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Vol. 225 No. 8 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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OPEC scraps meeting but proceeds with higher quotas
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In a surprise move, OPEC ministers cancelled the meeting they had scheduled for this month to review oil prices and production. However, they agreed to proceed with the second portion of an output increase that was approved in June. The first portion of that agreement, implemented last month, added 2 million bopd to the world market. The second phase will add another 500,000 bopd this month. Market analysts still believe that the increase is largely symbolic, contending that OPEC members have already been exceeding the August target. Some industry observers speculated that the group's ministers scrubbed their meeting to avoid public discussion of how little spare production capacity they still have remaining. In a related note, Saudi Oil Minister Ali Naimi reaffirmed the kingdom's commitment to maintaining OPEC's target price band, between $22 and $28/bbl. However, global supply and demand figures indicate little reason to believe that prices are headed in that direction any time soon.
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Indonesian exploration suffers from tax confusion
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Thanks to poorly crafted tax regulations, exploration drilling is on a downward slide, warned Indonesia's upstream agency, MIGAS. According to recent MIGAS data, only 54 exploratory wells were drilled in Indonesia last year, compared to 75 in 2002 and 87 in 2001. The reason, said MIGAS director Rachmat Sudibyo, is that many operators are delaying exploration programs because of the government's directive two years ago that ended a tax waiver on imported upstream equipment and supplies. “Investors are confused, because they have to pay tax, even before they obtain oil or natural gas from exploration. So, they have put their exploration on hold until this issue is sorted out,” said Sudibyo in an interview with The Jakarta Post. Previously, oil companies only paid import taxes if exploration proved successful. Another complication has been the autonomy policy, which gives regional governments the power to levy taxes and concession rents.
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Hydraulic fracturing not a threat to USDWs, says EPA
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A revised report issued by the US Environmental Protection Agency (EPA), and assessing the impact of hydraulic fracturing on underground sources of drinking water (USDWs), has concluded that “the injection of hydraulic fracturing fluids into coalbed methane (CBM) wells poses little or no threat to USDWs.” Therefore, the agency has found no reason to further study this issue, which has been investigated for four years. “Although thousands of CBM wells are fractured annually, EPA did not find confirmed evidence that drinking water wells have been contaminated by hydraulic fracturing fluid injection into CBM wells,” said the report. Commented an obviously relieved Christine Hansen, executive director of the Interstate Oil and Gas Compact Commission, “We are pleased with EPA's conclusion supporting the states' position that the state programs have been effective in protecting groundwater sources.”
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Yukos struggles with punitive tax bill
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Russian oil major Yukos began making payments on billions of dollars of tax demands from the central government. A first installment of $3.4 billion was transferred to the Russian treasury from Yukos to cover arrears and fines for year 2000, even as officials seized some of the firm's assets to cover debts. The tax move against Yukos, which includes another $3.4 billion for years after 2000, is running in tandem with a tax, fraud and embezzlement case against the company's former CEO, Mikhail Khodorkovsky. Among assets seized were shares held by Yukos in Sibneft Oil Co. after a failed merger. Unfazed by Yukos' troubles, Sibneft announced that its proved oil reserves grew 1% last year, to 4.623 billion bbl. Gas reserves rose 9%, to 938.1 Bcf. The firm more than replaced reserves while boosting output.
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Norway's NPD pleased with drilling results to date
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Through the first six months, 2004 has been a good year for exploration drilling, said the Norwegian Petroleum Directorate (NPD). By late June, 12 exploration wells (seven wildcats, five appraisals) had been drilled on the Norwegian Continental Shelf, and all but two had been successful. Two new oil discoveries were made by Esso (Block 16/1-7) and Norsk Hydro (Block 31/4-A-30B), and Statoil struck an oil find in the Norwegian Sea (Block 6608/11-4). NPD expects exploration activity to be slightly above 20 wells for all of 2004. NPD also approved Statoil's plan for development and operation of two Norne field satellites, Svale and Staer. Three subsea templates will produce 70,000 bopd via a tieback to the Norne FPSO.
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Norton reveals specifics for royalty-in-kind program
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US Interior Secretary Gale Norton has unveiled a five-year business plan for the federal government's royalty-in-kind (RIK) program. Administered by MMS, the RIK program aims to increase federal revenues while decreasing administrative costs. Revenues are received in kind, rather than in cash, and then officials competitively sell the commodities in the marketplace. DOI and MMS conducted six years of pilot testing and validation of the RIK approach before proceeding to the business plan step. “The release of this business plan signifies that we are moving to an operational phase of RIK from the previous pilot projects,” said Norton.
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Venezuela works on new gas tender scheme
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In Caracas, the Ministry of Mines and Energy is preparing a set of tenders to develop gas reserves estimated at 196 Tcf in the Gulf of Venezuela. Last month, officials were reportedly contacting operators about terms and conditions for seven offshore blocks. In addition, five non-associated gas blocks onshore will be re-offered by the end of this year or the beginning of 2005. Speaking at an industry conference in Trinidad, Deputy Energy and Mines Minister Luis Vierma said, “If everything goes smoothly, as it has so far, the process of exploration will (run) from 2003, when we finished the Deltana platform, to 2008. The total investment in this exploration campaign will reach $100 million.”
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Public hearings urged for LNG terminals
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Eleven members of California's congressional delegation, fearing voters' wrath at the polls on Election Day, have asked the state's Public Utilities Commission (PUC) to hold public hearings on plans to build LNG terminals along the coast. PUC is in the middle of considering rules for allowing far greater importation of LNG. However, representatives said they want hearings now, to address safety concerns that trouble many of the coastal communities.
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China set to mix up three oil giants' territories
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Until now, PetroChina and Sinopec have handled the country's onshore E&P work, and CNOOC has enjoyed a monopoly offshore. This will now change, as China's Ministry of Land and Resources has issued a license to PetroChina to explore in the South China Sea. In turn, CNOOC has gained control of Tianye Chemical Group, and the firm may become involved in producing the country's largest gas field. Sinopec has also submitted applications for several offshore E&P tracts.
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Wyoming gushes receipts
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In Cheyenne, Wyoming's state treasury is overflowing with taxes collected on oil and gas output, thanks to heavy drilling activity and high commodity prices. The state's Oil and Gas Conservation Commission confirms that an average six oil and/or gas wells are going on-stream every day, plus another 1,400 coalbed methane wells will be completed. Compared to neighboring Colorado, which is running a $221-million deficit on an annual budget of $14 billion, Wyoming expects to achieve a $1.2-billion surplus on a $5-billion budget.
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Cuba explores deep water
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Spain's Repsol-YPF is the first operator to drill a deepwater tract offshore Cuba's northwestern coast, in the Gulf of Mexico. Depending on results, several other foreign firms may opt to begin drilling similar tracts. To date, Cuba has leased 10 of 59 blocks in the Gulf of Mexico. The country's oil output is now running as high as 80,000 bpd. 
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Opinion
On this page five months ago, I mused about the ongoing phenomenon of high oil and gas prices, but relatively meager profits for service/ supply companies and drilling contractors as opposed to oil companies. The answer, of course, was and still is that the oil companies, particularly the majors, are making handsome profits while putting the squeeze on their vendors. At some point, however, when will a lack of fair share of the industry profit impact R&D budgets at service/ supply firms?
Meanwhile, I also had mused that the vast increases in oil company profits during 2003 would show up in executive pay statements. Those data have since come in, and – no surprise – the compensation in some cases appears excessive. Among three high-profile examples (ExxonMobil, ChevronTexaco and BP), ExxonMobil was most gratuitous, where Chairman Lee Raymond pulled in $27.78 million, up 7.6% from 2002's figure. His total includes $3.25 million in base pay, a $3.56-million bonus, stock awards of $17.91 million and $3.06 million of long-term incidentals. Raymond's bonus was up 65%, and his firm's profit increased 88%, so one could argue that he was not overcompensated in that column. Overall, ExxonMobil's top five executives took in $54.71 million, up 9.4%, including $35.24 million in stock awards. The company sliced 4,000 employees from the payroll during 2003, so let's play a fun math game. Let us suppose that the stock awards were not made – how many $80,000 employees could have been saved? The answer is 440, or 11%.
Over at ChevronTexaco, Chairman David O'Reilly pulled in $8.05 million ($1.31 million in base pay and $3.15 million in bonus). O'Reilly's bonus rose 350%, but his firm's profit increased only 64%. His firm also dropped 2,432 employees from the payroll. Compared to ExxonMobil, total compensation for ChevronTexaco's top five execs was a paltry $20.85 million, but it was still up 115%. Okay, on to BP, where the executive director, Lord Browne of Madingley, hauled in $7.71 million, up 31%. That amount includes $2.15 million in base pay and $3.07 million in bonus. Interestingly, Browne's bonus rose only 21% while BP's net profit increased 42% – he's either conservative or bad at math. While BP's top exec group, overall, was taking in $21.96 million for 2003, a 29% increase, the firm was also dropping 8,250 employees. These are just three examples, but the pattern is fairy consistent among all the major companies. The large independents reward their executives well, but not quite as boldly as the majors. Of course, that's cold comfort for employees that are told to be happy with raises of 2% to 3%, while their firms are racking up profit increases in the high double digits.
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