MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, APRIL 14, 1998 (5)
INTERNATIONAL
Primeline Energy Awards Contract for 3D Seismic Survey
Primeline Energy Holdings Inc. (VSE/PEH.) Primeline Energy Holdings Inc., (PEH.V) reported on the progress of the appraisal programme of the "Vicky" (LS 36-1) discovery, located in Block 32/32 of the East China Sea.
Following last year's successful drilling/testing of Vicky-1 well and a very encouraging post-well evaluation, the Company has been focused on an appraisal programme, initiating with a 3D seismic survey over the discovery. After an international tender, the Company has negotiated and awarded the 3D survey contract to China Offshore Geophysical Corp. (COGC) based on technical capacity and cost (estimated at US$1.5m). COGC is the pre-eminent Chinese geophysical company with much offshore 3D seismic survey experience. The survey will commence on or about 1st May 1998 and will be completed in early June. The processing and interpretation of the data will then take approximately 4-6 months with evaluation results expected at year end. The Company will then announce its plan with respect to the next round of drilling.
The 3D seismic data is important for selecting the location of the appraisal well(s) to further define the hydrocarbon reserve of the Vicky (LS36-1) discovery.
Primeline owns a 75 percent interest in Block 32/32, a 6,000 sq. km. (1.5 million acres) concession in the East China Sea. Primeline is exclusively focused on oil and gas exploration and upstream business opportunities in China. The Company's shares are listed on the Vancouver Stock Exchange under the symbol "PEH".
Trade-Americas: Energy Integration, another Key Summit Theme
Inter Press Service
Next weekend's second Summit of the Americas in Santiago will back initiatives towards freeing up -- and thus boosting -- investment and trade in goods and services in the hemisphere's energy sector.
"Energy is like the glue of hemispheric integration," U.S. Secretary of Energy Federico Pena said at the last meeting of energy ministers in Caracas. "It is the motor of development," his Venezuelan counterpart Erwin Arrieta added.
Venezuela, the continent's leading oil exporter and the United States, the world's top consumer of oil, have been pushing since the first Summit of the Americas in 1994 for energy cooperation in the region to keep up with the negotiations on the Free Trade Area of the Americas (FTAA).
At next weekend's summit in Chile, the 34 presidents will approve an accord reached by the energy ministers designed "to promote policies and processes to facilitate trade in energy sector goods and services," in accordance with the commitments assumed by their governments in the framework of the FTAA.
Demand for energy in the Americas is growing fast, from a current consumption level of 25 million barrels a day of oil and a deficit of five million barrels, expected to double by 2010.
At the January meeting in Caracas, Pena unsuccessfully pushed for a commitment by the 34 countries involved in the FTAA process to amend their legislation and tax policies and create instruments to facilitate the freest possible flow of energy "by the year 2000."
The United States would like the energy sectors of the rest of the countries in the hemisphere to operate like its own, where private operators own all segments of the industry, the State is simply a mediator and auditor, and markets are open to trade.
Such a regime favors low-cost energy, which U.S. industry needs to compete with Europe and Asia, opens fields for sales of capital and intermediate goods and pushes up the value of the shares of its oil companies, supplied with new stocks and horizons.
But Latin America is building a wall along its northernmost border to fend off U.S. pressure. "Mexico is not discussing, and does not plan to discuss, its legislation on hydrocarbons from now to the year 2005," said Mexican Energy Secretary Luis Tellez.
The Mexican hydrocarbon industry is nationalized and closed to foreign investment. Venezuela's has been partially opened, a route being followed by Ecuador and Brazil and already taken by Argentina and Trinidad and Tobago. Colombia, a relatively new exporter, has a mixed regime.
Mexico is consuming an increasingly large proportion of the oil it produces. But while Mexico protects that key sector, Venezuela is in favor of opening its oil industry to trade, parallel to the FTAA.
According to the agreement reached by the ministers in Caracas, the Santiago summit should decide that the policies and processes facilitating trade in fuel should move ahead in line with the negotiations on the rest of the FTAA -- in other words, that trade in energy should also be opened up when the free trade zone goes into effect in 2005.
High level officials with Venezuela's Foreign Ministry told IPS that the Santiago declaration would also lay out the guidelines for "articulating" negotiations in energy, infrastructure, science and technology with the FTAA process by means of "communicating ducts."
Meanwhile, there are other governments and especially companies located all along the arch stretching between the United States as consumer of oil and Venezuela as supplier that would welcome speedier and more intense negotiations in the energy sector than for the rest of the goods and services to be discussed in the talks on free trade.
A "coordinating secretariat" to monitor the region's energy agenda emerged from the Caracas meeting, comprised of representatives of the Venezuelan and U.S. governments and the Latin American Energy Organization.
One unique characteristic of the energy sector is that trade and investment are almost always two sides of the same economic operation. The same company that invests in the extraction of oil transports it to its own refineries, for example, and sells it in its own petrol stations.
The Santiago Summit will also propose measures to stimulate the development of the necessary physical infrastructure -- such as oil pipelines and electricity grids, including cross-border systems - - for the transportation of energy products.
Other two items have been on the agenda since Miami: cooperation for supplying the countryside with electricity and for the raising and efficient use of the funding necessary for developing alternative sources of energy.
The region is looking towards an "alliance" for the sustainable use of energy, which would encourage projects using clean and cheap alternative sources, while fighting subsidies and advocating market prices to discourage waste.
But above all, the Santiago gathering will take up the aim of energy companies for the free market project to serve as a lever to boost business and links between national stocks, production, transportation and markets.
Caspian Sea: Falling Oil Prices Will Delay Foreign Investment
A top Western energy consultant says falling oil prices could cause foreign firms to postpone investments in the Caspian oil and gas fields, and delay plans to build export pipelines from the landlocked region.
Andrew Apostolou, a consultant on Central Asia from Oxford University, also says the economic crash in southeast Asia, that has caused stocks and currencies to dive in Indonesia, South Korea and Thailand, may help depress global oil demand and prices for some time to come.
Apostolou spoke to RFE/RL at a conference -- entitled Current Trends in Transitional Economies -- at the Center for Euro-Asian Studies at Reading University, outside London.
Apostolou disputes some commonly-accepted generalizations about the oil and gas reserves of the Caspian, the richest fields of which are located in Azerbaijan, Kazakhstan and Turkmenistan.
He says claims that the hydrocarbon reserves are the second largest in the world after the Gulf are probably exaggerated, and appear to originate from a U.S. National Security Council estimate in 1995 that the region has 200 billion barrels of oil and gas.
Apostolou said western energy firms put the figure smaller at 60 thousand million barrels -- about the size of the reserves located in the North Sea, albeit still large enough to sway global energy trade.
But plans to open up the Caspian reserves have been thrown into doubt by the world oil glut that has seen oil prices fall to their lowest level in real terms in years, partly because of a fall-off in Asian demand but also because of a proliferation of suppliers.
The Caspian region is at a disadvantage because its energy reserves are located in an out-of-the-way region far from world markets and in countries that are landlocked. Apostolou points to the failure so far to build a commercially viable and large-scale export pipeline west to Turkey, south to Iran or east to China.
Says Apostolou: "I don't see a pipeline being completed for maybe four years. The problem is that the longer the delay, the worse the prospects get. At the moment we have a very serious oil glut problem. And if we don't get some sort of stability in oil prices, I think you are going to see foreign firms starting to delay investments in the Caspian region."
Apostolou says Kazakhstan is desperate to get a pipeline link to western markets; while Turkmenistan, with the fourth largest reservoir of natural gas in the world, could be producing 10 times as much as right now, but both "can't get their product to market."
Apostolou also says a plan to build a 3,000 km pipeline from Kazakhstan across Xinjiang to eastern China does not make commercial sense, given present low oil prices, the 3 thousand million dollars construction cost, and the expected very high transit fees.
Apostolou is skeptical about grandiose claims that the Central Asian region is poised to become the site of a 21st Century Silk Road: a high-tech superhighway, or land bridge, linking Europe and Asia with motorways, railways, and fiber optic cables.
Historically, he says, Europeans have always found it easier to get access to east Asia by sea rather than overland. Even today, the region is very isolated in the "back of beyond", and remains sparsely populated.
Kazakhstan, five times the size of France, has only 17 million people. Apostolou says the Central Asians themselves, imagine that their countries are less peripheral than they are.
Says Apostolou: "The mistake the governments have made is to sit around and think that 'we are right at the center of the earth, at the center of everything'. If you go to Uzbekistan, there's a big globe, where they've replaced a statue of, I think, Karl Marx, and there's a huge Uzbekistan in the middle of it, the size of Latin America. Well, I'm sorry, you're not (at the center of the world.) You're marginal to the world economy and you have to integrate."
Apostolou says the governments in the Caspian region are telling their people that the new petrodollar wealth will be spent on improving living standards and redressing the imbalances left over from the Soviet era. But he says the "titular nationals" of the region -- the Kazakhs, the Turkmen and the Azeris -- are actually going to benefit least from the opening up of the new oil and gas fields.
Says Apostolou: "The people who are going to benefit overwhelmingly are urban groups who tend to have a knowledge of the specific energy sectors and who are close to the government. The Azeris, Kazakhs and Turkmen are still mostly rural, mostly quite poor, and mostly in large families. And they're not going to benefit that much."
UK Oil Firms Flock To Kuwait Hoping For Role
Major British oil and gas firms will be offering their services to Kuwait next week in the hope that a policy change will eventually allow them a role in the Gulf Arab producer's upstream operations.
British Ambassador to Kuwait Graham Boyce told reporters on Tuesday some 22 specialised firms, including British Petroleum (UK & Ireland: BP.L) and the Anglo/Dutch Shell Group (RD.AS)(UK & Ireland: SHEL.L), will participate in a British oil and gas show which opens in Kuwait on April 19.
The two global giants ''are very interested in Kuwait's plans to maximise Kuwait's oil production capabilities,'' he said. Boyce was referring to Kuwait's plan to raise capacity, currently at 2.4 million barrels per day (bpd), by one million bpd early in the next century.
Upstream operations in Kuwait, which has 10 percent of the world's proven reserves, remain firmly controlled by the state and fully owned subsidiaries of its Kuwait Petroleum Corp (KPC) despite renewed talk of a possible policy change.
''We are always keen to do more...making an even greater contribution to Kuwait's own plans to enhance productivity from the oil fields and develop related industries,'' Boyce said.
BP and Shell, like some French and U.S. oil majors, already have technical accords with Kuwait and hope to upgrade them to some form of participation in upstream operations once a policy change is introduced.
But Boyce said such a move could take several years although the U.S. embassy in Kuwait earlier said it could come by 1999.
''I think it is quite a long process,'' Boyce said. ''Clearly, if Kuwait is going to bring in foreign oil companies to play a greater role in development it has to be very carefully thought of.''
Kuwaiti officials and Western oil executives earlier told Reuters the Gulf Arab state was eager to grant foreign oil firms a role in its oil industry to boost production but it was still searching for a formula acceptable to Kuwait's parliament and foreign bidders.
There is some opposition in Kuwait to the production-sharing formula adopted by some other oil-producing countries.
Industry executives said the Supreme Petroleum Council (SPC) favoured a foreign role based on yield-linked cash incentives, a formula which could work around constitutional limitations, but details are still under consideration.
The government came under attack in parliament last year when talk of granting foreign firms a role in upstream operations resurfaced. Some MPs said production sharing would be a violation of the country's constitution.
The government and the SPC, Kuwait's highest oil policy decision making body, ''are discussing means and ways of developing production methods with foreign participation. It must benefit us and the foreign firms must also gain,'' a senior official earlier said.
Parliament's financial committee last month drafted an amended privatisation law which dropped an earlier clause prohibiting the privatisation of oil producing projects.
The full parliament is expected to discuss the draft law by the end of 1988.
Kuwait, a member of the Organisation of the Petroleum Exporting Countries, has a quota of 2.19 million bpd.
Gabon's Oil Production Seen Stable Till 2000
Gabon's oil output is likely to remain at current levels until 2000, oil minister Paul Toungui said.
''Output in 1998 is expected to be 18.3 million tonnes (365,000 barrels per day) compared to 18.0 million tonnes in 1997,'' he told journalists.
Toungui said he hoped an oil licensing round launched last year, involving huge areas in the deep offshore area, would result in major discoveries and revitalise the oil sector in the next century.
Ordinary Gabonese are starting to talk about the ''post-oil'' years, recognising that without major new discoveries, Gabon's oil output will probably start to decline at the start of the next millennium.
Edinburgh-based oil analysts Wood Mackenzie said in a report in December that 12 new oil field developments in Gabon with start dates from 1998 onwards would yield an average of 10 million barrels of recoverable reserves.
This compares with three new deep water field developments in Angola, further south along the same coastline, which will yield in excess of 700 million barrels apiece.
Elf-Gabon, a subsidiary of France's Elf Aquitaine (ELFP.PA), has traditionally exerted a stranglehold on Gabon's oil sector but this is changing as the age profile of Gabonese oilfields matures and the company relinquishes licensed acreage to smaller, nimbler independent companies with low overhead costs.
''Major companies like Elf and Shell see a field of less than 100 million barrels as hardly worth considering, while some of the independents will go in and work on fields of even three million barrels,'' a senior official working for a small oil company in Gabon said.
''Those big companies are moving out but if you get a major strike in deep waters here they will come swimming back like fish,'' he added.
Elf is shifting its attentions towards the giant fields further south, particularly in Angola, and in its place are coming companies such as U.S. based Amerada Hess (AHC) and Forcenergy Inc (FEN), France's Perenco, and Canadian companies Chauvco Resources International Ltd (CHV.TO) and Ocelot Energy Inc (OCEa.TO).
South Africa's Energy Africa reached a complicated blanket agreement with the Gabonese government last year over a number of different concessions and holds options to participate in some 80 percent of currently licenced territory.
Italy's Agip (AGIS.CN) has also moved in and by taking three large offshore concessions last year it became the largest holder as operator of licensed acreage in Gabon, displacing Elf.
Elf still remains the top equity producer of oil in Gabon.
The oil company official said that Elf's traditionally dominant position in Gabon was to a large extent the result of previous political leverage the company held in the former French colony, but times had changed.
''I truly think that particular type of favouritism is a thing of the past,'' he said.
He said 13,500 km of seismic data was already available for the 13 blocks offered for the latest deep water licensing round, for which bids need to be submitted by October.
These blocks lie in water depths of up to 4500 metres and because of the cost of drilling in such deep waters, bids for the licensing round are likely to be submitted almost entirely by consortiums led by the major oil companies.
''I think Gabon is no longer the private hunting ground of Elf,'' the oil company official said. ''This acreage in the licensing round is almost certainly going to be distributed entirely on the basis of the quality of the bids.''
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