MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 23, 1998 (3)
FEATURE STORY
Terra Nova Shifting To Canada
St. Johns Evening Telegram
Newfoundland's second offshore project has already created 100 high paying jobs in St. John's and should bring 100 more here as soon as the 300 to 400 million-barrel Terra Nova project is sanctioned by its owners in a week or two.
That's a year earlier than Calgary-based Petro-Canada and its partners had proposed for bringing platform engineering jobs into the country, says the head of the Canada - Newfoundland Offshore Petroleum Board, and it's proof the Atlantic accord is doing its job.
The first condition in the CNOPB's approval document released last week is that engineers be moved here "as soon as practicable," said the board's acting chairman, John Fitzgerald.
Terra Nova's major alliance partner, Brown and Root Energy Services Ltd., employs about 200 engineers and support staff at its offices in Leatherhead, England for the design of the floating production facility.
About half are expected to be brought over from Leatherhead and the consortium has advertised locally for at least another 20 engineers. The move is expected to bring a quick measure of economic relief to the St. John's economy.
But the economic punch from those jobs should have been felt a year ago, says a Newfoundland offshore engineer now working outside the province. Engineers working fulltime on Terra Nova overseas are doing jobs that could have been done here, said the engineer, who asked not to be named.
This is exactly the sort of work required to help create a base for an offshore industry, he added - only the earliest design work needed to be completed elsewhere.
"As for the conceptual design, I believe we can't do that in Newfoundland, we're not set up to do that in Newfoundland yet. But the work they're doing at this point, there's no problem. They can do it in Newfoundland," he said.
Terra Nova partners unveiled their ship-shaped, steel-hulled, floating platform design concepts more than a year ago, in December 1996.
CNOPB's Fitzgerald confirmed that about 200 engineers and support staff were designing the project outside Canada - and that many would be finished their tasks before the project shifted across the Atlantic. But he said regulators can do nothing about it.
"A good piece of it has been done, yes," Fitzgerald said in an interview. "(But) you can't really insist that somebody do something (here) until they decide that they're going to go forward with the project."
The board did what it could, insisting work be brought to Newfoundland upon sanction, he said. In addition to Leatherhead, a small amount of work is being carried out in Houston, Paris and in Norway.
"What they had said in their application is that they would complete their engineering, the primary engineering work, at these foreign locations and then move the carry-over work back to Newfoundland in about a year's time," Fitzgerald said.
"What we said to them was `well that's not good enough, you have to do better than that."
Terra Nova spokeswoman Mona Rossiter could not say exactly how many jobs would be relocated here but that it would be fewer than 180.
The consortium, made up of Petro-Canada, Mobil Oil Canada, Husky Oil, Norsk Hydro, Murphy Oil and Mosbacher Operating, will have a better idea of employment figures after sanction, she said.
Minister of Mines and Energy Chuck Furey said he was satisfied jobs would migrate here soon after project sanction and was told by Terra Nova officials four weeks ago that work done to date represents only six per cent of the project.
Furey said he expects a significant portion of topsides work will be done here through the Terra Nova Alliance. (The platform hull is to be constructed in South Korea by Daewoo Heavy Industries Ltd.)
"I'd like to see more technology transfer, you always like to see that," Furey said. "That's why companies have been out there beating the bushes for the last 10 to 12 years, forming strategic alliances and joint ventures, that kind of thing, so that foreign companies aren't just coming in and taking work.
"(Technology transfer) is happening. Now, it's not happening to the degree that I'd like it to happen. You can't have it all in one shot," he said.
But the Newfoundland engineer said regulators must find a way to bring design work to the province sooner.
"Just look when Hibernia was going, you'd go downtown for lunch and in every restaurant you go to, there's somebody there who's working on the (Hibernia) project," he said.
Newfoundland should follow the Norwegian example, he said.
"The Norwegians brought in a lot of Texans in the early days and now they're the leaders in the world."
FEATURE STORY
Oil Capital Spending Plans Remain Intact, For Now
Alarmed by the drop in oil prices to nearly four-year lows and by warnings from energy service company Schlumberger Ltd (SLB), shares in the sector tumbled again on Friday after Thursday's losses.
However, the oil majors and industry watchers said that it was premature to predict that spending on exploration and production will slip in line with the $4.00-per-barrel drop in U.S. crude oil prices, to below $16, in the last few months.
Among oil service companies, Schlumberger, which on Thursday tiggered the selloff when it said that spending plans could be modified due to the Asian crisis, lost 15/16 to 70-5/8.
For the big drillers, Falcon Drilling Co Inc (FLC) was the biggest loser, down 9/16 at 28-13/16.
However, none of the big oil companies was relying on rising oil prices to lift earnings and many have costed their spending at levels even lower than the present sub-$16 level, the sources said.
Chevron Corp. (CHV) reaffirmed its commitment to a $400 million increase in capital spending to $6.3 billion when it reported earnings on Thursday.
The San Francisco-based major will spend almost $4.0 billion on exploration and production spending.
''We plan our projects on the basis of $18.00-$21.00 oil, but we test them down to $15.00 and at this point in time we are committed to our capital spending plans,'' Mike Libbey, a spokesman for Chevron, said.
A survey from Arthur Andersen LLP in October showed that 77 percent of oil and gas companies planned to increase E&P capital spending in 1998.
''If it ($16.00 oil) continues to be a short-term situation, it is very likely that capital plans of exploration and production companies will not be affected,'' said Jim Petrie, senior manager for the consultancy's energy practice.
''However, if it lasts longer, say six to nine months, you could see capital spending plans reduced,'' he added.
Texaco Inc. (TX) aims to double its earnings over five years to 2001, helped by a growth in hydrocarbon production to 1.75 million barrels of oil equivalent from 1.19 million in 1997.
To this end, Texaco raised its 1998 capital budget to $3.8 billion from $3.5 billion in 1997, chief executive Peter Bijur told the company's annual analysts' meeting in December.
''Texaco has no current plans to alter its capital spending as a result of lower oil prices, but if this trend continues, we could modicfy the timing of projects,'' said a spokeswoman for the company on Friday.
She added that Texaco tested projects at $15.00 oil.
Salomon Smith Barney's annual survey of capital spending plans predicted a 10.9 percent rise in worldwide exploration and production spending from 1997's $84.6 billion.
''An unusually large number of respondents plan on spending more than cashflow, indicating that spending plans are increasingly based on a multi-year outlook rather than near-term conditions,'' analysts Geoff Kieburtz and Mark Urness said.
They noted that the average oil price assumptions had fallen to $19.23 per barrel for 1998 from $19.67 in 1997, and that some projects were tested as low as $12.00.
Despite lower prices, evidence is that oil companies are still stumping up for long-term contracts for drilling rigs.
On Friday, Oryx Energy Co. (ORX) entered two five-year deals for deepwater rigs to drill in the Gulf of Mexico.
John O'Keefe, a spokesman for Oryx, said that the rig supply situation remains extremely tight.
''The only way to give yourself any confidence is to sign up for a long term,'' he said.
According to driller Global Marine Inc. (GLM), lower oil prices actually stimulate demand for hydrocarbons and thus demand for rigs.
It notes that the excess oil production worldwide is near a historic low, just two percent of the total.
Global Marine says that in order to meet a rising demand, production would have to rise by 30 million barrels of oil per day by 2006, in addition to a further 25 million barrels per day that will be required to offset field declines.
All of this will keep demand for rigs strong and should support rising dayrates.
Oil companies are now paying $165,000 per day for a semisubersible rig, up from $32,000 in 1993 and are paying 80,000 per day for jackup rigs, up from $24,000, according to Global Marine.
MARKET ACTIVITY
U.S. NOTES
The decline in oil prices is not going to spare the energy sector, which is 8 or 9 percent of the S&P." Crude oil today slid a further 30 cents per barrel to $15.74, preventing any bounce in the hurting oil-service sector. Drillers and oil-service stocks had another bad day. Halliburton gave up 7/16 to 43 1/16 despite reporting fourth-quarter earnings of 56 cents per share, 2 cents better than the 25-analyst estimate and up from the year-ago 43 cents. Elsewhere, Smith International lost 2 1/2 to 47, Transocean Offshore lost 1 to 39 1/16, Cliffs Drilling lost 9/16 to 39 7/16 and Schlumberger lost 1 5/16 to 70 1/4.
Continued |
