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Vol. 225 No. 6 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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WTI oil price hits all-time futures high in real terms
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Fueled by Iraqi turmoil, uncertainty about OPEC output levels, and strong demand in the US and China, global oil prices surged higher throughout April and early May. On May 14, oil futures on the New York Mercantile Exchange hit an all-time high (the exchange was established in 1983) in real terms at $41.29/bbl. This figure was immediately eclipsed on May 17, when a new record was achieved at $41.55/bbl. A very surprised group of OPEC ministers confided individually, off-the-record to reporters that the cartel was very worried about overheated oil prices. Just as the record prices were hit, Saudi Arabia proposed an 8.5% increase in OPEC's official output target. This was in response to other OPEC delegates calling for an output hike greater than 6%. Nevertheless, market analysts contended that a target increase of 2.0 million bopd would do nothing other than to legitimize OPEC's overproduction, which has averaged 2.0 million bopd above the 23.5-million-bopd ceiling.
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Bush administration continues filling US SPR
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Despite surging oil prices, President George W. Bush and his advisors vowed to continue filling the US Strategic Petroleum Reserve (SPR) to its 700-million-bbl storage capacity by sometime in 2005. Administration officials rejected calls by mostly Democrat members of Congress to release SPR oil, to increase supply and cool off prices. Bush's likely opponent in the presidential election, Sen. John Kerry (Democrat-Massachusetts), said that he does not advocate releasing SPR oil, but he did urge Bush to stop filling it and divert those supplies to the US market “particularly in the summer driving season.” As of May 18, the SPR inventory stood at 659.5 million bbl of oil, of which 395.1 million bbl were sour, and 264.4 million bbl were sweet. During April, 6.07 million bbl were delivered, followed by 3.25 million bbl in May. This month, only 1.0 million bbl are due for delivery. A Bush spokesman said that suspending the SPR filling would have “a negligible impact” on rising gasoline prices, because the largest problem remains a shortage of US refining capacity.
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Canadians predict big profits, expect more mergers
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A survey by financial house Deloitte & Touche LLP finds that Canadian oil and gas CEOs and CFOs are more bullish on their profit outlook than at any time in the past five years. Survey respondents expect double-digit profits for oil and gas firms listed on the Toronto Stock Exchange. In addition, their consensus is that the volume of Canadian merger and acquisition activity will be higher than at any time in the last three years. When compared to actual results, previous Deloitte survey predictions have generally been accurate, said Richard Cooper, the firm's Canadian Energy & Resources leader. Respondents predicted an average oil price of $31/bbl, but it should be noted that the survey was conducted in March, before the most recent price spike.
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OTC hears details from Libyan official
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At the Offshore Technology Conference (OTC) in Houston, one of the highlights was a rare, precedent-shattering appearance by an official from Libya's National Oil Co. (NOC). Tarek Hassan-Beck, NOC's director of planning and information technology, conducted an informational briefing for media in conjunction with the Bush administration's liberalized policy toward Libya. Hassan-Beck said that Libyan oil output is running 1.3 million bpd, compared to a 1.8-million-bpd capacity. Current reserves are 36 billion bbl of oil and 54 Tcf of natural gas, with 50 oil fields in production. Drilling last year totaled 131 wells, with 174 slated this year. A five-year plan envisages drilling 100 exploratory wells and 600 development wells for $2.6 billion.
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Pemex disbands departments as part of a reorganization
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As part of an effort to increase efficiency, board members at Mexican state oil company Pemex approved a plan by General Director Raúl Muñoz to cut three of the firm's seven departments. The departments that will disappear are Strategic Planning; Industrial Security and Environmental Protection; and Innovation and Competition. Responsibilities held by these departments will be assumed by the four surviving units. In a related move, Octavio Aguilar V. will take over as corporate administration director, replacing Moisés Orozco G., who will become an advisor to general management. Aguilar previously led the Social Development department.
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Norway's petroleum minister pleads case to parliament
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Although large opportunities still exist on the Norwegian Continental Shelf for long-term projects and value creation, Norway faces substantial challenges, said Minister of Petroleum and Energy Einar Steensnæs in a white paper proposal to the Storting (parliament). In that document, Steensnæs and the administration propose a number of new initiatives to increase exploration, reduce development costs and boost recovery rates from existing fields. As regards exploration, the ministry will continue a flexible policy that opens a greater number of prospective areas to activity. In addition, noted Steensnæs while previewing the paper for media at OTC, “Tax reform will be part of this initiative. The government realized that unless we adapted the tax system to the current situation, we stood to not realize our activity goals.” Among several measures, the Ministry of Finance proposes to pay in cash the tax value of expenses connected to exploration. In addition, the state will pay in cash the tax value of expenses related to a company ceasing its activities on the NCS.
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Buzzard progresses on schedule offshore UK
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Partner Edinburgh Oil & Gas said that Encana's development of Buzzard oil field in the central UK North Sea remains on schedule and within budget. Accordingly, the target for first oil output remains the end of third-quarter 2006. By mid-2007. output is expected to reach 180,000 bopd. When discovered in May 2001, Buzzard was the largest oil find struck offshore the UK in 10 years. It is believed to contain about 1 billion bbl of original oil in place.
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ChevronTexaco gains Block 0 extension
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Angolan officials have extended the Block 0 concession held by ChevronTexaco subsidiary Cabinda Gulf Oil Co. (CABGOC) beyond 2010, to 2030. Home to 36 major fields, including Takula and Malongo, the 2,155-sq-mi tract lies offshore Cabinda province. Along with partners Total, ENI and state firm Sonangol, CABGOC produces 400,000 bopd on Block 0. In a surprising demonstration of financial transparency, Sonangol acknowledged that CABGOC paid a $210-million signing bonus and an $80-million “social bonus.”
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Argentine parcel attracts only one bid
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The sole bid submitted for the Totoral onshore exploration tract was submitted by the Argentine unit of Repsol-YPF, said the Neuquén provincial government. Covering 1,188 sq km in southeastern Neuquén, Totoral is the first of 13 concessions in the province's current bidding round. A decision on whether to accept the bid was due to be made by May 29.
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Dominion achieves first output at deepwater field
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Initial oil and gas production has begun from Dominion E&P's Devils Tower field, 140 mi southeast of New Orleans on Mississippi Canyon Block 773 in the deepwater US Gulf of Mexico. Over the first 12 months of production, the field should produce 60 Bcf of natural gas equivalent, net, to the firm. Output began from the 773 A-1 well, the first of eight completions that will be brought onstream in sequence through first-quarter 2005. Production flows through a floating spar facility designed to handle 60,000 bopd and 110 MMcfgd.
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SOCAR solicits funding
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Azeri state firm SOCAR at press time was negotiating a $320-million loan from the European Band for Reconstruction and Development. SOCAR needs the funds to cover its share of Stage 1 of the Shah Deniz field development in the Caspian Sea. SOCAR President Natik Aliyev said he expected to sign the deal sometime this month. 
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Opinion
During the last few months, some US politicians have whined loudly about high gasoline and diesel prices, with dire warnings of economic implications and demands that Congress investigate alleged price conspiring by oil companies. Prime examples are the probable Democratic presidential nominee, Sen. John Kerry (Massachusetts), and his “Dumb and Dumber” colleague, Sen. Barbara Boxer (Democrat-California).
The question of the day – are any businesses really being affected by the sharp spike in fuel prices – reappeared in my mind during (of all things) a concert festival in Houston that featured seven classic rock bands. After all, summer tours by such veteran names as Styx, America and the venerable Peter Frampton (all three were in Houston) are big business in the US, as they cater to nostalgic Baby Boomers and some Baby Busters. Ticket prices are impressive, but they cover not only promoter profits but also bands' expenses, including fuel for tour buses and 18-wheel trucks. Looking at the many buses and trucks at the Houston event, one could not help wondering how much fuel they consume and how this is impacted by higher prices.
Fuel cost concerns are proportionate to the number of buses hired. At Music City Coach in Gallatin, Tennessee, “We deal mainly with established, big-name musicians,” said General Manager Theresa Moorehead. “We have a client that is utilizing six of our buses on the road. Lately, their combined diesel fuel cost is $4,000 per week. And the price per gallon has gone up to about $1.90, which is about 30 cents/gal more than what they paid a year ago. So, yes, the bigger acts are noticing the increases.” On the other hand, Houston-based Rock n Roll Tour Bus Leasing handles mostly younger, less-known bands, said owner Walter Trachsler. “Most of our clients are smaller acts that maybe need just one bus, often without a large accompanying truck. So even though our average diesel price has risen to $1.80/gal from $1.60/gal, the clients hardly notice the difference.” Meanwhile, Ron Beverly is regional parts sales manager for Canadian firm Prevost, which builds a majority of new tour buses. He said new buses carry fuel tankage of 208 to 235 gal, are about 45 ft long, weigh 48,000 lb fully loaded and achieve only about 6 mi/gal. “Sure, diesel prices have jumped about 25 cents/gal, but most of our leasing company customers have also upped their charter rates. And remember that these musicians have high gross profit margins, so even after crew, equipment and fuel costs, they're still netting a lot of money. Some of them have corporate sponsors, too.” Did you hear that, Sen. Boxer? The touring musician portion of California's economy is doing just fine, even with high fuel prices.
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