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Oil prices ease lower on supply reports

WTI crude price dropped more than $1/bbl in one day last month, following release of a federal governmental report that showed US inventories hit their highest level since 1999. Supplies rose 2.7 million bbl during the first week of May, compared to a 1.25-million-bbl increase that had been expected, said the US Dept. of Energy. As noted by several oil market analysts, there seemed to be plenty of supply on the global market. Accordingly, oil prices were hovering around $50/bbl at press time. In addition, the International Energy Agency lowered its forecast of Chinese demand growth for 2005. However, IEA raised its forecast of 2005 global oil demand by 30,000 bpd, to 84.3 million bpd. This was the fourth increase in that forecast in five months, although it was the smallest. IEA estimated OPEC oil output, which is 40% of world production, at 29.4 million bpd in April.

OPEC considers first signs of oversupply

As the organization prepared for its next meeting on June 15, OPEC ministers kept their options open as they came to grips with the possibility that the world market may be near oversupply of oil. “We have not yet decided (on a policy move), but there is an overproduction,” said Purnomo Yusgiantoro, Indonesia’s Minister of Energy and Mineral Resources, at an industry conference in Singapore. His comments followed the steep drop in WTI price after the US inventory report was released. OPEC member-countries may have a real dilemma on their hands. On one end of the equation, they may want to cut output to stop any slide in prices. But on the other hand, any production cut will not be popular with oil-consuming countries, when prices are still more than 20% higher than a year ago. “As we always say, this high oil price is not because of OPEC,” added Purnomo.

Senators differ over components of energy bill

Two key issues, jurisdiction over siting of LNG import terminals and drilling on the federal OCS, were holding up US Senate negotiations on the oil and gas title of the energy bill. At press time, negotiators were still working on four titles in the bill (including oil and gas). However, they had concluded negotiations on eight other titles, said Sen. Pete Domenici (Rep.-New Mexico), chairman of the Senate Energy and Natural Resources Committee, and Sen. Jeff Bingaman (Dem.-New Mexico). Stand-alone legislation on natural gas, which affects the OCS and LNG issues, had been the subject of much of the discussion. More than 50 companies and associations have encouraged senators to pass the energy bill expeditiously. 

Saudi Arabia says it has ample spare capacity

Various Saudi sources have been quoted in a variety of media in recent weeks, maintaining that the kingdom has 1.5 million bpd of spare oil output capacity. Figures commonly cited are 11.0 million bpd of productive capacity and recent actual output of 9.5 million bopd. However, given seasonal demand increases, OPEC ministers worry that the group’s spare capacity, even including Saudi Arabia, could shrink to just 1.0 million bopd during the third quarter. The US Dept. of Energy recently estimated OPEC spare capacity at between 900,000 and 1.4 million bopd, all of it held by Saudi Arabia. OPEC officials have claimed that Saudi was producing closer to 10 million bopd in the last month.

ChevronTexaco becomes just plain Chevron

In a move that was highly expected, ChevronTexaco Corp. last month changed its name to Chevron Corp. The change, said company executives, was made “to present a clear, strong and unified presence in the global market-place.” However, it also removed yet another sentimental remnant of, and link to, Texaco, better known in fabled early industry days as The Texas Company. Nevertheless, Chevron said that it would continue to operate service stations in the US under both the Chevron and Texaco brand names. Products and lubricants will also retain both names.

Unocal will sell Western Canadian E&P assets

Speaking of Chevron, which earlier had declared its intent to acquire Unocal, the latter company has said it will solicit bids for the sale of its Northrock subsidiary’s upstream assets in Western Canada. Included in any such sale by Unocal would be midstream and storage assets in Canada. Producing properties are in Alberta, British Columbia and Saskatchewan. Production from these properties in first-quarter 2005 averaged 36,900 boed, including about 100 MMcfgd and 20,000 bpd of liquids. Most of this output is from longer-life, Unocal-operated fields.

Chavez throws ultimatum at foreign operators

Venezuelan President Hugo Chavez has told foreign oil companies that allegedly owe the national treasury millions of dollars in back taxes that they must either “pay or leave.” During his weekly television show, Aló Presidente, the fiery Chavez said, “I have given the order for (state oil company) PDVSA and (tax authority) Seniat to calculate, retroactively, all that is due to us, and the corresponding interest that (the operators) have not paid. It can’t be that an oil company that doesn’t pay any taxes and pays 1% in royalties reports losses – don’t tell me that tale.” In 2001, Chavez shoved into law a hydrocarbons bill that increased the tax rate for oil projects to 50% from 34%. Recently, he boosted royalties on extra-heavy crude-upgrading JVs to 16.7% from 1%. At the same time, Chavez admitted that Venezuelan oil output has averaged 120,000 bpd under its official OPEC quota. Nevertheless, he insisted that the country’s output will meet a 3.165-million-bopd level during second-half 2005, blaming the problems on poor field maintenance in western Venezuela.

Occidental pulls Omani field enhancement coup

Despite what one source called “heavy lobbying” by British and Dutch officials to give the contract to Shell subsidiary Petroleum Development Oman (PDO), Omani officials awarded the Mukhaizna oil field enhancement project to Occidental Petroleum. Under PSC terms, Occidental will operate the field, and its partner will be Liwa Energy Ltd. Liwa is owned by Mubadala Development, an investment firm controlled by the government of Abu Dhabi. Situated in central Oman, Mukhaizna was discovered in 1972 by PDO, and it produces about 10,000 bopd. Oxy and Liwa will invest more than $2 billion to implement a large-scale steam flood to increase output by roughly 150,000 bopd within the next several years. The firms hope to recover nearly 1 billion bbl of oil over the project’s life. Oxy has been active in Oman since 1979. During first-quarter 2005, the firm’s net daily output there was 23,000 bopd and 56 MMcfgd. “This is another step in the implementation of our growth strategy in one of our core areas,” said Oxy Chairman, President and CEO, Dr. Ray Irani.

Former Pemex executives slapped with huge fines

Mexican officials announced the imposition of about $260 million in fines on five former executives of state oil firm Pemex. The fines were levied for the deliberate diversion of company funds to the failed 2000 presidential campaign of the then-ruling PRI party. In a prepared statement, the Secretariat of Public Administration said that the five offenders would also be barred from holding any governmental posts for 20 years, each. Among the penalized offenders is former Pemex President Rogelio Montemayer. He was extradited back to Mexico from the US during September 2004. The government of President Vicente Fox, whose opposition party defeated PRI, said that Montemayor and the four others channeled Pemex funds to the union representing company workers. The union then passed on the money to PRI. This scandal, better known as “Pemexgate,” also resulted in a $10-million fine being levied on the PRI.

Front-end projects awarded for Angolan LNG plant

Chevron and fellow participants reported that they have awarded the front-end engineering and design (FEED) contracts for a 5-million-t/year LNG plant in Angola. The plant will be sited onshore, near Soyo in northern Angola. Chevron, BP, ExxonMobil and Total awarded the contracts to Bechtel Inc., and a consortium of Kellogg, Brown & Root Inc., JGC Corp. and Technip USA Corp. A planned, 15-month program of work then began immediately. Once the FEED work is completed and a final investment decision is made, one of the two contractor groups is likely to be selected for engineering, procurement, construction and commissioning work on the project. Angolan officials expressed pleasure that the project to commercialize Angola’s vast gas resources and reduce gas flaring is going forward. “Angola LNG is one of several current Chevron-led projects to commercialize natural gas resources in Africa and other parts of the world, and is integral to the company’s strategy to grow an integrated natural gas business,” said John Watson, president of Chevron Overseas Petroleum.

Sao Tome fires oil advisor ahead of round awards

Just days before the country was expected to complete its first oil licensing round, Sao Tomean President Fradique de Menezes fired his oil advisor, Patrice Trovoada. The dismissal, accomplished through a presidential decree, was effective immediately. Although the decree did not outline specific reasons for the dismissal of Trovoada, it did refer to recent events in the nation’s “petroleum dossier.”  In addition, Sao Tomean Oil Minister Arlindode Ceita Carvalho resigned on May 17. Both Carvalho and Trovoada belong to the ADI party that is in a coalition with the MLST party of de Menezes. The decree takes on extra significance when one considers current events in the Joint Development Zone (JDZ), an offshore area jointly licensed by Sao Tome and Nigeria. Five blocks were due at press time to be awarded in the JDZ, where some of the region’s best oil prospects are believed to be. Conclusion of the JDZ licensing process has gone slowly since it began in April 2003. In April 2005, Sao Tome chief representative to the JDZ, Carlos Gomes, had said that the awards would be made at the end of that month. However, the situation lagged on into May. The sticking point appeared to be which companies should be awarded the acreage, particularly Blocks 3 and 4.

29 firms buy Venezuelan gas data packs

An assortment of domestic and foreign oil companies bought data packs for six offshore natural gas blocks in the first stage of Venezuela’s Rafael Urdaneta offering. The Ministry of Energy and Mines said that bids for the blocks are in the Gulf of Venezuela off-shore Falcón state. The licenses will have a 25-year duration, and state firm PDVSA retains the right to take a 35% interest in any block where a commercial gas discovery is made. The Chavez administration is eager to expand gas output for domestic usage, to free up more oil for export purposes.

Petrobras ordered to pay $1 million for P-36 deaths

A Brazilian lower court has ruled that state company Petrobras must pay 2.5 million reais ($1 million) to compensate for the deaths of two workers on the ill-fated P-36 semisubmersible production vessel. These two men were among 11 workers killed, when the vessel suffered two significant explosions on March 15, 2001. The P-36 eventually sank on March 20, 2001. The court found Petrobras guilty of failing to meet proper safety standards, ruling that a toxic gas leak led to the two men’s deaths, since they did not have protective equipment or proper training. Petrobras has the right to appeal the court’s decision.

New North Slope site to be developed

ConocoPhillips said that it has begun drilling wells to develop its Fiord prospect near the Alpine oil field on Alaska’s North Slope. Fiord is one of several satellite oil projects that the firm intends to feed into Alpine’s facilities. None of the satellites is as large as Alpine, but ConocoPhillips and Alaskan state officials believe that collectively, they will add a significant amount of oil output to the state’s production figures. At peak, the satellites should produce about 35,000 bopd by 2008, with first output occurring in late 2006. By comparison, North Slope production was averaging about 932,000 bopd last month. Fiord is eight miles north of Alpine on a 97-acre site. In addition to Fiord, ConocoPhillips is set to begin drilling soon at Nanuq.

US gas demand to rise despite high storage

According to US Dept. of Energy projections, US natural gas demand will increase 2.1% during 2005, down slightly from a previous projection made in April. Last month’s forecast takes note of gas storage levels that remain above five-year averages. However, DOE remains confident that gas demand will be strong enough to keep prices high, despite the storage levels. Officials cite several reasons for this, including a strong US economy, high oil prices, limited opportunities for growth in US gas output and predictions that Pacific Northwest hydroelectric resources will stay below normal through the mid-summer period.

Sudan sees export boom

Sudanese Foreign Minister Mustafa Osman Ismail told the Arab-Brazilian Chamber of Commerce that he expects his nation’s oil exports to hit 500,000 bpd in August and continue rising to 2.0 million bpd by sometime in 2008. According to the chamber, Ismail said, “Preliminary studies show that Sudan is situated on a true lake of oil.” Ismail’s comments followed a meeting with Brazilian Foreign Minister Celso Amorim, at which Ismail invited Petrobras, to invest in Sudanese oil projects.

South Korea, Uzbekistan agree on joint efforts

South Korea and Uzbekistan agreed to jointly work on oil exploration and trade. The accord was reached during a meeting between the two countries’ presidents in Tashkent. Specifically, the leaders agreed in a 16-point declaration that South Korean firms would develop oil and gas prospects in the Aral Sea. The heads of Korea National Oil Corp., Korea Resources Corp. and several other firms signed seven separate agreements and memorandums of understanding.

Devon sells Syrian stake

Gulfsands Petroleum has bought out its partner, Devon Energy, in Syrian Block 26, acquiring another 80% for a 100% interest. Gulfsands then signed over 50% of the block to Russia’s SoyuzNefteGas while retaining operatorship. A well is slated late this year.

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