OGJ Newsletter

Industry Scoreboard 4/8 [72655 bytes]

Offshore northern Europe continues to percolate with activity.

BP has a green light to develop its West of Shetland finds.

It received Department of Trade and Industry (DTI) approval for development of Schiehallion and nearby Loyal. BP started work on a $1.35 billion project involving a floating production/storage/offloading (FPSO) system producing from 29 subsea wells. Last year BP let contract to a group of contractors to design and build the FPSO (OGJ, June 19, 1995, p. 26). The two fields lie in 375 m of water on U.K. Block 204/20 and have combined oil reserves of 425 million bbl.

Saga has released test results for a Norwegian Sea appraisal well it says confirms a substantial find near Aasgard fields under development.

Its Block 6406/2 wildcat south of Aasgard was Norway's biggest strike of last year (OGJ, Nov. 27, 1995, p. 28). Saga says the 2 6406/2 appraisal confirms its estimate of that find's gas/condensate reserves of 440-750 million bbl of oil equivalent.

The best test of two pay zones yielded a flow rate of more than 35 MMcfd of gas and 3,600 b/d of condensate through a 27 mm choke. Further appraisal drilling is likely. Saga plans to test a prospect to the west and is talking with Stat-

oil over developing the find through Aasgard facilities (OGJ, Oct. 9, 1995, p. 32).

Despite last year's controversy over abandonment of the Shell Brent spar, DTI approved plans by operators to remove five offshore installations, and Shell U.K. Expro let contract for removal of a Leman field platform. Five platforms to be removed are in shallow waters of U.K.'s southern North Sea gas basin, and must be completely removed to comply with an international 55 m clearance rule.

DTI approved Conoco's plan to remove and recycle four Viking gas field platforms and Elf's plan to remove and dismantle onshore a flare column in 107 m of water in the U.K. part of Frigg field. Shell Expro let contract to Able U.K. Ltd., Teesside, U.K., for onshore recycling and disposal of its Leman BK compression platform this year at a cost of $17 million, with more than 95% of it to be recycled.

Total has disclosed its excess refining capacity in North France and is talking with other refiners over mutually beneficial capacity closures.

This follows growing speculation among Europe's refiners over which will be next to cut capacity, as a refining shakeout appears to be gathering pace. BP's plans to sell and/or close refineries and for a downstream merger with Mobil are further evidence Europe's refiners are taking action (OGJ, Mar. 25, p. 21).

Total Chairman Thierry Desmarest called for a joint effort among French refiners to cut excess capacity. Southeast France is thought to be most affected by overcapacity. BP's plan calls for closure or sale of its 190,000 b/d Lavera refinery, one of four on France's Mediterranean coast. Total told OGJ it has about 60,000 b/d of excess capacity in North France, where its L'Orcher refinery is one of six.

Some industry observers expect more than 10 major European refineries to close the next few years. The European Commission soon will publish a report on Europe's oil refining sector expected to confirm the industry is in crisis.

Petroleum business opportunities continue to flourish between former Middle East enemies.

Egyptian/Israeli venture Middle East Oil Refinery (Midor) seeks funds to build a 100,000 b/d grassroots refinery at Alexandria. Midor asked Paris' Banque Nationale and London's National Westminster Bank to raise $600 million for the project. Midor earlier let a $1.3 billion contract for the project to Technipetrol/Technip. Midor partners are Egyptian General Petroleum Co. 20%, Israel's Merhav Group 40%, and Egyptian investor Hussein Salem 40%.

Cote d'Ivoire plans a meeting June 4-6 in Abidjan to promote its oil, gas, and mining opportunities. Government officials who were in Houston last week to disclose an upcoming license round unveiled a new legal framework they hope will spur investor interest, including updated petroleum and mining codes and a revised production sharing contract.

United Meridian recently helped Cote d'Ivoire become energy self-sufficient with start-up of offshore oil and gas production (OGJ, Mar. 4, p. 31).

Turkey has agreed to finance cost of a 926 km, $231 million pipeline to move Azerbaijan crude from Baku to Supsa, Georgia, reports Azeri state oil firm Socar.

Georgia's parliament last week approved the project, including a 17/bbl tariff for the line. It is one of two project routes approved by Azerbaijan International Operating Co. (AIOC), a group developing Caspian Sea oil off Azerbaijan (OGJ, Mar. 11, p. 104).

Socar says Turkey offered two options for financing the project. One involves Ankara granting Baku a credit of $250 million on favorable terms passed on to AIOC for the work. The other involves Turkey setting up an international group to oversee the project.

If it grants a credit line, Turkey wants a Turkish contractor or an international group with Turkish participation to handle the project, and total crude oil throughput of the system would be limited to 120,000 b/d.

The other route consists mainly of a reversed oil pipeline from Baku to Tikhoretsk, Russia. It would cost about $55 million but traverse portions of war torn Chechnya. Turkey supports the Georgian route because it sees that as the starting point for a larger pipeline through Turkey that would avoid the clogged, environmentally sensitive Bosporus Straits.

Two milestones have been marked in global energy markets.

On Apr. 1, Japan marked the beginning of deregulation of its downstream markets when Tokyo allowed a law limiting refined product imports to expire.

Previously, Japanese gasoline, kerosine, and gas oil retailers were protected from competition at the expense of refiners. Increasing retail competition is expected to spur service station closures, switches to self-serve, and reduced refinery runs. The move is controversial, as the Japan Trucking Association has called for a government inquiry of refiners after wholesale diesel prices jumped.

Refiners have slashed the price of Japanese gasoline-which formerly sold at a huge premium to gas oil and kerosine-while diesel and kerosine prices have rocketed as they sought to preserve margins amid introduction of market prices.

The parent of a major oil company has made the first electricity future trade.

DuPont Power Marketing Inc., Houston, a unit of Conoco parent Du Pont Co., traded the first of more than 1,200 wholesale power contracts when trading of that contract began on Nymex Mar. 29. The advent of electricity futures is expected to be another factor bolstering competition in the rapidly deregulating North American power sector. Oil and gas companies-and especially gas pipelines and gas marketers-that have formed power units to take advantage of power deregulation figure to be key players in the new futures contract.

MMS says it's a good bet the Apr. 24 Central Gulf of Mexico lease sale will be the best of the decade. Assistant Interior Sec. Robert Armstrong said, "It will be another landmark sale because it contains tracts subject to deepwater royalty relief provisions." He explained lower royalties will improve economics for developing deepwater fields, enabling companies to offer higher bonus bids at the sale. Effective with tracts sold in the sale, rents will be increased to $7.50/acre/year from $5 to encourage early exploration and discourage speculation in leases. In addition, MMS is shelving a policy of not reviewing a winning bid if three or more bids are received for a tract. However, Armstrong said, "That does not imply MMS will reject more bids.''

MMS Director Cynthia Quarterman says claims 10 oil firms have underpaid federal royalties $856 million are premature. Rep. Carolyn Maloney (D-N.Y.) released a draft report for Interior claiming the firms undervalued their California production in 1978-93. Quarterman said this figure is at the high end of the range of estimates and could be much less, depending on methodology for estimates. A panel is to make recommendations to MMS in mid-April.

DOE disagrees with a Clinton administration proposal to sell more oil from the Strategic Petroleum Reserve to help balance the federal budget.

The administration recently sold 5 million bbl to pay the costs of closing the Weeks Island, La., SPR site (OGJ, Apr. 1, p. 36) and then proposed selling 15-17 million bbl of oil from the SPR by Oct. 1 to raise $292 million (OGJ, Apr. 1, Newsletter). Deputy Energy Sec. Charles Curtis said Sec. Hazel O'Leary "regrets the decision'' to ask for further sales. He said, "It is my hope the Congress will find other sources of revenue and not take the SPR down.''

Automakers have praised and a consumer group has blasted California's new electric vehicle (EV) mandate.

As expected, California Air Resources Board (CARB) last week voted to cancel its EV quotas for 1998 and 2002 while retaining one for 2003 (OGJ, Jan. 1, Newsletter) and encouraging automakers to produce as many as 3,750 EVs by 1998. The action was seen as a compromise with automakers, which deemed the original mandates untenable. However, Californians Against Hidden Taxes said CARB's move will cost state taxpayers at least $17 billion in EV development subsidies and other costs while doing virtually nothing to cut air pollution.