Looking ahead

Oil/gas price forecasts lowered for 1999. API reported that by the end of last year, oil prices were at their lowest levels since the depression of the 1930s, when adjusted for inflation. Domestic wellhead prices received by oil producers in December were estimated to average less than $8/bbl, a 47% drop compared to December 1997. Meanwhile, Salomon Smith Barney adjusted its 1999 WTI oil price forecast to $13.50/bbl from $15/bbl. However, a $3/bbl rebound is projected for 2000. Due to a warm winter and ample storage levels, the Henry Hub natural gas price forecast for 1999 was lowered to $2/MMBtu from $2.25/MMBtu.

Texas producers seek relief from low oil prices. The Texas Railroad Commission’s three-member panel unanimously adopted a motion to draft proposed legislation for consideration by the Texas Legislature to suspend severance tax payments. This would occur when prices for oil and gas drop below $15/bbl and $1.50/Mcf, respectively, as determined by the Comptroller of Public Accounts. The commission also voted to suspend all new regulations relating to exploration and production for six months, except when necessary to ease the regulatory burden or protect the environment or public safety. In 1997, the Texas oil and gas industry put almost $60 billion into the state’s economy.

Iraq plans to raise oil production. While other oil-producing countries try to cut excess output and strengthen low oil prices, Iraq announced it hopes to boost its production to 3 million bopd, from the current 2.5 million bopd, and to 3.5 million bopd within two years. At the Iraqi Oil Ministry, Director General of Planning Faleh al-Khayat said the increase was contingent upon receiving spare parts for the country’s ailing oil industry. Special oilfield chemicals already have begun arriving in Iraq. But due to weak oil prices, al-Khayat said Iraq could not hope to earn $5.2 billion from oil exports in six months, which is the amount Iraq is allowed to earn according to the UN’s oil-for-food program.

U.S. Senate bill to give states more royalties. New legislation introduced in the U.S. Senate would give coastal states a larger share of federal royalties collected from offshore oil and gas drilling. The states would receive half the royalty revenue collected, about $2 billion. The federal government disbursed $440 million in royalty revenue to states during the first nine months of 1998, from both on- and offshore production. The revenue collected would be earmarked to states in three areas: 1) 27% for public service needs, wetlands, coastal restoration and other local purposes; 2) 16% for the Land and Conservation Fund; and 3) 7% for wildlife programs.

BP Amoco proposes UK energy tax scheme. In an effort to encourage conservation through emissions reductions, BP Amoco is proposing a tax plan that would entice British companies to cut greenhouse gases and fight global warming. Rodney Chase, president and deputy chief executive of the newly formed company, recommended a system to reward British firms with a corporate tax incentive, if they reduce their greenhouse gas emissions. If a company’s efforts fail, it would face a tax increase.

India seeks investment in oil exploration. Faced with stagnant domestic oil output and rising demand, India’s government unveiled a new policy to allow state-owned oil companies to set up joint ventures with overseas investors. Half of the country’s 26 sedimentary basins — where oil would likely be found — are virtually unexplored, along with 517,000 sq mi of deepwater basins. Last month, companies were invited to bid on 48 on- and offshore blocks. Some firms are skeptical due to the high-risk business of exploration, especially at a time when capital spending is being reduced.

Texaco discovers oil offshore Nigeria. After Texaco Chairman and CEO Peter Bijur carefully analyzed the performance of his firm’s exploration division, a major wildcat discovery was made in deepwater OPL Block 216, about 70 mi offshore Nigeria in the Central Niger Delta. The discovery well, Agbami 1, encountered 420 net ft of pay in multiple zones from 8,200 ft to the 12,400-ft TD. The well was spudded last July in 4,700 ft of water, setting a record for the greatest water depth at a drilling site offshore Nigeria. Preliminary data indicate the reservoirs contain several hundred million bbl of recoverable oil. Further appraisal drilling and testing will need to be conducted to confirm the discovery’s full magnitude.

Conoco Indonesia consortium to supply gas to Singapore. In an attempt to stimulate further demand for natural gas and development of known gas reserves in the West Natuna Sea, Conoco and state firm Pertamina have agreed to a two-year plan to build the largest international natural gas supply and delivery system in the Asia-Pacific region. Via a 28-in., 300-mi subsea pipeline, 325 MMcfgd from Indonesia’s West Natuna Sea gas fields will be delivered to Singapore by 2001. Conoco will manage the pipeline’s construction — scheduled to begin early this year — and act as operator when the project comes onstream.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company