OGJ NEWSLETTER

Canadian petroleum companies are faring better with third quarter earnings than their U.S. counterparts.

Companies reporting increased profits in the period cite improved petrochemical demand and prices, higher Canadian oil prices, and increased oil production. Nova logged record earnings for any quarter in its 40 year history, fueled by its strategic purchases this year of methanol and polyethylene interests from Methanex and DuPont Canada, respectively. Suncor and CanOxy reported record oil production in the quarter. Some companies reporting losses for the period are heavily leveraged toward natural gas and had to cope with curtailments caused by weak gas prices. Even with Canadian gas markets weakening in the third quarter, TransCanada delivered record volumes of gas in the first 9 months of 1994: 1.64 tcf, up 4.9% from a year ago.

Here is a sample of third quarter earnings, in millions of Canadian dollars, with 1994 results listed first and losses in parentheses: Imperial 171 vs. 84, Nova 136 vs. 69, TransCanada 88 vs. 87.8, Petro-Canada 76 vs. 55, Suncor 42 vs. 29, CanOxy 34 vs. 8, Chieftain (3.2) vs. 0.1, and Gulf Canada (16) vs. 17.

Outside of North America, a handful of companies reporting third quarter results last week showed improvement from last year.

BP reports a third quarter replacement cost profit of $624 million vs. $493 million, a jump stemming in large part from its aggressive cost-cutting and restructuring efforts. ICI logged net income of $126 million vs. $85 million, citing recovery in chemical markets. Norsk Hydro posted a third quarter profit of $160 million vs. $35 million a year ago, noting improved operating results in all segments. Neste Oy, reporting only on results for the first 8 months of 1994, had an operating profit of $327 million vs. $99 million a year ago.

Meantime, Pennzoil reports a third quarter loss of $299.8 million, compared with a $1.6 million loss a year ago, that stems from a $454 million tax dispute settlement with the Internal Revenue Service. The tax dispute is related to Pennzoil's exclusion from its 1988 taxable income of $2.2 billion of the proceeds from its $3 billion settlement with Texaco. The Texaco settlement in turn stemmed from a lawsuit Pennzoil filed against Texaco after the latter won Getty Oil in a 1984 takeover battle.

Cogeneration power demand continues to show great promise as a market for natural gas in the U.S. Coastal's gas marketing unit and Midland Cogeneration Venture (MCV) have signed a long term gas sales agreement that calls for Coastal to sell 55 bcf of gas at fixed prices during 2002-06.

Coastal separately agreed with an outside party to fix the purchase price of the gas it will supply MCV, which converted an unfinished nuclear plant at Midland, Mich., to a gas fired, combined cycle cogen plant.

Bureau of Land Management soon will propose a rule that would allow a royalty reduction for heavy oil production from federal lands, says California Independent Petroleum Association. CIPA says the Office of Management and Budget is reviewing the proposed rule, and if it does not object, BLM will proceed with a regulation in about 90 days.

There still is no workable scheme for the vast majority of tanker owners that transport crude and refined products to the U.S. to comply with the U.S. Coast Guard's interim final rule (IFR) for a certificate of financial responsibility (COFR). The certificate is required under the 1990 Oil Pollution Act, which imposes tough new rules on financial liability for oil spills.

So says Intertanko, which contends the Coast Guard deadline of Dec. 28 must be postponed because no market certification scheme can be in place in time. With less than 2 months to go, only 41 tankers-all U.S. owned and including Mobil's 24 vessel fleet-have received COFRs based on self-insurance or financial guarantees. Such solutions are so costly they are out of the reach of all but the biggest oil companies, Intertanko says.

Concerns over the Coast Guard's IFR affecting tanker availability, adequacy of gasoline supplies, and increased demand by refineries coming out of turnaround have combined to jump crude oil prices to their highest level in 3 months. Nymex crude for December delivery jumped 740 in 2 days to close Nov. 2 at $18.93/bbl. That's up from an average $17.87/bbl for next month crude for the 4 weeks ended Oct. 28. December gasoline and heating oil futures followed suit, up, respectively, 0.94cts to 59.8cts/gal and 1.32cts to 50.72cts/gal.

Here's the latest big staff cut by a U.S. major: Unocal expects to trim corporate support staff by about 630 jobs, or 40%, the next 2 years. It is expected to save about $50 million/year.

Unocal has proposed another gas sales agreement with Petroleum Authority of Thailand (PTT) tied to a new field development project in the Gulf of Thailand. Unocal started negotiations with PTT over a 20 year supply of gas from Pailin gas/condensate field on Block 12/27 (see map, OGJ, Apr. 29, 1991, p. 29).

Unocal recently completed its 10th appraisal in Pailin and will continue appraisal as it negotiates contract terms with PTT. One industry analyst puts initial production at 150-200 MMcfd. Unocal is eyeing a 1999 start-up.

The company, which recently disclosed plans to boost Gulf of Thailand gas sales to 740 MMcfd in late 1996 from the current 500 MMcfd (OGJ, Sept. 19, p. 36), now is targeting a productive capacity of 900 MMcfd in that time framer,

Further, it recommended Bangkok defer plans to import LNG until after 2004, when domestic gas supply is expected to fall short of demand.

Look for East China Sea wildcatting to get under way next month.

Texaco and Japan's Jtooc group are expected the spud the first wells in December. Six operators currently working on East China Sea blocks have shot 12,000 line km of 2D seismic to date. Plans call as many as four wildcats, shooting 15,000 line km of seismic, and reprocessing 20,000 line km of old seismic data in the initial campaign at a combined cost of $58 million.

For next year, China's state owned Cnooc and nine foreign operators plan to drill 11 wells and shoot 4,000 line km of 2D seismic and 400 sq km of 3D seismic at a cost of $100 million. Chevron will spud its first test in February and a second in late 1995 or early 1996.

Falkland Islands exploration has a green light. The Falklands legislature at the end of last month approved a draft offshore minerals bill after brief debate. The first licensing round is likely in the spring. Meantime, negotiations between Argentina and the U.K. over Falklands E&P continue to show slow progress. The two nations went to war in 1982 over the islands, seen as highly prospective for hydrocarbons. Argentina insists it will retain a role in Falklands exploration and will press its case legally if need be.

The recovery in international drilling is happening a little sooner than expected, says Salomon Bros. Expecting oil prices to rise in the near term, the analyst boosted its 1995 prediction for the Baker Hughes international rig count to 810 from 775. It expects the count to average 740 this year, a level last seen in the mid-1970s. The tally reversed a 4 month slide in September, led by a 17 rig surge offshore, rising 14 units to 723.

Syrian crude oil production is about to jump.

A 50-50 venture of Elf and state owned Syrian Petroleum Co. last week commissioned Jafra central production facilities on Deir Ez Zor permit in eastern Syria. Facilities include gathering stations in Jafra and Qahar fields with respective capacities of 25,000 b/d and 40,000 b/d, 60,000 b/d oil/water treating units, and a 16 in. pipeline linked to the Syrian trunk line to the Mediterranean Baniyas terminal. Output is expected to jump fourfold to 60,000 b/d of 37 gravity oil by yearend. Atalia North field currently produces 15,000 b/d into Jafra facilities. Elf has discovered in all nine fields on the permit.

Saudi Arabia and other Arab countries have rejected the Clinton administration's suggestion that they establish a multibillion dollar development bank to support commercial projects in the Middle East.

The Arab nations, at a business conference in Casablanca, said low oil prices and their debts prevent them from financing such a bank now.

Efforts to slash emissions from diesel burning engines are marking progress in France. Rhone-Poulenc and Renault have signed a framework agreement covering development of new technology to sharply reduce emissions from diesel engines, with the idea of developing a new generation of vehicles by 2000. The focus is on developing filters employing a regenerative catalyst that will capture particulate emissions. The new system is being tested on urban buses in Lyon, Dresden, and Seoul. Auto diesel is under fire in worldwide environmental circles, largely because of particulate emissions.

Issue date: 11/07/94