International
Major changes litter the upstream landscapeThe new year is barely a few days old, and already it looks like the E&P industry is in for one hell of a ride during 1999. Not everything occurring this year will be bad, but one can be sure that 1999 will be at least as volatile as its predecessor. Changes that affect the upstream industrys health abound, and none is greater than the insatiable "urge to merge." Consider some of the more momentous oil company deals that occurred during 1998: The $79-billion Exxon / Mobil wedding; the BP / Amoco union, where a stock deal is valued at $13.1 billion; Totals $13.1-billion ingestion of Petrofina; Arcos $3.3-billion purchase of Union Texas Petroleum; and Seagull Energys $1.1-billion buyout of Ocean Energy. In the equipment / service sector, there were these deals, among others: Halliburtons $7.7-billion takeover of Dresser Industries; Baker Hughes $5.5-billion acquisition of Western Atlas; and Schlumbergers $3.14-billion purchase of Camco. These deals are staggering in terms of their combined effect. Totaled together, the five oil company transactions are worth $96.5 billion. Add to that another $16.34 billion contributed by the equipment / service deals, and the total rises to $112.84 billion. Together, these five mergers represent 5.87 million bpd of liquids output and 21.657 Bcfgd. Combined reserves total roughly 27 billion bbl of liquids and 113.454 Tcf of natural gas. To put the reserve figures in perspective, the crude number is larger than all U.S. oil reserves, and the gas number is roughly two-thirds the size of U.S. gas reserves. Let us not forget the thousands of oil professionals that will be affected in one way or another. Before "consolidation," the five oil company mergers represented 293,610 employees, worldwide. The three equipment / service deals involved another 206,500 employees. Does anybody want to make a bet on what proportion of these 500,110 people will still be employed by their firms when the dust settles? There is word already, that the Seagull / Ocean merger will "eliminate" one-third of the employees, or about 400. Ironically, Houston, home to World Oil, will benefit from these mergers. In particular, Exxon / Mobil will locate its worldwide upstream headquarters in Houston, so hundreds of employees have moves in their futures. Amoco also is consolidating E&P management offices into Houston. In an infamous case of bad timing, news about Total and Petrofina was released on the same day as Exxon / Mobils announcement, and thus was overshadowed. Nevertheless, TotalFina now eclipses Elf Aquitaine, the other French petroleum firm. Elf is not happy about being displaced from its top rung in France and is likely to search for an acquisition of its own. Ditto for Italys ENI.
Venezuela enters a new era. An equally dramatic change has occurred in Venezuela. As expected (see World Oil, November 1998), former army paratrooper and failed military coup leader Hugo Chavez was elected president on Dec. 6, 1998, in a bitter election that pitted Venezuelas "have-nots" against the "haves." With better than four-fifths of all ballots counted, Chavez had captured 56.4%, compared to 39.5% for runner-up Henrique Salas. Former Miss Universe Irene Saéz garnered only 3.1% of the vote. The COPEI (Social Christian Party of Venezuela) and Democratic Action parties deserted their own candidates and threw their support behind Salas in a late-hour bid to stop Chavez. The move was not enough to overtake Chavez, who derided Salas to the countrys poor for being a Yale-educated economist. Venezuelas business community supported Salas, fearing that Chavez would rule with all the sense of a loose cannon. Indeed, the day after his election, Chavez again unleashed vitriolic verbiage against state firm PDVSA, vowing, as he has for many months, to fire PDVSA President Luis Guisti. He denounced PDVSA as "a state within a state," where "a gold card culture" exists. Then, a remarkable thing happened. During the next two days, Chavez uncharacteristically preached moderation, as he outlined his new administrations first steps. He said he would honor foreign debt commitments; reduce the bloated, inefficient public sector; and stamp out tax evasion. Most importantly, he promised scrupulous adherence to Venezuelas OPEC-prescribed oil production cut. Lo and behold, the Caracas Stock Exchange responded with a record-setting 22.2% increase, followed a day later by a 19.4% jump. Investors said they wanted to demonstrate confidence in Chavezs new moderate tone. The smiling president-elect responded, "Were not the savages that many say we are." On the other hand, Chavez, within a day, managed to unravel his new image, when he rejected any thought that OPEC might institute further production cuts. Special note. Congratulations to Gulf of Suez Petroleum Co. for reaching yet another milestone in Egypt. In November, the firm, a joint venture between Amoco and state company EGPC, celebrated the production of its four billionth bbl of oil. At a ceremony in Cairo, Minister of Petroleum Hamdi El Banbi noted that GUPCOs offshore fields have featured "a high level of recovery of oil in place and a very significant increase in recovery levels originally predicted." Copyright © 1999 World
Oil |