhstan.

Many companies cite extremely good drilling results in improved reserve replacement figures. For instance, MCN Energy reports a 94% drilling success rate for 1996. The company-which had no reserves or production only 5 years ago-is now among the top 20 U.S. gas producers.

Anticipating the inevitable backlash by industry foes to reports of record profits, API recently dispatched a fact sheet on major oil company profits.

Low prices for most of the past 15 years, along with steep environmental compliance costs, have translated to lower-than-average rates of return for oil firms relative to most other large industries, API says.

And, API notes, companies with strong upstream operations will tend to fare much better than those heavily reliant on downstream operations.

With product margins pinched by high oil prices, refiners are stepping up rationalization and restructuring efforts.

Shell is expected to be the first French refiner to shut down excess capacity, targeting its Berre plant, says a high official in France's energy ministry, commenting on negotiations long under way. Other refiners in the region may compensate Shell for its "sacrifice," the source said.

In the U.S., Ashland says it will cut back on its core refining business and concentrate in other areas to improve profitability.

In Scotland, The Reservoir, a new information center at Aberdeen University Oil and Gas Institute, will provide advice on decommissioning and disposal of offshore platforms, as well as economic, technical, and operating strategies for mature offshore fields. The Reservoir offers a referral network for technical contacts, research opportunities, and data. Operation is funded jointly by Esso, Shell, and John Wood plc and opened just as plans advanced for decommissioning the Brent spar in the U.K. North Sea (OGJ, Jan. 20, 1997, p. 24).

In a year when the industry expects pollution control costs to be the most pressing problem (OGJ, Dec. 16, 1996, Newsletter), there's some good news on the environmental front.

Texas and Alaska regulators ruled to exclude drilling or workover rigs-and any other off-road internal combustion engine-from being considered as stationary sources of pollution under the federal Clean Air Act.

International Association of Drilling Contractors says the rulings could set a precedent, as states move to implement portions of the act that provide leeway for interpretation. Rulings will remove rigs from operating or construction permitting requirements for stationary sources.

In addition, Interstate Oil & Gas Compact Commission found that an EPA proposal to expand federal toxic release inventory reporting requirements into the E&P sector would duplicate existing state rules.

Political fallout is plaguing efforts to clean up a big oil spill off Japan, caused by the Jan. 2 breakup of a Russian tanker in a storm (OGJ, Jan. 13, 1997, Newsletter). Japanese Prime Minister Ryutaro Hashimoto says he underestimated the severity of the spill, noting three volunteer workers died during cleanup efforts. Japan's Transportation Minister Makoto Koga says science will have to take a back seat to speed in cleanup efforts. Japan last week was assembling 1,000 vessels of all kinds, including small private fishing boats, and resorting to hand-collection of oil to accelerate the cleanup.

Meanwhile, international efforts to improve tanker safety may step up in the wake of the accident. Japan's cabinet promised an in-depth investigation into the spill last week, and a Russian official traveled to Japan to respond to Japanese queries about, among other things, Russian tanker safety measures.

Off the U.K., Bona Fulmar products tanker and the unladen Teotal chemical tanker collided northeast of Dover Jan. 17 in French waters of the English Channel, resulting in a spill of unleaded gasoline. U.K. Coastguard Agency said Bona ruptured a tank and leaked about 21,000 bbl of a full cargo of about 420,000 bbl. The collision happened in thick fog in one of the world's busiest shipping lanes. French coast guard at Gris Nez coordinated the spill response, with the aid of British, Belgian, and French tugs. U.K. Coastguard says gasoline disperses naturally and readily but notes initial concern for the volume and volatility of gasoline near the vessel. There were no crew casualties.

Bona Fulmar is registered in the Bahamas, while Teotal is a Mexican vessel.

Another LNG megaproject project is advancing in the Middle East.

Yemen will team with U.S., French, and South Korean companies to further develop its gas resources for local market consumption and in support of an LNG export project.

Yemen LNG, a venture of Exxon, Total, Hunt, and Yukong, will join Yemen in constructing a 5.3-million metric ton/year complex that will ship LNG to foreign markets for 25 years beginning in 2001. Interests are Total 36%, Yemen 26%, Hunt 15.1%, Exxon 14.5%, and Yukong 8.4%. Value of the project is pegged at about $5 billion, according to SABA, Yemen's official news agency.

Yemen LNG will manage design, construction, and operation of the plant and pipelines, as well as conduct all commercial activities and have oversight over field operations. France's Technip and Bechtel are expected to complete front-end engineering by March, and engineering, procurement, and construction contracts are to be awarded by midyear, says Total.

A memorandum of understanding was signed with Turkey last December on purchases of 2.6 million tons/year, and talks are continuing with potential purchasers in the Far East.

Supply source will be Marib production-sharing area and discoveries by a partnership of Exxon and Hunt. About 10 tcf will be required for the life of the project. Agreements covering the project and formation of Yemen LNG are subject to approval by Yemen's parliament and president.