Majors renewing interest in E&P?

Stocks surged and earnings rose as the majors announced that after a period of slow activity, they are getting back into oil and gas exploration. BP Amoco, in what some see as a harbinger of a wider action across the producer community, announced that it is raising capital expenditures by 13% through 2003. The company said it will increase capital spending by between $1.5 billion on the low side up to $13.5 billion a year to grow earnings by at least 10%.

BP Amoco said that the thrust of the spending will focus on high-return projects such as the deepwater Gulf of Mexico and West Africa, in addition to gas projects off Trinidad. Also, the company said it expects to increase oil production by 4-5% per year, gas production by 8-10%, and gas sales by 9-11%.

This move follows two years of down time with low production and activity levels caused by the BP and Amoco merger, as well as the acquisition of Arco and Burmah-Castrol, in which the company focused on cost-cutting. With the cost-cutting seemingly done and a strong, stable oil price, BP Amoco's CEO Sir John Browne said, "We have moved from a phase of rationalization to a phase of expansion."

The company has hence moved up its oil price assumption from $14 in 1998 to $16/bbl for all projects.

With BP Amoco throwing its now-much-larger hat in the ring, other majors such as ExxonMobil, Shell, and Chevron might follow. Chevron Vice Chairman Richard Matzke said at a conference in London following the BP Amoco announcement, "We have been increasing our upstream capex every year for a decade, and we will probably continue to do that." Shell also added that there was room to expand in its operations.

However, while the pressure is now on, it is expected that the other majors will be slow to react or react with the magnitude of BP Amoco. ExxonMobil and Shell are continually focused on cost containment rather than expansion for the moment, but a high, stable oil price cannot be ignored much longer.

Chevron calls for lifting US sanctions on Iran

The Middle East is still on the minds of the international oil industry. In a conference in London titled Iranian Oil, Gas, and Petrochemical Forum, Chevron Vice Chairman Richard Matzke stressed the importance of the Middle East to the global oil and gas industry calling it "the heartbeat of our industry." As it continues to grow in importance, Matzke said he believes global politics is getting in the way of legitimate commercial relationships.

He said the relationship between multinational oil companies and the national oil companies has gone from close association to isolation, and that two challenges must be overcome to help exploit the region's energy resources and benefit from the global economy:

• The closed economies of the Middle East must be opened up to the benefit of both the national and the multinational oil companies.
• Unilateral sanctions must be lifted.

On the subject of unilateral sanctions with Iran, Matzke said that Chevron's position was that unilateral sanctions hurt US business and US workers by keeping them from doing business in markets that are open to foreign competitors. He added that engagement is a better alternative than sanctions at resolving differences among nations and praised Iran's call for a "dialogue of civilizations" as "exactly what I mean by engagement." He further added that while commercial relationships typically follow diplomatic relationships, it should be the other way around and let commerce build the foundation with the other nations.

Matzke also applauded the US lifting of sanctions on certain Iranian goods as a good start. He said that more needs to be done to speed up the process of growing the trust between the US and Iran. US-based energy companies should be allowed to negotiate executory contracts in Iran and to expend $20 million annually on Iranian energy projects, as permitted to global competitors under US law. He also said that US sanctions prohibiting energy investments in Iran should be eliminated entirely.

While Chevron is struggling with the politics of gaining a foothold in Iran, Shell is seeking to expand theirs. Shell Development Iran Chief Executive Robert Weener said at the same conference that the company not only wants to be a long-term partner with Iran, but also wants to be the preferred partner for the National Iranian Oil Company (NIOC).

Shell, involved in the joint development of the Nowrooz and Soroush fields off Iran, invested $800 million in the project and has allocated $8 million for the training of NIOC staff as part of the project through which it hopes to strengthen the partnership. "Shell in Iran wants to become an international company with an Iranian heart and mind - truly Iranian," he said.

Petrobras signs $4.5 billion in financing

Petrobras aims to invest $4.5 billion in oil and gas operations in the Campos Basin offshore Brazil. The company signed three foreign financing deals for six offshore oil and gas fields. The largest share of the $4.5 billion came from a deal struck with Halliburton for the development of the deepwater Barracuda and Caratinga oil fields.

The companies signed agreements valued at over $2.5 billion for the project. The agreement is a lump-sum engineering, procurement, and construction agreement between Barracuda & Caratinga Leasing Company, a company established by Itochu and Mitsubishi of Japan in connection with the financing of the project with Petrobras, and Halliburton's Brown & Root Energy Services (BRES).

The contracts call for BRES to provide full engineering, procurement, installation, and construction work on the project. The development will include the construction of 51 wells, fabrication and installation of flowlines and risers, construction and installation of two FPSOs, each with a 2 million bbl storage capacity and 150,000 b/d production capacity, and the commissioning and startup of operations support for both fields.

Under the terms of the agreement, work representing more than 40% of the value of the FPSOs will be done in Brazil, including the conversion of one of the hulls.