Looking ahead

Oil industry sees additional mergers. Growth in the ranks of consolidated oil companies continues. Latest entrant is the merger of Anadarko Petroleum Corp. and Union Pacific Resources Group Inc. The two firms have agreed to create a combined company called Anadarko Petroleum Corp. that will be the sixth-largest natural gas producer in the U.S. The deal will create one of the largest E&P companies in the world, according to 1999 reserve production and drilling activity. The reserves total nearly 2 billion bbl of oil and 11.7 Tcfg. Meanwhile, Varco International, Inc. and Tuboscope Inc. agreed to a merger-of-equals transaction, creating a combined oilfield equipment and services organization called Varco International, Inc. Shares will be owned equally by current shareholders of each company.

Merger madness grips Canada also. In one week, Canada’s oil patch has seen three potential mergers or takeovers surface, signaling a new wave of merger mania. Petrobank Energy and Resources Ltd. launched a $678 million hostile bid for much-bigger rival Ranger Oil Ltd., offering three of its shares for each Ranger share. Hunt Oil Co. is pursuing Ulster Petroleum Ltd. with a bid of C$512 million for its natural gas operations in the Deep basin of western Alberta. Finally, Bellator Exploration Inc. recommended that its shareholders accept a C$201-million unsolicited offer from Baytex Energy Ltd. The deals are being driven by expectations of residual oil price strength.

U.S. oil drillers expect better times. After OPEC’s meeting agreement to raise output and stabilize oil price market, oil drillers expect flat first quarter earnings, but believe revenues will improve later in the year. The recovery will begin in the second half and be on its way by 2001, according to sector company executives. Drillers said that OPEC’s deal should benefit them by keeping oil prices more stable, which is what oil firms are seeking before they commit more dollars to E&P activity.

Red Sea Corp. initiates Libyan oil field development. Phase 1 development has begun at the En Naga North and West field in Area NC177, onshore Libya. The field, which is operated by Red Sea Oil Corp. (60%) and parent firm Lundin Oil AB (40%), will initially produce at a rate of 16,500 bopd in the first quarter of 2001. Peak production in Phase 2 is stated to be at 24,000 bopd. A 3-D seismic survey of En Naga North and West is now in progress, with completion estimated by the end of May. In addition, data is currently being processed on 400 km of new 2-D seismic just completed. Preliminary results are promising, and exploration drilling will resume in July, with two wells planned.

Russia to supply oil to China. Russia and China initialed a 5-year "cooperation in energy" agreement that will enable Russia to export at least 20 million t of oil per year to China by 2005. Terms of the agreement, which involves transportation of oil via a yet-to-be-built pipeline were signed by Russia’s Yukos, China National Oil Corp. and China’s Sinopec. According to Prime-TASS news agency, two possible routes for the pipeline are being discussed. Both routes begin in Angarsk, the Russian domestic oil pipeline’s easternmost point. The pipeline would run from Mongolia to Beijing, or from Russia to northwestern China. Plans to construct a gas pipeline stretching from East Siberia’s Kovykta field to China, and possibly farther to South Korea, are also under way.

U.S. seeks increased Iraqi oil sector spending. A proposal seeking to double Iraqi upstream spending to 1.2 billion over a 12-month period ending in June was unanimously approved by the United Nations. The proposal comes shortly after recommendations, by UN Secretary-General, Kofi Annan, to allow more spending from oil-for-food humanitarian funds for Iraq’s dilapidated oil industry. Presently, two-thirds of the money in the fund is used for food, medicine and humanitarian supplies for Iraq’s 22 million people. In a separate report, Annan stated that the Iraqi oil industry continues to adopt "high-risk solutions" to maximize oil exports that fund the oil-for-food program. A continued decline in production is expected if conditions persist. In the past year, Iraq has exported $13 billion of oil. UN oil experts said that Iraq’s recent drop in oil export capacity to 1.9 million bpd was caused in part by poor maintenance and failure to adequately fund spare-parts purchases and oilfield rehabilitation.

Canadian, U.S. firms team up offshore Nova Scotia. Canada 88 Energy Corp. and Kerr-McGee Corp. entered into an exploration agreement whereby Kerr-McGee will acquire 50% interest in Canada 88’s (100%) East Coast holding offshore Nova Scotia. Kerr-McGee will become operator and will also assume $1.5 million of future seismic processing costs related to the project. The licenses are located about 100 mi southwest of the prolific Sable Island development and cover 1.5 million acres in waters that are 500 to 9,200 ft deep. Canada 88 and Western Geophysical have shot a large, deepwater 3-D seismic program off the East Coast. Initial mapping indicates a large, turbidite fan play analogous to major discoveries offshore Angola and Brazil.