OGJ NEWSLETTER

Lean and mean is the watchword of the day for the world petroleum industry, in government regulations as well as in industry.

Royal Dutch/Shell plans to cut 30% of the 4,000 staff service jobs at its headquarters in The Hague and London and restructure its central operations into a simpler, five business format.

The move follows Shell's decision in February to cut operating costs of $1 billion/year at its corporate centers (OGJ, Mar. 6, Newsletter). The ax will fall in the second half so the new structure will be in place for 1996.

Part of the new structure will be a team of as many as 200 staff directly supporting the committee of managing directors that will include advisers on finance, human resources, law, strategic planning, public affairs, health and safety, environment, and research.

Shell's operating companies structure will remain in principle, but central office support staff grouping by geography, function, and business will be scrapped. Instead, Shell's central office support of operating companies around the world will be split into E&P, oil products, chemicals, gas, and coal.

Cor Herkstroter, chairman of Shell's committee of managing directors, said, "We see the business conditions of today, with flat margins and low oil prices, continuing into the future. There will be no let-up on all players in the industry to strive for higher productivity, innovation, quality, and effectiveness."

January employment in the U.S. E&P sector was the lowest in 20 years, says API. Bureau of Labor Statistics data showed 331,000 people were working in E&P, the lowest level since May 1975. API notes 423,500 jobs have been lost since upstream employment peaked at 754,500 in February 1982, and 64,600 of those losses occurred the past 5 years.

Ashland Exploration plans to cut its fiscal 1995 drilling budget by 43%. or 61 wells, because of low natural gas prices.

The company, which operates in Appalachia and the Gulf of Mexico, expects to reevaluate drilling plans this summer when it hopes prices improve.

The drive to abolish the U.S. DOE isn't over. Some House Republicans have drafted a bill to abolish the department, sell the national laboratories, and transfer defense related functions to other departments. Rep. Sam Brownback (R-Kan.) plans to file a bill shortly. Sen. Majority Leader Robert Dole (R-Kan.) also wants to get rid of DOE. But the Clinton administration, which plans to prune DOE's budget $14 billion in 5 years, favors keeping the department.

Meantime, DOE last week was to send to Clinton a plan to aid the U.S. oil and gas industry, one likely to be made public by the end of April.

Proposals will involve issues related to public lands, including federal oil and gas royalties. In response to Sen. Nancy Kassebaum's (R-Kan.) query about prospects for tax credits for marginal producing wells, DOE Asst. Sec. Susan Tierney said she favors giving industry regulatory relief rather than cutting its taxes.

The U.S. Senate has rejected a House passed bill that would have blocked most new, major federal regulations until yearend.

Instead, the Senate voted to require agencies to send rules that have an effect of $100 million or more to Congress for review. Congress would have 45 days to pass a resolution to reject the rules before they are put into effect.

The Commerce Department's Bureau of Export Administration has relaxed some of the licensing requirements and procedures that apply to exports of California heavy crude oil. The bureau dropped some restrictions against moving the crude by pipeline and the requirement that exports must be offset by imports of an equal or greater volume and equal or higher quality.

Alberta will eliminate 400 oil and gas regulations to make government more efficient and easier for business to deal with.

The red tape cuts are based on results of an Alberta Department of Energy (ADOE) survey of industry. Many of the rules being axed are old, probably inoperative, or currently inapplicable. ADOE soon will make a final decision on which of about 900 rules to kill.

Meanwhile, a new cabinet order repeals regulations that require companies to file information with ADOE about downstream sales contracts. The government says the needed data can be collected postsale as part of the royalty system.

The Clinton administration will ask the U.N. to impose a worldwide oil boycott against Libya because Tripoli will not extradite two suspects in the 1988 bombing of Pan Am Flight 103. The U.S. has prohibited American firms from buying Libyan oil but never has sought an international ban because other Security Council nations have been cool to the idea.

The U.S. MTBE/gasoline health controversy won't go away. USGS studies are finding traces of MTBE in Denver area groundwater and precipitation.

MTBE turned up in 23 of 29 well samples in 1993 and in snow samples in six sites in the Denver area last winter.

The agency says not enough information is available to make conclusions about the source of MTBE in Denver area water or how harmful the effects might be. MTBE has been used in Denver area gasoline as part of a winter oxygenated fuels program since 1988.

Overseas Private Investment Corp. has approved a $100 million investment guaranty to support an Exxon unit's operations in Argentina.

The guaranty will support a $260 million investment plan to help Esso SA Petrolera Argentina remain competitive in the Argentine oil industry, which was deregulated in 1991. Esso has operated in Argentina since 1911.

Esso's plans include increasing output of unleaded gasoline, upgrading refinery instrumentation, acquiring transport vessels, renovating the service station network, numerous environmental protection projects, oil spill response equipment and leak detection, and many efficiency projects.

Esso operates two refineries, a transportation system, and 1,100 retail outlets. The company's operations represent 17% of Argentine refining, 24% of marine transportation, and 20% of marketing sales.

OPIC said the company's investment plans will generate procurement of about $37 million in U.S. goods and services and support 143 U.S. jobs over the next 5 years, as well as create 155 jobs in Argentina.

A $1.73 billion gas export pipeline planned to take U.K. gas to continental Europe will be underutilized, says Edinburgh's Wood Mackenzie.

A group plans to begin laying the 240 km Interconnector line from the Lincolnshire coast to Zeebrugge as early as spring next year (OGJ, Dec. 19, 1994, p. 26). "The potential market for gas flowing through the Interconnector is well below its 20 billion cu m/year capacity," said Wood Mackenzie.

"We forecast a gas supply/demand gap in western Europe of only I billion cu m in 2000, rising to a maximum of 16 billion cu m in 2005, although if contracts with existing suppliers are extended or increased, the gap in 2005 could be as low as 4 billion cu m."

Even if there is enough continental demand for U.K. gas, said Wood Mackenzie, exporters would face other problems: British gas is more expensive than continental supplies, third party access would be needed to take gas to end users, there is no pipeline to take U.K. gas from Zeebrugge, and Britain is expected to become a net importer of gas after 2005.

U.K. Department of Trade & Industry said 82 of 164 blocks offered under Britain's 16th offshore licensing round received applications from 45 firms.

More than 60 of the blocks on offer lie west of the Shetland Islands, where large discoveries by BP have sparked a surge of interest the last 2 years (OGJ, June 20, 1994, p. 16). One West of Shetland block received eight applications.

Awards of West of Shetland blocks are to he disclosed in May to enable licensees to start work there this summer, with other blocks to be awarded in the summer. Companies also showed interest in acreage in West Cardigan Bay, following Marathon's gas discovery last year, and in the East Irish Sea.

Taiwan's Chinese Petroleum Corp. (CPC) has agreed to buy 2.25 million metric tons/year of LNG for 20 years from Malaysia, ending more than 4 years of negotiations with Petronas. The deal is valued at $9 billion during the life of the agreement. Malaysia now has sold all of its expected output from the second LNG train at its Bintulu complex. First cargo is to be shipped May 19.

Supplies for future contracts will come from a third Bintulu train, with construction to begin in 1996-97 and start-up slated for 2000.

Taiwan's output of petrochemicals is projected to soar to a value of $22.99 billion in 2002 from $9.58 billion in 1994.

Taiwan's Industrial Development Bureau bases that outlook on estimated output of the nation's fifth and sixth naphtha crackers, both expected to be operating at capacity by then. The fifth cracker, which CPC started up in March 1994, boosted Taiwan's ethylene self-sufficiency to 49% last year from 36% in 1993. With completion of the sixth cracker by Formosa Plastics Group, Taiwan's ethylene production will climb to 2.36 million metric tons/year, or 73% of the expected 3.2 million ton/year domestic requirement.