November 2003
News & Resources

World of Oil

Vol. 224 No. 11  KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR   Click Here for Kurt's Opinion OPEC hedges on need for more output cuts

World of Oil
Vol. 224 No. 11 

Click Here for Kurt's Opinion

OPEC hedges on need for more output cuts

If oil prices remain relatively high, OPEC may not have to make additional production cuts, said Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah. Speaking to a media gathering in Oslo, Sabah said, “If the price continues at the same level, maybe we will continue with the same production level. At the moment, I don’t see a reason to change.” Similarly, Venezuelan Minister of Energy and Mines Rafael Ramirez indicated that his country would support an output cut to keep prices within a $25-to-$32/bbl band. “Venezuela will support whatever decision is necessary,” added Ramirez. On Sept. 24, OPEC reached a surprise agreement to cut its collective oil production (exclusive of Iraq) by 900,000 bpd, to 24.5 million bpd, to defend high crude prices. 

US agency predicts that high oil, gas prices are here to stay

In its latest winter fuels outlook report, the Energy Information Administration (EIA) of the US DOE predicted that global oil prices will hover near $30/bbl through the coming winter, and natural gas prices will remain high, as well. Oil prices will remain firm, said EIA, “primarily because of OPEC’s decision to lower oil production quotas,” which should eliminate any chance for end-of-year inventories to build. As for gas, EIA predicts that US demand will be down 2% this winter, because temperatures are forecast to return to more-normal levels, compared to last winter’s colder readings. Nevertheless, consumers are expected to pay 9% more for gas heating, as spot gas prices have averaged close to $5/Mcf for all of 2003. 

Russian firms merge into super- producer

Giant firm Yukos said that it has completed acquisition of smaller rival Sibneft to form the world’s fourth-largest company, in terms of oil production. The new entity will be named YukosSibneft and boast a market capitalization of $46 billion. Its productive capability will be just over 2 million bopd, and annual revenues generated should be about $15 billion. Meanwhile, government investigators conducted two additional raids of Yukos’ offices in Moscow last month. Officials claimed that they were looking for evidence related to their probes of alleged roles played by Yukos personnel in tax evasion and a 1998 double murder. 

Iraqi oil contracts set for award by Army Corps

As this issue went to press, the US Army Corps of Engineers was preparing to award two contracts related to restoration of Iraqi oil production. The Corps had been considering bids to replace a single contract held by Halliburton’s subsidiary, Kellogg, Brown & Root (KB&R). The previous contract award to KB&R had been controversial, given US Vice President Dick Cheney’s former tenure as Halliburton chairman. Corps spokesmen said that they expected the new contracts to be awarded during second-half October. The new Iraqi Oil Ministry said that it was producing 1.9 million bopd last month, compared to 2.3 million bopd before the war. 

Iran quietly adds to its oil production capacity

While most eyes have been focused on post-war events in neighboring Iraq, the Islamic Republic of Iran has slowly but steadily been increasing its oil production capacity. President Mohammad Khatami said that state firm NIOC has added about 250,000 bopd to the nation’s capability during the first three years of the current five-year economic plan. Accordingly, the Iranian Oil Ministry is now claiming a productive capacity of 4.2 million bopd. Officials also noted that the Pars special economic energy zone, set up along the Persian Gulf in 1998 to take advantage of South Pars field’s huge gas reserves, has succeeded in attracting considerable foreign investment.

Further progress in Russian oil industry cited

While reviewing the recent US-Russia energy summit in St. Petersburg for media and industry personnel in Houston, several experts at Akin, Gump, Strauss, Hauer & Feld noted several basic improvements in Russia’s oil sector. First, given better taxation, accounting and legal practices, foreign operators no longer feel the need to demand rigid PSAs. Second, foreign investment in the sector is being spurred by better alignment of US and Russian policies, plus attractive valuations of upstream assets and work on infrastructure improvements. The latter refers to Russia’s ongoing work to make more than 50% of its oil available for export. A number of pipeline and seaport projects are underway to improve delivery mechanisms, to enable greater exports. 

ChevronTexaco expects to extend Angolan presence

According to a Reuters news service report, ChevronTexaco is on the verge of extending its pioneering upstream presence in Angola. As the country’s original operator, ChevronTexaco has an agreement for Block 0, offshore the Cabinda enclave, that lasts until 2010. However, the company has already negotiated and signed an extension agreement with state firm Sonangol. Now, all that remains is for the government to approve the deal. Although mature, Block 0 still has additional development opportunities. Current Block 0 output is 500,000 bopd, or more than half of Angola’s 900,000 bopd. Chevron also operates the lucrative deepwater Block 14.

Indonesia signs nine PSAs, offers 10 new areas

Mines and Energy Minister Purnomo Yusgiantoro confirmed that his office signed nine PSA contracts with operators, including Santos. The Australian firm will explore a block offshore Bali Island. In addition, Indonesian firm Medco Energi Internasional picked up an onshore block in Jambi, South Sumatra. Other noteworthy PSAs include the award of an offshore block in East Java province to a Korea National Oil Corp./ Petrovietnam pairing, and a Northeast Madura offshore block to a group comprised of KNOC, Petrovietnam and SK Corp. The 10 new areas opened for tender include seven tracts that are completely offshore in various locations, plus three blocks that are half-onshore, half-offshore. 

Chad-Cameroon export pipeline inaugurated

Chadian President Idriss Deby turned a ceremonial spigot last month at the Operations Center at Komé in southern Chad, officially opening the 663-mi, 250,000-bopd Chad-Cameroon export pipeline. Oil began flowing into the line back in June, and the first export cargo of 950,000 bbl was shipped from Cameroon on Oct. 3. Current field output is 100,000 bopd, and it should increase to 225,000 bopd in first-half 2004. Annual governmental oil income will hit $80 million in Chad, where the average citizen earns less than $250 per year. 

Petronas opens blocks

Faced with dwindling reserves, Malaysia’s Petronas has opened seven new deepwater blocks to exploration. The firm has drawn up a short list of operators as potential bidders for the blocks, and they are being invited to review data. Five blocks are northwest of Borneo Island. The other two are in the Sulawesi Sea. 

Alaska hands out money

Last month, Alaska began mailing out the annual Permanent Fund dividend checks to all state residents. However, each check is only $1,107.56, down from last year’s $1,540.76 and the record-high of $1,963.86 in 2000. The Permanent Fund is an oil royalty investment account set up in 1976 to distribute some of the state’s oil wealth back to citizens. Lawmakers have debated in recent years whether to eliminate the dividend and re-route the money to pay for running the state government. However, none of them wants to take the political risk. 

Shell sets Bonga date

First output from giant Bonga oil field offshore Nigeria is expected by the end of next June, said a Shell spokesman. The $700-million Bonga FPSO began sailing from Newcastle, England, to Nigeria last month. Once installed, the vessel will ramp up to its full, 250,000-bopd capacity within two to three months. The Bonga FPSO can also produce more than 140 MMcfgd and store up to 2 million bbl of crude. WO





Not to belabor the point, but the regime of Venezuelan President Hugo Chavez has not been beneficial to the healthful operation of state oil company PDVSA. This editor on previous occasions has outlined the potential short-term and long-term harm that could come from Chavez’s reckless policies and decisions made on a whim. Well, now we have, unfortunately, tangible evidence of the deterioration of PDVSA’s performance and standards. In the space of just a couple of weeks in September, not one but two fiery blowouts occurred at PDVSA wellsites. The first incident was onshore, just outside of Anaco. According to our own industry sources, a relatively inexperienced Chinese crew working on the CPV 20 rig was drilling a gas well. They allegedly lost control of the well, and it blew out, burning up the rig in the process. The rig is a total loss. 

Then, on Sept. 25, the second incident occurred in Block 1 of Lake Maracaibo (photo below). PDVSA rig 22 had been working over the VLA-1432 well near Las Salinas. At 5 a.m. that day, high-pressure gas began leaking, and the well blew out and caught fire five hours later. Forty-five workers were evacuated from the drilling barge, which also is a total loss. According to what our sources tell us, both accidents are the result of inexperienced people making mistakes. They contend that this is a direct result of Chavez firing roughly half of PDVSA’s workforce in retribution for them demonstrating against his policies and regime. In other words, if the more experienced workers fired by Chavez had still been on the job, perhaps both rigs would still be intact. 

Fig 1This brings us back to the central issue at hand – as long as Chavez remains in power, he will continue to meddle with PDVSA, since the firm is such a visible symbol of Venezuela. And as long as he continues to interfere with the operation of this national oil company, its ability to properly function will be compromised. How many more accidents have to happen before Chavez realizes the error of his meddling, or the people of Venezuela wake up and remove him from power? Either way, one can only hope that something happens soon.


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