Oil country hot line

July 1999 Vol. 220 No. 7 Hot Line Iraq renews oil-for-food deal The Iraqi government has renewed the oil-for-food deal with the UN that allows Iraq to sell limited amounts of oil on the condi

July 1999 Vol. 220 No. 7
Hot Line

Iraq renews oil-for-food deal

The Iraqi government has renewed the oil-for-food deal with the UN that allows Iraq to sell limited amounts of oil on the condition that proceeds are used to buy food, medicine and humanitarian goods for its people. The program, which runs in six-month intervals, began in December 1996. This will be the sixth phase of the deal. Currently, Iraq produces 2.65 million bopd, with about 2 million earmarked for exports. However, due to low production, sales of oil have been below the $5.2 billion amount that the country is allowed to sell under the deal.

Norway awards offshore blocks

Shares in 19 blocks (and part-blocks) were awarded to 14 oil companies in Norway’s North Sea Awards 1999. Norsk Hydro and Mobil were the big winners, securing four new licenses each. Enterprise Oil won three new blocks. The remaining winners included Agip, BP Amoco, Exxon, Statoil, Shell, RWE-DEA, Saga, Total, Elf, Marathon and Finland’s Fortum. Meanwhile, Norway announced changes in its petroleum policies, with the objective of boosting activity levels in the offshore sector. In the country’s 2000 budget, the government will submit a new measure for abolishing mandatory royalty payments. The royalty rule only applies to eight fields, however, because required payments were eliminated for fields starting up after Jan. 1, 1986. The eight tracts that have been active since before that date include Gullfaks, Heimdal, Murchison, Oseberg, Statfjord, Tor, Ula and Valhall.

Independents urge "dumping" investigation

A group of U.S. E&P independents from Oklahoma, called Save Domestic Oil, is asking the U.S. government to investigate whether Iraq, Kuwait, Venezuela and Mexico are flooding the market with cheap oil to drive small producers out of business. The IPAA will lend support to the petition, which was filed with the U.S. International Trade Commission (ITC). "Dumping" is defined as foreign nations selling imported goods at below their production cost. If the government gives the petition merit, a crude import fee could be imposed. The group will ask the ITC to investigate the countries from the second quarter of 1998 through the first quarter of this year. The API, which mainly represents major oil companies, is not expected to join the petitioners. Larger independents and majors worry that a probe into dumping will upset U.S. allies and suppliers, at a time when oil prices are beginning to increase.

Major oil find struck in Venezuela

Argentinean oil company YPF discovered oil in Venezuela that may turn out to be the country’s largest find over the last 10 years. The Tropical 1X well, at Quiriquire, struck oil at 14,000 ft and is currently producing 6,400 bpd of light crude. Reserves are estimated at 150 to 200 million bbl. YPF plans to drill another seven appraisal wells. Meanwhile, some 400 Venezuelan oil companies have shut their doors and thousands of workers have lost jobs due to the country’s reduction in crude production. Oil accounts for 40% of Venezuela’s economic activity and 75% of export earnings. The companies that closed specialized in engineering, drilling, well services, construction and supplies.

Bidding for Saga Petroleum heats up

A bidding war between France’s Elf Aquitaine and Norsk Hydro has ensued over the acquisition of Norway’s economically troubled Saga Petroleum — the country’s third-largest oil company. Norsk Hydro opened the bidding for Saga on May 10, with an offer to trade one of its shares for three of Saga’s. Also included in Norsk Hydro’s offer was a deal made with Statoil, which owns 20% of Saga, to split the company’s assets. Statoil would control 25%, and Norsk Hydro would take control of the remaining interest. At press time, Elf had raised its original bid by more than 8%, to $2.36 billion. Elf would allow Saga to operate under its own name.

Supreme Court rules in favor of producers

In a 7–1 ruling by the U.S. Supreme Court, BP Amoco won the right to develop methane gas trapped in coal deposits on lands owned by the Southern Ute Indian tribe in southwest Colorado. The ruling said that the coal-bed methane found within coal under the tribe’s reservation should not be considered part of the coal that the federal government owns in trust for the tribe. The methane at issue is estimated to be worth more than $200 million. The case will have a strong impact on an additional 16 million acres of land in the western U.S. where the federal government owns the coal, but will have no claim to the methane gas inside it. The Southern Utes, however, will receive 32% of the revenues generated from the gas production.

Shareholders approve historic merger

Exxon and Mobil shareholders overwhelmingly approved the $82.2 billion marriage of the two companies, which will result in one of the world’s largest corporations. Regulatory approval is expected in October. The companies could be forced to divest some assets, including gas stations, where the two brands compete head to head. Meanwhile, stockholders of El Paso Energy Corp. and Sonat Inc. also have approved a proposed $6 million merger of the two firms. As a result, El Paso’s 40,000-mi interstate natural gas pipeline will be the largest in the U.S., in both pipeline mileage and throughput, moving almost 25% of all the natural gas transported in the country daily.

Merger talks between Chevron and Texaco were called off because of complexity, feasibility, risk and price disagreements. The combination would have resulted in the world’s fourth-largest energy company. However, the merger presumably would have faced regulatory scrutiny, due to overlapping operations.