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Vol. 224 No. 9 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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Oil prices rise as OPEC holds steady on output
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Tight supply levels in the US, plus a continued failure to return significant amounts of Iraqi crude (less than 1 million bpd) to the export market, sent oil prices to a five-month high. The WTI futures price hit $32.85/bbl last month, the highest level since March 18, just two days before Iraq was invaded. Several analysts have noted that the global market remains uncharacteristically resilient, and they expect the high-price cycle to continue through the balance of 2003. Meanwhile, OPEC did its part to keep prices high. At the end of July, ministers agreed to keep their collective output ceiling at 25.4 million bopd until another meeting late this month. Their decision was in spite of prices going beyond OPEC’s $22-to-$28/bbl target range. OPEC Secretary General Alvaro Silva told reporters that global supplies are still sufficient.
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BLM changes policies after receiving orders from Bush
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Thanks to a direct White House urging, the US Bureau of Land Management (BLM) said that it immediately issued new policies to reduce or eliminate impediments to oil and gas leasing on BLM-managed lands. After being asked to expedite implementation of President George W. Bush’s national energy policy, BLM told its land-use planners to evaluate existing constraints on development in areas with high oil and gas potential. BLM Director Kathleen Clarke has designated seven “focus areas” that contain high potential. These will be coordinated with findings of a comprehensive oil and gas inventory that was carried out under the Energy Policy and Conservation Act (EPCA) of 2000. EPCA mandated that estimates be made of resources under federal lands in five Western basins.
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Flexible UK approach precedes expected North Sea downturn
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Coincidental to predictions of a slow North Sea market this winter, the UK Dept. of Trade & Industry broke standard practice and offered two UKCS blocks out-of-round. Just a week after tracts from the 21st Licensing Round were awarded, DTI offered Blocks 98/ 7b and 98/8a to partners Talisman Energy (operator), Encana and Wessex Exploration. Energy Minister Stephen Timms said he decided to offer the blocks out-of-round, because “the companies concerned have shown a real interest in pursuing possibilities in the blocks.” Timms also noted that this offer demonstrates that “we (DTI) will be flexible in ensuring the remaining oil and gas resources in the UKCS are exploited to their full potential.” Absent some tax reductions, the new license flexibility will not be enough to revive the slack North Sea market before mid-2004. Forward indicators showing rig leases six months out are dropping, and nervous drilling contractors expect to idle a significant number of units.
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ChevronTexaco will dump assets to cater to Wall Street
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Acknowledging that he is concentrating on boosting shareholder return, ChevronTexaco Chairman David O’Reilly told a meeting of analysts that his firm will sell up to $2 billion a year of so-called non-strategic assets. Over several years, the firm is likely to dump 550 company-owned or leased gasoline stations in the US, and 900 stations in Asia and Africa. In addition, retail and refining operations in Europe, South America, Australia and the Middle East will be up for sale, plus E&P holdings in North America, the North Sea and Papua New Guinea. O’Reilly noted that “besides strong earnings and cash flows in the first half of the year, we’ve improved our debt position, raised the quarterly dividend, achieved successful start-ups in major oil and gas projects, formed a global gas business and reorganized global downstream operations.”
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US says restoring Iraqi output will cost $1.14 billion or more
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A 33-page work plan reveals that $652 million of the $1.14-billion estimated cost to restore Iraqi oil output to pre-war levels covers two major contracts on tender. The contracts will rebuild facilities in the northern ($320 million) and southern ($332 million) production areas. The plan was authored by the reconstituted Iraqi Ministry of Oil, the Coalition Provisional Authority, the US Army Corps of Engineers and contractor Kellogg Brown and Root (KB&R), a Halliburton subsidiary. These contracts, up for bidding until Aug. 14 and due for award on Oct. 15, replaced a no-bid deal originally given to KB&R on “emergency status.” Even so, competitors claimed that KB&R had unfair advantages: One, the relationship with Vice President Dick Cheney, who was Halliburton chairman from 1995 to 2000; and two, KB&R’s close association with the Corps of Engineers, particularly as relates to work timetables. Bechtel was upset enough to drop out of the bidding process completely.
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Colombia will break practice and extend E&P contracts
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For the first time, foreign operators will be able to negotiate extensions to expiring production contracts, said Colombian President Alvaro Uribe. He hopes the policy change will prompt foreign operators to increase investment, particularly in declining fields. “The petroleum outlook is tough, but the government is making every effort to see a way through it,” he said. Until now, foreign firms would develop and produce discoveries in 20-year production partnerships with state-run Ecopetrol. After 20 years, the field(s) would be turned over to Ecopetrol. Just how the legal language to effect the policy change will be worded remains to be seen. Colombia’s output this year will drop to 536,000 bopd, down from 1999’s peak of 815,000 bopd.
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KPO inaugurates new Karachaganak facilities
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Kazakhstan President Nursultan Nazarbayev joined the BG-led Karachaganak Petroleum Operating (KPO) consortium in celebrating the completion last month of major, new facilities for gas and liquids processing, as well as gas injection. Compared to 2002’s output level of 90,000 bcpd and 450 MMcfgd, Karachaganak will now be able to produce 220,000 bcpd and 1.4 Bcfgd. The just-completed construction also included enhancement of facilities from the Soviet era, the workover of more than 100 wells, construction of a 120-MW power station, and the building of a 393-mi oil pipeline, to connect to the CPC system at Atyrau.
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Will Anadarko disappear?
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Anadarko Petroleum appears headed for the selling block. First, the firm cut at least 400 jobs, including 300 in Houston, to trim overhead costs by $100 million per annum. In addition, offices in Amarillo and Midland, Texas, were closed, despite Anadarko reporting a $301-million, second-quarter profit that is up 25% from a year earlier. A report from Reuters that the firm has hired Credit Suisse First Boston to negotiate with potential bidders was confirmed by one of World Oil’s industry sources familiar with the situation. “Absolutely, the company is going to be sold,” he said. “Almost no one in senior management cares about, or wants to run Anadarko anymore and take it to the next level. They’ve run out of ideas; all they want to do is cash out.” Perhaps this explains the sudden departures of Executive V.P. Bill Sullivan and Senior V.P. Rex Alman. A company press release said the two men “resigned” their positions amidst the 400 job cuts, but our source said that they did so with the promise of extra cash incentives.
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US juices up SPR stocks
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While media and public attention has been distracted by events in Iraq, the Bush administration has quietly been pumping additional crude supplies into the US Strategic Petroleum Reserve (SPR). Since early May, Energy Secretary Spencer Abraham has supervised the purchase/stocking of 11 million bbl of crude. The administration says that this additional oil is in line with Congress’ wish to build the SPR to 700 million bbl from the current 611 million bbl.
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Yemeni storms hit Masila area, kill four workers
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Severe thunderstorms tore through Norwegian firm DNO’s Block 32, northwest of Nexen’s Masila oil field complex in eastern Yemen, killing four people. Torrential rains and high winds damaged field facilities, and in the process killed four Yemeni geologists working for DNO. A fifth Yemeni worker was injured. Nexen confirmed that it sent medical help to DNO’s facilities. Every year, Yemen’s rainy season results in fatalities. Block 32 is in Hadhramout province. It produced 13,101 bopd during July 2003.
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Opinion
Just as Venezuela appeared to be calming down, now comes a new wave of strife in an already fragile economy. The latest incidents are further indicators that Venezuela will never heal until the king of societal polarization, President Hugo Chavez, is out of power. In early August, 200 unemployed workers blocked the highway to the José oil complex in eastern Venezuela and clashed with National Guard troops, who wounded between four and 12 workers (depending on press accounts). A similar protest at José in July led to one protestor’s fatal shooting. Fortunately, additional protests at the large Paraguana refinery in the western state of Falcón were not as deadly. Citizens in these incidents were not from the more than 18,000 PDVSA workers fired by Chavez earlier this year. Instead, they belong to two unions that are struggling to get their share of oil jobs – unemployment runs between 20% and 23% of Venezuela’s 11-million workforce.
Ironically, PDVSA President Ali Rodriguez announced after the protests that the fired workers will now get severance benefits. This is an about-face from Chavez’s stand in February, and Rodriguez offered no reason. However, it is another varied indicator of Chavez’s unstable decision-making, which bodes ill for future Venezuelan relations with the US and Western Europe, and their oil companies. Another indicator is an educational program gimmick. Chavez asked Fidel Castro to print millions of copies of literary classics, supposedly to be used to teach one million people to read in three months. His critics claim that the program is impractical and will be a propaganda tool for Chavez’s own Cuban-styled revolution. A very disturbing indicator is recent data from the Inter-American Drug Use Data System (SIDUC) that show Venezuela’s average starting age for using illicit drugs is the youngest in Latin America – just 12-1/2 years. SIDUC found that children believe they have no quality of life to look forward to, so they take solace in drugs. On the E&P front, the most damning indicator of all may be the recent trip to Moscow by Energy & Mines Minister Rafael Ramirez. He was very cozy with Russian oil firms, dangling opportunities for deepwater tracts and natural gas infrastructure construction. If you’re a Western oil company or government, the future in Venezuela is less attractive each day.
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