OGJ NEWSLETTER

Arctic temperatures across much of the U. S. have gas suppliers hustling. In Michigan, Consumers Power logged the highest natural gas delivery in its 107 year history during a 24 hr period ended Jan. 19, delivering 3.1 bcf of gas. For a 24 hr period ended Jan. 16 delivery was an estimated 2.85 bcf vs. a previous record of 2.53 bcfd delivered Jan. 10-11, 1982.

The company is asking its large industrial gas customers to voluntarily curtail their use of gas. Consumers has 1.4 million customers.

EnergyNorth Natural Gas of New Hampshire delivered a record 90.766 MMcf of gas to its 63,000 customers Jan. 16, and the 1.24 million customers of Georgia's Atlanta Gas Light used a record 1.84 bcf of gas during a 24 hr period ended Jan. 18.

Meantime, Texas Eastern Transmission says cold weather and power shortages have contributed to mechanical difficulties at several compressor stations in its mid-Atlantic and New England service area.

Tetco declared force majeure Jan. 19 and notified customers it would cut deliveries of natural gas by about 15%, or 37.8 MMcfd.

Despite recent U.S. gas price spikes resulting from cold weather in the Midwest and East, U.S. wellhead gas prices this year likely will average about $1.85/Mcf, 6% less than in 1993, says Jofree Corp., Houston.

Jofree attributes some of the expected price decline to more than adequate gas supplies, more efficient, less costly transportation, and low oil prices. Also, gas prices were unseasonally high through much of 1993 as underground storage owners and operators scrambled to fill working gas capacity from unusually low spring levels to volumes adequate to serve U.S. winter markets under the untested regulatory scheme of FERC's Order 636, implemented nationwide on Nov. 1. Because 636 allows market forces to more directly affect gas market transactions, prices respond more quickly to sudden increases in demand. But Jofree Principal Carol Freedenthal says such price spikes, when they occur, will he less radical under 636 and likely last only as long as cold weather.

Because of depressed oil prices, Oryx Energy Co., Dallas, suspended its 10/share quarterly dividend, a move expected to add about $40 million/year to exploration and development spending. Still, the company's E&D expenditures in 1994 are expected to he about $370 million - about 20% less than in 1993 - including about 70% for development and the balance for exploration, mostly in the Gulf of Mexico and Indonesia.

Meantime, nearly two thirds of 40 integrated and independent companies responding to a survey by John S. Herold Inc., Greenwich, Conn., said low oil prices are prompting them to reevaluate upstream capital budgets (see related stories, p. 26).

Because of painful lessons of the past and considerable uncertainty among independents about the 1994 investment outlook, "living within cash flow is the mantra of all top executives," Herold says.

Although bullish on the long term outlook for independent U.S. producers, Dean Witter says the collapse in oil prices and the potential for retreating natural gas prices mean the near term is likely to remain unsettled. The analyst believes gas prices could dip to $1.60-1.70/Mcf if oil prices remain depressed in February and March.

It expects fourth quarter 1993 operating earnings for a group of independents it tracks to be down 74% from the same time in 1992 and cash flow to fall 13.5%, the second successive quarter of decline.

ARCO will take a charge of about $450 million against fourth quarter 1993 earnings related to reorganization of its Lower 48 upstream operations (OGJ, Nov. 1, 1993, p. 34).

Included is severance costs for about 1,300 employees. Freeport-McMoRan Resource Partners expects to post a noncash charge estimated at $60 million to fourth quarter 1993 earnings due to the decline in oil prices.

Columbia Gas Transmission, the main pipeline unit of Columbia Gas System, has filed its Chapter 11 reorganization plan with the U.S. Bankruptcy Court for the District of Delaware. The plan, with a total value of $3.3 billion, proposes paying 100% of all priority, administrative, and secured claims, and offers various classes of general unsecured creditors - including producers whose gas supply contracts were rejected by Columbia Transmission - 80-100% of its projection of their allowable claims.

Columbia Transmission and Columbia Gas System have been operating as debtors-in-possession under Chapter 11 bankruptcy since July 31, 1991.

The specter of protectionism hovers over the tide of petroleum privatization in Latin America. Argentina has raised import barriers against Brazilian polyethylene to bolster its troubled petrochemical industry.

Argentina's Economy Ministry this month set a quota of 14,000 tons for Brazilian PE and hiked tariffs on imports exceeding that quota to 10% from 1.8%. In addition to grappling with an overvalued currency, the four private companies that work under the umbrella of state owned PBB must buy ethylene feedstock from YPF at above market prices.

Under pressure from Buenos Aires, YPF dropped the price for ethylene feedstock to $375/ton from $411, still higher than international levels.

The governments of Latvia and Lithuania reportedly agreed to build a new oil import terminal at the Baltic Sea port of Liepaja in Latvia (see related story, p. 22). London's Financial Times says the two governments plan a joint venture development, with Lithuania owning 51% and Latvia 49%. Lithuania is said to want the terminal to diversify supplies for its Mazeikiai refinery, which currently depends on exports from Russia.

Iran plans to expand its oil productive capacity significantly with foreign help, but says weak prices don't justify expansion at this time.

Mostafa Khoee, director for offshore production for Iran's NIOC, said his company has proposed that nearly $30 billion be invested in oil and gas production the next 5 years. The proposals are subject to parliamentary approval. Khoee, also managing director of the company's Iranian Offshore Oil unit, says Iran has production capacity of 4.2 million b/d - 3.8 million b/d onshore and 400,000 b/d offshore - and it wants to boost capacity to 5 million b/d. NIOC proposes investing $16.6 billion in government financing on oil and another $9 billion from foreign sources in the form of foreign credit.

Another $3.8 billion of government money would he spent on gas. Khoee says Iran's constitution prohibits NIOC from granting production sharing or equity agreements, so Iran is seeking service contracts under which foreign companies would help explore and develop fields.

A Pakistan-Iran joint venture has completed a feasibility study for a proposed $1.3 billion refinery in Pakistan (OGJ, Jan. 6, 1992, p. 34).

The 120,000 b/d project is to be located at Khalifa Point in Pakistan's Baluchistan province, a short distance from Iranian ports. It will be owned 50-50 by Pakistan's Perac and NIOC, is to be completed by 1998-99, and will be Pakistan's biggest refinery. The two countries recently signed a memorandum of understanding on construction of a $4.5 billion gas pipeline (OGJ, Dec. 20, 1993, Newsletter).

Canada seeks bids for exploration rights in a vast area of the Mackenzie Delta, Beaufort Sea, and Arctic Islands. The area is about seven times larger than that offered in the 1992 nomination process in which there were no bids for licenses. Such companies as Shell Canada and Chevron Canada, which have taken blocks in the past, were noncommital on whether they would seek exploration rights. Shell says it has no activity planned this year for the Mackenzie Delta region. The federal Indian and Northern Affairs Department says the lands up for nomination include the Banks Island and western Victoria Island region where there has been industry interest in geological work. Nominations are open until Apr. 8, and any nominated parcels would then be subject to bidding.

Alberta oil companies and research organizations have formed an umbrella group to share information on oilsands technology development. The Canadian Oilsands Network for Research and Development (Conrad) will pool data from an estimated $100 million (Canadian)/year in oilsands research.

Member Imperial Oil says $100 million/year is spent on oilsands research, but only $35 million is done collaboratively in bits and pieces.

The initial objective is to bring together the $35 million and expand joint effort to half the annual total spending. Conrad says the long term goal is to lower recovery costs for oilsands and heavy recovery to well below $15 (U.S.)/bbl. The organization will share research data in environmental effects, mining, upgrading, and in situ recovery methods.