Looking ahead

Oil firms’ projected 2001 budgets show increased E&P spending. Oil companies’ huge profits last year, especially in the fourth quarter, were the result of one main factor – record-high oil and gas prices. Most firms plan to funnel these additional funds back into E&P activities. For instance, USX-Marathon Group’s projected 2001 budget for its capital, investment and exploration activities reflects a 9% increase, to $1.8 billion from the $1.64 billion spent in 2000. Phillips Petroleum, whose fourth-quarter profits more than tripled, plans to spend about $2.5 billion (25% more than the previous year’s figure) most of which will be for E&P activities. After increasing capital and exploration spending by 11% in 2000, ExxonMobil expects to enhance its 2001 CAPEX in the range of 15% to 20% more than the $11.144 million spent in the previous year. Large independent Devon Energy expects its E&P CAPEX to be about $1.1 billion this year. The projected E&P budget will be the largest in the firm’s history.

Marathon Oil is latest to settle royalty dispute. Marathon Oil has opted to negotiate settlements with the U.S. government rather than go to trial on allegations that it underpaid royalties to leased federal and Indian land between 1988 and 1998. The Houston-based firm will pay $7.7 million, bringing the total federal settlement from 14 oil companies to more than $408 million. Marathon Oil is one of 17 firms caught in a private whistle-blower lawsuit, originally filed under the False Claims Act in U.S. District Court in Lufkin, Texas. The suit accuses the companies of paying royalties based on a posted wellhead price rather than so-called fair market value. It alleges that, together, the firms submitted more than 5,000 false claims; thus, damages and penalties might exceed $5 billion. Although the case is scheduled for this month, the government already has received payments from BP, Chevron, Conoco, Mobil Oil, Oxy USA, Devon Energy Production, UPRC, Sunoco, Texaco, Kerr-Mcgee, ExxonMobil, Shell Oil and Burlington Resources. The government is still attempting to settle with two remaining firms.

India’s second licensing round on schedule. Indian Oil Minister Ram Naik said that this year’s auction promises to attract strong international interest, despite the first-round disappointment in 1999, when no bids from major multinational oil giants were received. His prediction is influenced by an assumption that "there are very good prospects and the earlier era of delays and red tape is gone." There are 25 blocks, spread over 13 geographical basins on and offshore India, that are being offered. Of the 25 blocks, eight are in deep water (in excess of 1,312 ft) off the western coast. Another eight are in shallow water, and nine are onshore blocks. Submission deadline for bids is the end of this month.

Cuba plans to explore oil in deep waters of GOM. Cuba intends to explore oil and gas in its economic exclusive zone of the Gulf of Mexico. Partnered by Spanish firm Repsol-YPF, Cuba’s Cubapetroleo (CUPET) will explore six of the 60 blocks into which the 4,067-sq-mi exploration zone is divided. The zone covers an area equal to almost 50% of Cuba’s territory, and it lies in water depths of 3,280 ft to 4,920 ft. Repsol-YPF will provide the initial capital for at least two exploration wells. If these wells are successful, the amount of drilling will be increased, and the firms will share the earnings.

GOP senators propose energy bill. Republican energy legislation, introduced last month, focuses on boosting clean coal technology, revitalizing the nuclear industry and finding new sources of oil and natural gas, including opening up the Arctic National Wildlife Refuge to oil and gas development. The legislation purports to cut foreign imports from the current 56%, to 50% by 2010. However, it does not address the question of electricity’s reliability, nor its deregulation. Sen. Frank Murkowski (Republican-Alaska), chairman of the committee that will review the legislative package, met with Vice President Dick Cheney (who heads a presidential task force on energy) to discuss the bill. Murkowski said the meeting highlighted the fact that the country faces an energy crisis, and ways must be found to produce more energy and rely less on imports.

Canadians puzzled by Bush energy policy plan. Canadian officials and petroleum industry leaders are confused by U.S. President George W. Bush’s request for the creation of a North American energy policy that embraces the U.S., Canada and Mexico. Canadian Foreign Affairs Minister John Manley admitted that even he was still not clear "what the U.S. is contemplating or seeking through a continental energy policy." Judith Dwarkin, global energy vice president with the Canadian Energy Research Institute, said there is already "total harmonization" in the continental oil and gas sectors, and similar progress in the electricity sector. Bush may be thinking more of lowering some barriers with Mexico, whose oil industry was exempted from the North American Free Trade Agreement, she said.

Demonstrators protest exploration deal in Somalia. An exploration deal was signed by the Somali transitional government’s Water and Mineral Resources Minister, Hassan Abshir Farah, and TotalFinaElf’s representative, Jean Francisco. Immediately afterwards, thousands of demonstrators took to the streets of Baidoa in south-central Somalia to protest the deal. Rahanwein Resistance Army (RRA) faction’s deputy commander, Ibrahim Habsade, accused the French firm of indirectly fueling civil war in Somalia by signing an agreement with a government that does not represent all Somalis. The contract allows the French oil group to explore for oil for 12 months, off the coast of southern Lower Shabelle and Juba Valley. Somali warlord Osman Hassan Ali "Atto" also criticized the agreement, calling it "illegal and risky."