Looking ahead

UAE exhorts non-OPEC members to cooperate in production cuts. Following a quarrelsome meeting of OPEC members in Vienna, United Arab Emirates Minister of Petroleum and Mineral Resources Saif al-Nasseri said that cuts in output by some OPEC countries would not be enough to stabilize or improve oil prices. Without cooperation from all crude-exporting countries, cuts by OPEC members would be pointless. Many industry observers believe that Iran and Venezuela have failed to follow through on pledges made earlier this year to cut crude output. However, Venezuelan President-elect Hugo Chavez has vowed that his new government will comply fully in the future with OPEC quotas.

Russia says it will not cut production. Because OPEC decided not to reduce production until March 1999, Russia says it will not cut its own exports either. Since half of the country’s hard currency is from crude exports, convincing Russian officials to lower output and exports is difficult. This is particularly true, as currency devaluation has driven down Russian oil companies’ operating costs because export earnings are paid in dollars and costs are paid in rubles. Fuel and Energy Minister Sergei Generalov had agreed, in June, to slash production by 100,000 bopd. Russia attended the recent OPEC meeting as an observer.

Comments on new rule sought from operators. The U.S. Department of Interior’s Bureau of Land Management is seeking comments on a proposed new oil and gas rule that would reduce overlap among current regulations. The new rule would give operators increased flexibility in meeting agency requirements, ensure appropriate bond amounts to cover reclamation costs and simplify classifications of regulatory violations. The proposed regulation, in some instances, will replace specific and rigid requirements with performance standards. A 120-day comment period ends April 2, 1999.

Work on Canada’s Sable project intensifies. The Santa Fe Galaxy II jackup has joined Rowan’s Gorilla II rig at Mobil’s Sable Offshore Energy Project, offshore Nova Scotia. While Galaxy II has just spudded the first production well, Sable’s first gas is still on schedule for delivery during November 1999. Sable gas will be delivered to Canadian and northeastern U.S. markets via the 600-mi Maritimes and Northeast Pipeline. Meanwhile, Mobil has sold almost 40% of its share of Sable gas and plans to increase gas production and sales from its acreage offshore Nova Scotia. Consequently, the firm signed a 254,000-acre exploration license on the Banquereau Bank area, offshore Cape Breton, Nova Scotia.

Mobil finds gas again in Australia. Combined output from Mobil’s John Brooks 1 is 53 MMcfgd and 450 bbl of condensate from two drillstem tests in Australia’s Carnarvon basin. The well was drilled to a TD of 12,270 ft in 230 ft of water in permit area WA-214-P, about 30 mi northwest of Barrow Island.

Azeri’s downplay oil price effect, but Pennzoil ready to back out. Azerbaijan’s foreign minister, Tofig Zulfugarov, has expressed confidence that Western oil companies will continue their large investment programs, despite low crude prices. In fact, he predicts that a rebound will occur sooner, rather than later. Nevertheless, Western firms are not necessarily backing his statements through their actions. Latest case in point is Pennzoil, which, through the Caspian International Pipeline Consortium, told the Reuters news service that it is almost certain to drop plans to develop Karabakh offshore field. Crude reserves are said to be too low to justify development.

Unocal abandons pipeline plan and most FSU republics. Unocal has cited civil war in Afghanistan, harsh treatment of women, and Afghanistan’s safe haven for terrorist Osama bin Laden as reasons for canceling a plan to deliver gas from Turkmenistan to Pakistan via Afghanistan, through a proposed $2.9-billion pipeline. However, industry analysts believe that low oil prices and the Asian financial crisis really prompted the decision. Unocal also has closed offices in all but three republics in the area. However, operations in Azerbaijan will remain open. Meanwhile, running an oil pipeline from Baku to Ceyhan, in Turkey, could add $500 million a year to oil transportation costs, compared to a shorter route to the Black Sea, said John Leggate, president of Azerbaijan International Operating Co.

UPRG cuts staff, takes $34-million charge. Due to reduced activity in its U.S. operations, Union Pacific Resources Group (UPRG) is reducing its headquarters staff by 14%. The reduction should generate annual pre-tax savings of about $12 million. An after-tax charge of about $34 million in fourth-quarter 1998 includes severance and other costs of about $100 million. Combined with attrition, UPR headquarters’ staff has been reduced by 20% since the beginning of 1998. Future reductions, due to the impending sale of the firm’s gathering, processing and marketing businesses, are not included.

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Copyright © 1999 Gulf Publishing Company