OGJ Newsletter
In spite of recent U.S. oil and gas price slippage, causing "momentum sellers" to shed E&P and offshore drilling company stocks as commodity prices declined, St. Louis-based A.G. Edwards & Sons says supply/demand dynamics are strong enough to provide "incentives to drill and should provide above-average returns on the investments being made in the search for oil and gas reserves."
Edwards analysts Joseph Culp and Shannon Nome also cite numerous potential benefits for the oil service/supply sector (see related story, p. 28): "We see significant growth coming from improved capacity utilization, significantly rising day rates, opportunities for newbuilds, and profits from ancillary activities-all stemming from a visible and sustainable 'sold-out' condition of demand exceeding available supply, a condition which should persist under all but the most extreme of commodities pricing scenarios."
Tight oil service/supply availability is causing some new fields to come on stream more slowly.
With no end in sight to extreme tightness of rig/completion services markets, many new field development projects are being delayed, the analysts said.
Still, precedent-setting drilling is on tap-off California and in a Utah national monument.
Benton Oil & Gas will operate an extended-reach gas drilling project into state waters of the Santa Barbara Channel using an onshore drill site.
The Carpinteria, Calif., company purchased 40% of Molino Energy's interest. Santa Barbara-based Molino won project permits last year after a pact with the state and environmentalists (OGJ, Oct. 7, 1996, p. 36).
The project is precedent-setting because extended-reach drilling is seen by many as the only practical way of tapping fields in California state waters, virtually closed to drilling for decades (OGJ, July 5, 1993, p. 20).
It will also be the first energy project subject to revenue-sharing with local counties, stemming from a bill signed into law last September making such ventures more palatable to locals.
It may also be an extended-reach drilling litmus test: With reserves as far away from shore as 3.5 miles, the project could break the North American record for horizontal well distance, Molino said.
Benton and Molino hope to tap three fields covered by state tideland leases 2920, 2199, and 2895, which could hold 200-300 bcf of sweet gas.
The first 12,000-ft well could spud about yearend.
Meanwhile, Utah has approved a permit for Conoco to drill on a state lease in the Grand Staircase Escalante National Monument, created last year by President Clinton. Local environmental groups have been trying to stop the project, planned for the Reese Canyon area.
Conoco estimates the area could contain more than 100 million bbl of oil.
Yet to set firm drilling plans, Conoco has owned area leases for about 10 years. When the national monument designation was made, the Clinton administration said existing leases would be honored.
Terms of Texaco's proposed out-of-court settlement over a racial discrimination lawsuit filed against the company last year are now officially approved, effectively closing the case.
A U.S. federal judge signed off on the company's diversity plan, which includes payments to current and former employees totaling $176 million, among other steps to be taken by Texaco (OGJ, Dec. 30, 1996, Newsletter).
Strategic alliances, which can reduce costs and risks and enhance mutual operating efficiencies (see Management Perspective, p. 25), are toppling gas production/transportation boundaries between the U.S. and Canada.
Calgary's Petro-Canada Oil & Gas and Enron Capital & Trade Resources Canada are teaming to enhance marketing of gas in North America.
The alliance, covered by a memo of understanding, links Canada's second-largest gas producer with one of the world's largest integrated energy companies.
Petro-Canada said it expects to improve its natural gas netback through enhanced opportunities to market its rising production.
Enron benefits by broadening the size and scope of its presence in a growing Canadian-North American energy marketplace, officials said.
As that deal moves ahead, Calgary's TransCanada PipeLines and Northern States Power (NSP), Minneapolis, will seek regulatory approval to build a $1 billion gas pipeline in the U.S. Midwest.
Expected to be operational late in 1999, the 800-mile Viking Voyageur Gas Transmission Project will be designed to transport as much as 1.2 bcfd serving the U.S. Midwest. The line will provide direct connections to markets in Minnesota, Wisconsin, and Illinois.
In Canada, government concern over emissions is growing, while the U.S. EPA is backing off some of its previous air quality estimates.
Sergio Marchi, Canada's environment minister, plans to sign rules in May to halve the allowable content of benzene in gasoline to 1 vol % effective Jan. 1, 1999. The action would reduce Canada's benzene emissions by 3,000 tons/year and would give it the most stringent benzene standard in the world, because the rule would apply to all gasoline grades.
In a development expected to intensify pressure on the EPA over its proposal to revise U.S. air emissions standards, Assistant EPA Administrator Mary Nichols admits EPA overestimated the number of premature deaths prevented by a proposed revision of National Ambient Air Quality Standards for ozone and particulate matter (OGJ, Mar. 10, 1997, p. 30).
While reviewing public comments on the plan, Nichols said EPA "learned of a technical error" in one of 86 independent studies on the health effects of the planned regulations. EPA now believes that 15,000 people, not 20,000, would avoid premature death if ozone and PM standards are tightened. EPA will continue to revise the estimate, officials said.
Nymex's first year of electricity futures/options trading exceeded expectations, says Nymex Pres. R. Patrick Thompson.
Thompson, in Houston recently to dedicate Nymex's new office there, said Houston could become "the hub of the electricity industry."
Last year, the exchange introduced two electricity futures contracts, one based on delivery at the California-Oregon border (COB) and the other on delivery at Palo Verde, Ariz., as well as companion options contracts.
Thompson said 500-700 COB contracts/day are now traded. More than 66,000 COB futures and about 31,000 Palo Verde futures had been traded through Mar. 24.
Electricity exchange open interest in February reached 7,000 contracts.
Nymex, which expects 3,000-5,000 electricity futures contracts/day will be trading by the end of the second year of trading, continues to evaluate an East Coast contract. Thompson expects a proposal will be submitted to Nymex's board for review within 6 months and to the Commodity Futures Trading Commission by yearend.
Another big power project is moving ahead in Thailand.
Further leveraging its established Thailand hydrocarbon production base, Unocal has signed agreements to construct a $350 million independent power project (IPP) at the eastern seaboard industrial zone at Sri Racha, Chon Buri, for the Electrical Generating Authority of Thailand.
The 700-MW, gas-fired plant-Thailand's first IPP-is being developed by Independent Power (Thailand) Co. Ltd., a venture of Unocal Asia-Pacific Ventures Ltd. 24%, Thai Power Co. Ltd. 56%, and Westinghouse Electric SA 20%.
Apache says the highest-flowing gas well to date has been brought in on the Khalda concession in Egypt's western desert, and a second sales pipeline may be necessary (OGJ, Jan. 13, 1997, p. 27). The Shams-2X tested a combined total of about 104 MMcfd and more than 1,600 b/d of condensate from four intervals. "A second pipeline is clearly warranted and could accelerate gas sales from the area by as much as a year," Apache said
Greenpeace, complaining to the European Commission, claims the U.K. government has not introduced offshore regulations for environmental assessments and consultation in advance of offshore development, as required by law, and therefore cannot legally award exploration licenses in frontier acreage in the upcoming 17th license round (see editorial, p. 23).
The Department of Trade and Industry told Greenpeace it intends to reject its application to operate all the acreage in the license round; Greenpeace plans marine studies on the acreage (OGJ, Mar. 31, 1997, p. 35).
OGJ Newsletter, Apr. 7, 1997