Marshall DeLuca
Houston
Russia opens doors at the wrong time
It may be poor timing, but Russia has further cracked open the door to foreign investment in the country's oil industry. The Duma, the lower house of the Russian parliament, passed an amendment to a 1995 law on production sharing agreements, thus eliminating the main barriers to foreign investment in the sector. The new law increases Russia's hydrocarbon resources available for production sharing agreements (PSAs) with foreign companies to 30% from between 10 to 20%.This is in conjunction with a second law soon planned for consideration by the Duma, which will link the law on PSAs to other Russian legislation in order to create full compliance and implementation within the government. While it still needs the approval of the Federation Council, approval of the upper house of parliament, and the signature of Russian President Boris Yeltsin, the outlook is good.
The passing of this legislation will be a major step for Russia, which is currently experiencing an ever-deepening economic crisis and increasing lack of foreign investment. For years, any attempts at PSA legislation were blocked by the lack of cooperation between the Parliament and the reformist governments, and thus diminished the allure of the country's vast petroleum resources to many foreign investors.
However, with the establishment of Prime Minister Yevgeny Primakov's new government, which includes members from both Communist and liberal regimes, it seems that times have begun to change. Primakov has promised to improve the country's investment climate and focus on attracting foreign companies to Russia. Where better to start than with the deep pockets of the oil industry?
The passing of this law proves that Primakov has already gained broad support
in the Duma, something his predecessor reformist governments were never able to achieve, and marks the first positive step towards a more politically and economically stable Russia - a Russia more poised than ever to gain the interest of foreign oil firms. But the question remains, is it too late?
While the oil industry is in broad support of this new legislation, meager times have forced major cutbacks, and high risk areas such as Russia are close to the bottom of many oil companies' prospective investment lists. However, time is on Russia's side. Assuming the laws pass the remaining checks in the legislative system, it will be at least a year before it is put into practice, which may be perfect timing with what many predict to be about the time of recovery from this latest down turn.
While not created to be a short-term fix, the law may prove instrumental in pushing ahead some smaller, already planned projects, and reaffirming the choice of many companies to keep operations in the region. But more importantly, it will move Russia a little higher up on the oil companies' lists.
Industry cautious over Chavez election
Many investors are uneasy about what impact newly-elected Venezuelan President Hector Chavez will have on the oil industry when he takes office next month. Chavez recently won in a landslide victory over incumbent President Henrique Salas, a Yale-educated businessman supported by the country's dominant parties. Upon election, Chavez has promised to institute "a people's government" that will rewrite the constitution, dismiss the country's top judges, and distribute the wealth of the country's oil reserves to the people.
As part of his redistribution plan, Chavez is calling for a major cutback in state-owned Petr?leos de Venezuela's (PDVSA) funding to be used to subsidize agriculture, industry, and increased social spending. The former militant leader has not been shy about his feelings on the company, calling it "a state within a state" and accusing the company of wasteful spending.
PDVSA-head Luis Giusti has issued warnings about the cuts and rejected Chavez's accusations. Giusti claims that the company's 1999 budget is the smallest it has been in 10 years, and any further reductions would affect future production levels and drastically reduce fiscal contributions to the government. Giusti also called Chavez accusations that the company has hidden assets "absurd", saying that PDVSA is a closely supervised, controlled, and audited company.
However, on the positive side, while OPEC member Venezuela has continued to produce more oil than promised, Chavez has promised more support to OPEC, which could translate to enforceable production targets. But, the president-elect's promises are what are making people nervous.
Chavez campaigned on promises of reviewing privatization, imposing moratoriums on foreign-debt payment, and limiting investment in the oil industry, all of which made investors very nervous. While his campaign moved forward, he tried to calm the fears by softening his positions. He still has not released any specific economic agenda, and is a long way off from calming nervous investors.
Chavez has promised not to close the doors to the international oil companies, however. He plans to honor all contracts and maintain joint ventures between PDVSA and the multinationals. More than $7 billion in foreign investment is planned for the Venezuelan sector, the largest amount ever. With this kind of income, the country cannot afford cutbacks.
OPEC Chairman calls for additional 1.5 million b/d cut
Youcef Yousfi, Chairman of OPEC, has called for more production cuts instead of furthering an extension of current cuts. This time he called for an additional 1.5 million b/d cut to a production ceiling of 24.9 million b/d. Last June, the organization pledged cuts of 2.6 million b/d, but had little to no effect on oil prices.OPEC production was reportedly up since the last meeting due to non-compliance by members Venezuela and Iran. Both countries reportedly exceeded the production ceiling by about 300,000 b/d. This time, members warrant that if cuts have no further effect, a meeting will be held before the next scheduled ministerial conference in March.
This follows an agreement by Arab oil ministers of the six-nation Gulf Cooperation Council to reduce production starting in March. The ministers also asked the OPEC members to join them in the cuts as well as Mexico. Other countries have also begun to get in the oil-cutting game as well. Norway decided to extend its 100,000 b/d supply cut until the end of June.
Yousfi denied reports that some OPEC members held any differences over output reduction. It is rumored that some members favor extending the current cut over further cuts. He also added that the Arab oil-producing countries have been committed to the current reduction.
Whether this new round of cuts will take hold of the plummeting price or not, remains to be seen. It just depends on some countries holding true to their word. How bad does it have to get for a country to keep a promise?
BRIEFS
Africa
The government of Nigeria has signed a new memorandum of understanding with Agip, Chevron, Elf, Mobil, Shell, and Texaco, the operators of six joint ventures with state-owned NNPC. While the terms of the agreements will not be made public until they are included in legislation, the government has stated that they are more "incentive-minded." The government also announced plans to award several new deepwater blocks in the near future, and the commissioning of Mabon for a seismic program.Chevron's 620-mile offshore West Africa Gas Pipeline Project is planned for completion in 2001. The pipeline is planned to transport 180 MMcf/d of gas from Nigeria to power plants in Ghana, Benin, and Togo. The project is expected to bring upwards of $1.8 billion in investment and up to 20,000 new jobs to the region. The project would also end gas flaring by the Nigerian oil industry by creating a market for their gas.
Gabon has received bids for three of its ultra-deepwater blocks that were tendered as part of the country's 8th Licensing Round. Local representatives of Amerada Hess, Elf, Santa Fe, Shell, and Total submitted bids for blocks H97, J97, and M97. Negotiations are currently underway with the companies. The three blocks were part of 12 ultra-deepwater blocks on offer in the round that closed in mid-November.
Following its take-over of London's Planet Oil, Hardman Resources of Australia is now poised to begin a large-scaled drilling program off The Gambia. Hardman acquired block PPL-98 E as part of the Planet acquisition, which covers 1,500 sq km in water depths less than 50 meters. Seismic acquisition was done on the concession in 1973 by Shell and in 1980 by Elf, the previous block holders, and the surveys identified several prospects in the cretaceous sediments. The company is currently seeking partners in the program to help provide financing.
It appears Shell is slowing down some of its operations in West Africa. Shell has reportedly delayed the startup of development drilling on the Kudu gas field offshore Namibia by one year. The company planned to drill to two to three development wells on the field this year, but has pushed it back to mid to late 2000. Shell also recently relinquished a 50% interest in Block 1 offshore Angola to Texaco. Block 1 covers 986,621 acres in the Congo Basin in water depths up to 600 meters.
The government of Equatorial Guinea has opened a new licensing round which includes all available blocks in the deep offshore south of Bioko and off Rio Muni. The round will be governed by the country's new hydrocarbons law and model production sharing agreement contract. The new regulations fix royalties between 10% and 16% and bidders can choose the royalty rate in accordance with production levels and cost oil limit. The round will close on May 10.
Skidmore Resources has signed a one-year reconnaissance contract with Onarep, the state oil company of Morocco, for the offshore Loukos Block. The block covers 12,675 sq km and is located between Rabat and Tangiers. The company will perform an aeromagnetic survey on the area.
Americas
The US Minerals Management Service has issued a proposed notice for Sale 172 in the Central Gulf of Mexico. The tentative date of the sale is March 17. The sale will encompass about 3,758 available blocks covering 20.13 million acres in the Outer Continental Shelf Area off Louisiana, Mississippi, and Alabama. The blocks are located from 3-200 miles offshore in water depths from 4-3,400 meters. A total of 2,955 of the blocks are in water depths 200 meters or greater. Minimum bid for the blocks will be $25 per acre for blocks in water depths less than 800 meters, and $37.50 for the 800 meter-plus water depth blocks.Texaco has reported that the $500 million Petronius will be delayed through the end of this year. A company representative has stated that production will not begin in 1999 and they [Texaco] are not sure yet if production could begin in 2000. In November, the south
module of the production platform fell during installation and sank in 1,750 ft of water. Production was set to begin mid-year on the estimated 100 million boe field in the Gulf of Mexico.
Operator BG with partner Texaco, has announced the Starfish-1X natural gas discovery in the East Coast Marine Area off Trinidad. Starfish 1-X was drilled on blocks E and 5a in the Marine Area in 427 ft of water. The well encountered 501 ft of net gas pay from four zones and tested constrained at 16.2 MMcf/d of gas. The discovery is adjacent to the BG and Texaco Dolphin discovery, which has been producing since 1996. BG and Texaco each hold a 50% interest in Starfish.
Production has begun ahead of schedule on Shell's Cinnamon Field on Green Canyon 89 in the Gulf of Mexico. The A-1 well is currently producing 1,930 b/d of oil and 1.4 MMcf/d of gas. Peak production is expected in excess of 3,000 b/d of oil and 2 MMcf/d of gas. Production is being carried out from a tripod platform in 671 ft of water, a world record water depth for a tripod structure. Drilling is underway on a second well, and full production from six wells is expected by the end of the year.
Petrobras has signed an agreement with Nissho Iwai of Japan for $410 million in funding for developments in the Campos Basin. The funds will supplement work for the development of the Albacora Field - Phase II. The project entails perforation and termination of activities, laying down rigid and flexible lines, and connecting wells to existing platforms P-XXV and PXXXI. Petrobras expects this funding will enable Albacora to reach a production capacity of 190,000 b/d during 1999.
Asia-Pacific
Conoco has announced appraisal well test results from the Belanak Field in Block B of the West Natuna Sea. This, the second test in Block B, tested a total of 8,000 b/d of oil and 7.5 MMcf/d of gas. Conoco is the operator of the field and holds a 35% interest with partner Texaco (25%) under a PSC granted by the government of Indonesia.Premier Oil has made a natural gas discovery in the Pangkah Production Sharing Contract area in the East Java Sea. The well, Ujung Pangkah, flowed at 20 MMcf/d of gas and 987 b/d of oil through a restricted choke. This is the first well drilled in the Pangkah Block. Premier holds 40% with partners Amerada Hess holding 36%, Gulf Indonesia Resources holding 12%, and Dana Petroleum holding 12%.
Mitsubishi has joined an international consortium for oil and gas exploration offshore Malaysia. The Japanese company joined consortium leader, Argentina state oil company YPF and partner Petronas for the project in Block SK-301 off Sarawak. Exploration is to begin early this year with production estimated to begin early next century.
Partners in a proposed gas pipeline between Papua New Guinea and Queensland, North Australia, are trying to extend the pipeline overland to Brisbane, Australia. The reasoning behind the extension is to attract more industrial power customers and decrease the need for the project to secure aluminum producer Comalco as
a foundation customer. The 2,600 km pipeline is estimated to cost $2.6
billion. Partners in the project include Chevron, Mitsubishi, Oil Search, Mobil, Orogen Minerals, and Petroleum Resources Kutubu.
Central Asia
A Pennzoil-led consortium working in the Caspian Sea off Azerbaijan is planning to call it quits after three years of failing to find economic quantities of reserves. The consortium, known as Caspian International Petroleum (CIPCO), planned to develop the estimated 100 million-ton Karabakh Field, but only found 25 million tons of recoverable reserves in the field. CIPCO reportedly needed 40 million tons for the development to be economically viable. A formal announcement is expected at the end of this month. The estimated life of the project was to be 30 years and an investment of $3 billion.Another consortium in the Azeri region of the Caspian, North Absheron Operating Company (NAOC), has also encountered trouble in its exploration plans. NAOC recently encountered two dry test wells before encountering oil in a third well in the Caspian Sea. Tests are currently underway to determine the commerciality of the find. NAOC is led by US-based Amoco.
Europe
Wavetech and Fugro-Geoteam have begun acquisition of a non-exclusive seismic survey offshore southern Italy. The survey will include about 3,000 km of high fold, long offset seismic data over the deepwater extension of the South Apennines/Calabrian Arc. The South Apennines/Calabrian Arc area has already proven productive onshore and in the shallow offshore region.Statoil has submitted a plan for development and operation of the Sygna Field to Norway's Ministry of Petroleum and Energy. Statoil plans to develop the field using a subsea template with two production wells tied back by a flowline to the Statfjord C development, 21 km away. Plans also include an extended reach well from the Statfjord North satellite that will be used for water injection. Sygna is located in the northeast corner of the Statfjord area of the North Sea and lies between Block 33/9 and 34/7. Recoverable reserves for the field are about 63 million bbl of oil.
UK Secretary for Trade and Industry Rt. Hon. Peter Mandelson officially inaugurated the Britannia gas field. Britannia is located 130 miles northeast of Aberdeen in the North Sea and is operated jointly by Conoco and Chevron through a joint venture company called Britannia Operator Limited. Britannia has estimated reserves of about 3 Tcf and will supply about 8% of the country's gas requirements over its projected 30-year lifespan.
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