OGJ NEWSLETTER

Signs abound of gloom lingering in the U.S. and Canadian petroleum sectors.

Exploration and production spending cuts for 1992 in the U.S. and Canada are significantly deeper than expected. Salomon Bros. reports.

The analyst's midyear survey of 247 oil and gas companies shows a 3.2% year to year decline in 1992 worldwide E&P spending, with a drop in North America offsetting an increase outside the region. Independents plan to spend about 18.5% less on U.S. E&P in 1992 and majors about 20.1% less.

At yearend 1991 indications were spending would be down only 4.2% for independents and 12.7% for majors. Canadian E&P budgets are expected to drop 20.5% in 1992 vs. a yearend 1991 expectation of only a 4.9% decline. E&P spending outside North America is expected to increase 9.5%, about as expected at yearend 1991. And about 39% of all the companies surveyed are underspending 1992 worldwide E&P budgets, Salomon Bros. said.

At the same time, surveyed companies trimmed 1992 oil and gas price forecasts modestly, Salomon Bros. said.

Companies trimmed their 1992 U.S. oil price forecasts to an average $20.16/bbl from $20.40/bbl predicted 6 months ago and gas price forecasts to $1.52/Mcf from $1.63/Mcf. Companies pared worldwide oil price forecasts, to $19.18/bbl vs. $19.84/bbl expected at yearend 1991.

Salomon Bros.' outlook for 1993 indicates flat spending in the U.S., Canadian spending flat to up slightly, and spending elsewhere increasing steadily through the year.

U.S. well completions in 1992 will be the lowest in more than 2 decades, predicts Petroleum Information. PI bases that forecast on its estimate that the number of oil and gas wells drilled in the U.S. plunged 22% to 7,269 in the first half 1992 vs. a year ago. Oil completions the first 6 months fell 27% to 3,019, and gas completions dropped 26% to 1,844. Overall success rate in the period was 66.9% vs. 70.9% the same time last year.

The number of new field wildcats drilled in the U.S. in the first half fell 19.5% to 644, and 59 oil fields were discovered, 25.3% fewer than this time last year. Gas field discoveries totaled 35 in first half 1992, compared with 48 in the 1991 period. Development wells totaled 7,640 after 6 months this year, down 22.6% from last year.

Second quarter marked another dismal period for major oil companies. Merrill Lynch estimates the group of majors it tracks posted earnings of about $2.9 billion in second quarter 1992 vs. $3.3 billion same time last year, excluding unusual items. The 1992 quarter saw an increase in oil prices that helped offset lackluster performance in refining/marketing in and outside the U.S. Merrill Lynch said upstream business is expected to account for 85% of total earnings in the second quarter.

Canadian Petroleum Association and Independent Petroleum Association of Canada are pursuing negotiations on a possible merger aimed at cutting costs and presenting a united industry voice.

A key objective is for the industry groups to join forces and develop a united policy on efforts to force changes in Alberta's royalty structure. The associations have been arguing that there is a need for royalty reforms to bring them in line with current economics.

Latin America's petroleum prospects are decidedly more upbeat.

Pemex has a pair of sizable oil and gas strikes in Campeche Sound, source of most of its oil production. Mexican news service Notimex reports 101 Taratunich flowed 14,000 b/d of light crude and 2.6 MMcfd of gas, apparently opening new Cretaceous and Paleocene plays. And 1 Ayin, en route to a Mexican depth record of 21,981 ft, flowed 5,800 b/d of oil and 1 MMcfd of gas. Locations aren't disclosed.

Bolivia's exploration scene is attracting renewed interest, possibly generated by planned construction of the Bolivia-Brazil gas pipeline (OGJ, May 11, p. 30). The British-Irish Pan Andean Co. and state owned YPFB are to sign a contract in early August covering exploration in the Chapare region in Cochabamba province, Notimex reports. Hunt Oil, Oceanic Exploration, Olympic Oil, and ARCO are among U.S. companies that have expressed interest in exploration there. Canada's Morrison Petroleum, Spain's Repsol, and Australia's Coplex are also reportedly eyeing the country's potential. Since modifying its exploration policy in 1989, Bolivia has signed 20 contracts with foreign companies.

Corpoven plans a grassroots refinery at Jose, Anzoategui, Venezuela, that will be the first designed to process Hamaca, a 10.3 gravity Orinoco crude. The refinery will cost several billion dollars and produce gasoline stocks, LPG, diesel, and fuel gas. Initial capacity is 277,000 b/cd, to be increased to 400,000 b/cd when the full project is complete. Badger will provide basic engineering design services.

Harken International and Venezuela's Organizacion de Cisneros plan to jointly operate a business venture in Venezuela that involves exploring, developing, and/or acquiring assets in the petroleum industry, including oil field services. The two have formed a Venezuelan company to pursue the opportunities.

Possible blockage of Russian crude deliveries to Hungary and Czechoslovakia via the Druzhba pipeline, which crosses Ukrainian territory, has caused serious alarm in Budapest, reports Izvestia. Recent statements by officials in Kiev aroused Hungarian apprehension regarding reliability of oil supplies through Druzhba. Hungary had hoped to ensure a reliable source of oil imports via the Adria pipeline from the Adriatic, but the Yugoslav civil war has dimmed that option. Budapest officials are now considering new links with Austria's oil pipeline network, the Moscow newspaper said.

Russia's parliament needs world business leaders' ideas and experience to boost development of Russia's economic infrastructure for a free market economy, says Russian Ambassador to the U.S. Vladimir Lukin.

Lukin was in Washington July 1 speaking to about 110 business representatives urging support for the Foreign Investment in Russia Advisory Council. The council's charter is to provide an opportunity for business members from around the world to express views about draft legislation dealing with the problems of privatization.

"Russia is a unique and untapped market," he said. "Don't be late into the Russian market. Your work will pay off."

Meantime, the Russian Economics Ministry's Committee for Prices is grappling with options for possible price hikes on fuel and energy sources in 1992-93, Rossiiskaya Gazeta reports.

One option calls for introducing a maximum domestic oil price of 4,000 rubles/ton based on doubling miners' wages, a fivefold increase in depreciation charges, a 150% increase in land rental charges and payments for use of mineral wealth, and deductions deposited in insurance and R&D funds.

Oil production costs vary from 1,000 rubles/ton in western Russia's Kaliningrad region to 6,000 rubles/ton in eastern Russia's Sakhalin region. Introducing a domestic price ceiling would require a mechanism to redistribute revenues of oil producers operating under different conditions.

A provision is made for a system of rental payments so profits could be redistributed via an investment fund.

Gasoline shortages persist throughout most of the C.I.S. In Moscow, a recent decree prohibited filling stations from putting fuel into any containers other than auto gas tanks.

Meanwhile, C.I.S. motorists are obtaining gasoline from drivers of government trucks and military vehicles that siphon some of their fuel at the roadside if the price is right, report Moscow newspapers.

South Korea and North Korea have agreed to build a 2,000 km gas pipeline linking them with Russia's Far East, reports Agence France Presse.

A spokesman for Russian President Yeltsin reportedly announced the agreement at a press conference on Yeltsin's meeting with Kim Woo-Choong, chairman of South Korea's Daewoo Group.

The U.S. Senate has amended a C.I.S. aid bill, directing Commerce Department to study feasibility of using barter to obtain oil imports from and sell oil equipment to the former Soviet Union.

U.S. DOE plans to publicize the numbers of alternative fueled vehicles that it and states plan to buy in an effort to encourage their production and development of refueling facilities.

Linda Stuntz, acting deputy DOE secretary, said, "If the numbers are strong-and we believe they will be-this information should encourage the alternative fuel industry and the auto industry to invest sooner, rather than later, in the necessary manufacturing facilities and refueling infrastructure. The industry will respond if they see that the market will be there."