Oil country hot line

OPEC increases crude output

As expected, OPEC members increased their combined crude output about 1.7 million bpd to bolster global supplies and cool prices down from nine-year highs. The new agreement calls for a 26-million-bopd output level. It includes participation by Iran, which nearly skipped the pact in protest of heavy U.S. lobbying efforts for higher output and lower prices. In addition, non-OPEC countries, such as Mexico and Norway, said that they would hike their output by a collective 400,000 bopd. Whether OPEC’s higher level will significantly affect prices is unclear. Reuters reported that much of the increase was already being produced by OPEC members, who were cheating on their quotas. The group also elected a new president, Venezuela’s Ali Rodriguez. He said that OPEC will target a new $22–$28/bbl "price band" and adjust output to stay within that range. He also said that oil ministers may need to boost output again during the summer, as the current increase may be insufficient.

BP Amoco/Arco deal may clear hurdles

Just when BP Amoco’s acquisition of Arco appeared to be back on track, a new wrinkle delayed it again. To appease federal antitrust regulators, Arco had agreed to sell its Alaskan oil and gas assets to Phillips Petroleum for $7 billion. Bob King, spokesman for Alaskan Gov. Tony Knowles, had predicted that this asset sale would be enough to clear BP Amoco’s takeover of Arco. However, in late March ExxonMobil filed suit, contending that a 1964 agreement with Arco gave Exxon first right to acquire any of Arco’s Prudhoe Bay properties. A week later, Gov. Knowles said the parties were working to forge a commercial agreement before an April 26 court date. At press time, the situation was still unresolved.

Mexico’s oil reserves dip slightly

Pemex said that Mexico’s proven crude reserves dropped a fraction in 1999, to 34.103 million bbl from 34.180 million bbl. However, this is misleading in terms of productive capability, for last year the country hit an all-time production high of 3.308 million bopd. Furthermore, said Pemex chief Rogelio Montemayor, a large-scale, nitrogen-injection project at giant Cantarell offshore oil field promises a 756,000-bpd jump in capacity within two years, to 2.223 million bpd.

Meanwhile, the U.S. Geological Survey (USGS) has increased its estimates of undiscovered oil reserves outside the U.S. by 20%. USGS also claims that four times more recoverable oil, about 2.1 trillion bbl, lies outside the U.S. than has been pumped during the last 100 years.

Output flows from GOM’s Europa field

On Mississippi Canyon deepwater Block 934 in the Gulf of Mexico, three wells in Shell’s Europa field are now online, producing a collective 40,000 bopd and 30 MMcfgd. Europa sits in 3,900 ft of water, 140 mi southeast of New Orleans, and is connected to Shell’s Mars TLP on Block 807.

LUKoil succeeds in Russian Caspian

Drilling of the first wildcat in the Severnaya contract area of the Russian sector of the Caspian Sea was a success, said operator LUKoil. Results showed seven oil-bearing stratums, and the company estimates that recoverable oil reserves are about 300 million t (2.7 billion bbl). LUKoil said it will begin full-scale development of the find in four to five years, and plans to drill eight exploratory wells and 200 development wells. Output is envisaged to reach 15 to 20 million t/year (300,000 to 400,000 bopd).

Decline in experienced oilfield workers

After crude prices hit bottom in 1998, thousands of workers left the oil patch and have not returned. Now, that exodus has resulted in a serious shortage of qualified hands. Just when oil companies are ready to boost U.S. drilling in response to much higher oil prices, contractors say that they already are operating at capacity in terms of experienced crews available. According to the federal Bureau of Labor Statistics, the U.S. E&P industry lost 26% of its workers in the past decade. The worst one-year drop was in 1999, when payrolls fell to 293,100 workers – down 14% from 339,200 in 1998. The Permain Basin Petroleum Association complains that some stacked rigs "won’t get unstacked, because there are not enough hands to run them." Another problem is pay: Roughnecks get only about $20,000/year to start, not very much money in today’s superheated economy.

Record highs for U.S. nuclear electricity

Last year, U.S. commercial nuclear power plants achieved record levels of nuclear generation although operable U.S. commercial nuclear-generating reactor units have declined from 112 in 1990 to the current 104. According to Electric Power Monthly, annual nuclear generation surpassed 700 billion kW for the first time, reaching a total of 727,913 million kW. That figure is 8% over 1998 and 53 billion kW over the prior record of 674,729 million kW set in 1996. Last year’s record, nuclear capacity utilization, all-time high of 85.5% was made possible by reducing the outage time for refueling nuclear units. In 1999, the nuclear share of total U.S. electricity was 19.8% compared to 18.6% in 1998.

PetroChina’s IPO goes flat

Following a flat introduction in New York (where it was the second most actively traded company on the NYSE), PetroChina’s shares fell 4.7% from the IPO price in its Hong Kong debut. This impedes China’s plans to reform and float lumbering state enterprise. PetroChina’s H-shares traded one cent above its HK$1.27 initial public offering price for less than a minute; then sank to a low of HK$1.17, closing at HK$1.21. PetroChina failed to attract investors due to opposition from human rights organizations and U.S. public pension bodies such as AFL-CIO (representing 13 million workers in 60 labor unions) and TIAA-CREF – the world’s largest pension system.