Oil country hot line

August 1998 Vol. 219 No. 8 Hot Line OPEC members will cut output again OPEC's meeting in late June produced a follow-up agreement (to last March's OPEC / non-OPEC deal) to take a

August 1998 Vol. 219 No. 8
Hot Line

OPEC members will cut output again

OPEC's meeting in late June produced a follow-up agreement (to last March's OPEC / non-OPEC deal) to take another 1.355 million bopd off the world market to shore up prices. In a surprise comment, Saudi Oil Minister Ali al-Naimi says he "expects some cheating," but that he also believes the deal will work well enough to see maybe 2.5 million bopd come off the market. It will be several months before production shows adequate proof of restraint. Prices had dropped to just below $13/bbl despite a previous cut.

Industry gets incentives in 33 states

State and federal budgets receive $16 billion in annual economic impact from a combined 150 different petroleum incentives put in place by the U.S. government in 33 states. Another $2.1 billion in salaries is created. Each of the 150 incentives pumps an average of more than $55 million into state tax coffers, and $22 million into federal tax coffers. In the process, the industry remains competitive, and resources are produced that otherwise wouldn't leave the ground.

Royalty rate still in dispute

Industry leaders have been unable, so far, to prevent the Interior Department from changing the way that royalties will be paid in the future for crude found on federal and Indian lands. Their efforts failed, despite help from sympathetic lawmakers from both political parties. However, the Senate Appropriations Committee has approved the retention of current rates and valuations for deepwater oil and gas leases. The MMS had threatened to "raise the royalty rate to 16.6% from 12.5%." said Senator Kay Bailey Hutchison, who was successful in convincing the committee to retain the old rate during this time of low oil prices.

Financial chaos claims minister

Venezuelan Finance Minister Freddy Rojas Parra quit in the wake of low oil prices and resulting devastation to the country's economy. Petroleum is the backbone of Venezuela's economy, accounting for over half of its revenue and a third of its gross domestic product. Meanwhile, the incumbent president, who is not running in the December election, has made additional changes in his cabinet in order to hold the government together. Oil and gas matters are up in the air, because the leading candidate for the election, Hugo Chavez, led a failed coup attempt in 1992. He promises, if elected, to turn back the clock on free-market reforms, including the opening of Venezuela's industry to foreign participation.

BG also succeeds in Egypt

Just like several other operators in Egypt, British Gas is experiencing phenomenal exploratory success and the firm is moving ahead quickly with appraisals of discoveries and field developments. At press time, an appraisal of the Scarab 1 gas find was underway, with an appraisal of the Saffron 1 gas discovery set for later this year. Both discoveries were just struck earlier this year. Fast-track development of these finds could add 400 MMcfgd to the Egyptian industrial / residential market by 2002. BG is negotiating with Egyptian General Petroleum Corp. to increase Rosetta gas sales from the original 250 MMcfgd.

Lease agreement set for North Slope

Chevron, Arctic Slope Regional Corp., (ASRC) and BP have finalized a "long-term" lease agreement for exploration and development of interests in the Kaktovik area of Alaska's North Slope. This area is in the coastal plain of the Arctic National Wildlife Refuge. While terms of the agreement and details of a recent U.S. Geological Survey report were not disclosed, it was confirmed that ANWR "is indeed an area with important energy resource potential." The area is on trend with the prolific oil fields of the central North Slope, and has geological potential. "We continue to stress the need for the federal government to allow full access to our property," said Jacob Adams, president and CEO of ASRC.

Ledong gas pact expanded

ARCO and China National Offshore Oil Corp. have agreed to expand last October's joint development deal for the Ledong natural gas fields in the South China Sea to include structures in the nearby Wenchang area. The supplementary agreement improves the project's commerciality. Assuming results are positive from an expanded feasibility study, the development of both areas will proceed simultaneously. Output from Ledong / Wenchang prospects will be combined with the nearby ARCO-operated Yacheng 13-1 gas field, which has been supplying gas to Hong Kong since 1996.

ARCO absorbs Union Texas

ARCO completed its merger with (takeover of) UTP on June 29, 1998. As a result, Union Texas is now a wholly owned subsidiary of ARCO. Remaining UTP common stock will be converted into $29 in cash, per share. Over 90% of UTP assets are located in ARCO's core producing areas. These include Venezuela, Indonesia, the North Sea and Alaska.