Oil country hot line

February 1999 Vol. 220 No. 2 Hot Line BP, Amoco merger completed, layoffs begin Stock trading in shares of BP Amoco commenced in early January after the two firms merger was completed o

February 1999 Vol. 220 No. 2
Hot Line

BP, Amoco merger completed, layoffs begin

Stock trading in shares of BP Amoco commenced in early January after the two firms’ merger was completed on Dec. 31, 1998. BP Amoco ADS shares will be listed and traded on the New York, Pacific, Chicago and Toronto stock exchanges, as well as exchanges in France, Germany, Switzerland and Japan. The company plans to eliminate 900 jobs in England and Scotland — 1% of the company’s global workforce — as part of cost-cutting measures to offset the impact of declining oil prices.

Nabors and Pool to combine

Houston-based Nabors Industries and Pool Energy Services will merge via a tax-free, stock-for-stock transaction worth $518 million. Pool shareholders will receive 1.025 shares of Nabors common stock for each share of Pool they currently own. The companies will operate about 440 international land rigs and 60 domestic and international offshore rigs. Combined pre-merger revenues for 12 months ending Sept. 30, 1998, were $1.6 billion, with a $279-million operating income. Nabors will assume Pool’s $144-million debt.

Offshore drilling consolidation likely

The Gulf of Mexico represents about 30% to 40% of worldwide jackup drilling activity. Industry-research firm Simmons & Co. International believes the jackup industry must consolidate, due to the shallow-water Gulf of Mexico’s changing customer base, which has moved from major, integrated oil companies to smaller, independent E&P firms. Majors need large fields to generate growth, something the mature, shallow-water GOM does not offer. Smaller companies are driven by cash-flow considerations and have a difficult time drilling through short-term industry downturns. With a smaller, more fragmented customer base in the GOM, drilling demand volatility will increase. Offshore drilling assets are trading on the stock market at about 40% of their replacement values. If industry participants wait until fundamentals improve, the chance to buy these cheap assets may be gone.

Majors cut 1999 capital spending

With little hope of sagging oil prices rebounding in the near term, several major oil companies are reducing capital spending to increase available cash flow in 1999. Texaco announced a revised capital and exploratory plan of $3.7 billion, including subsidiaries and affiliates, down $600 million from its original plan to spend $4.3 billion that was based on $15/bbl oil. Kerr-McGee and partner Oryx Energy have budgeted $545 million for capital spending this year, a 45% decline from their total in 1998. Phillips Petroleum also will decrease 1999 spending in hopes of saving $230 million.

Canadian oil, gas well licenses fell in 1998

Due to depressed oil prices, Canadian governments issued just over half the number of well licenses in 1998 than the year before. Last year, only 11,955 licenses were granted, compared to 21,115 in 1997. Activity levels across the main producing region of Western Canada and Alberta were the lowest since 1993. Exploratory licenses dropped 9%, to 3,956. Development drilling took the biggest blow in 1998, falling 50%, to 7,142 wells.

New oil/gas research and exploration for UK

A total of £2 million in UK government grants will be made available over the next three years to fund wide-ranging research into oil and gas extraction. About 75% will be used to fund a new program assisted by the Department of Trade and Industry’s Infrastructure and Energy Projects Directorate. Emphasis will be on inventing and assessing new technologies, and reducing the impact of oil and gas extraction on the environment. Meanwhile, the 18th licensing round for new exploration in the UKCS closed in September, and license allocations will be announced later this year. Groups involving 50 companies were granted 43 applications for rights to explore for oil and gas in 82 areas. The new round included acreage in the four mature areas of the UKCS.

Exxon and Rosneft reach gas development agreement

Exxon Neftgas, Russian state oil company Rosneft and Rosneft-Sakhalinmorneftagas have agreed to develop two blocks in the Sakhalin III field offshore Sakhalin Island in far eastern Russia. The deal covers about 2.2 million acres in 330-ft water depths. Seismic data indicates the blocks have significant resource potential. However, exploration and appraisal drilling will have to occur to confirm the presence of commercial hydrocarbons. Before work can begin, approval must be granted by the Russian state Duma, the Sakhalin Oblast and Russian Federation government. Russia’s Deputy Energy Minister, Valery Garipov, is optimistic about approval, due to the country’s financial crisis and its need for new investment.

Gulf Indonesia discovers gas

The Suban 2 exploratory well in South Sumatra encountered two gas-bearing zones that tested about 43 MMcfgd and 365 bcpd from a gas column exceeding 935 ft. Gulf Indonesia is drilling an appraisal well 1.4 mi west of Suban 2, and has plans for an additional well and a 3-D seismic survey this year. The discovery is about 12 mi southwest of Dayung field, which supplies gas to the Duri steamflood project in central Sumatra.