MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, MARCH 20, 1998 (3)
TOP STORIES
U.S. Pena Does Not See Non-OPEC Supply Deal Effort
U.S. Energy Secretary Federico Pena said Friday he did not sense an effort among non-OPEC oil producers to reach a supply agreement to try to shore up sagging oil prices.
"I don't have a clear sense there is a real effort now to get the non-OPEC countries to reach some kind of production agreement," Pena said in response to a question at a briefing with reporters.
"People have generally been somewhat hesitant to have the kind of discussion you talk about among the non-OPEC nations," he said.
On Thursday, Mexico, a non-OPEC member, called on oil producers to temper their output.
Pena also said the oil and natural gas industry was withstanding weak prices for its products, although some independent producers were having trouble.
The industry "by and large is holding its own even with low prices. There are some independents that are having serious problems," he said.
Pena said he would meet next week in Texas with several energy companies, including independent oil and natgas producers. "We're going to go down the list and see if there are some things we can do to help them get through this."
But he said better technologies that have cut production costs are helping oil and gas companies weather low prices, and he said low oil prices have positive effects for consumers, the economy and the balance of trade.
Oklahoma Republican Sen. Don Nickles on Friday said he planned to write legislation to help the domestic oil and natural gas industry that he said has been undermined by the Clinton administration's policies.
"I am committed to developing legislation this year that will provide the industry with relief from burdensome federal regulation and taxation and promote growth within an industry that is vital to our national security," Nickles said in a statement.
He complained that the White House supported the United Nations in allowing Iraq to increase its oil exports, which he said helped to hammer oil prices. He also said the administration has hurt U.S. oil and natgas production through environmental programs and royalties policies.
Oil in a Time of Glut
Saved by Technology
Kiplinger's Magazine
Though the price of a barrel of crude was recently $16, oil companies, both big and small, are making money. That's because the historic link between oil-company profits and crude-oil prices--a relationship which suggests that these companies should be on the ropes again--hardly exists anymore. "Technology and cost control, rather than oil prices, now rule the industry," observes Prudential Securities analyst Jeffrey Freedman. What he means is that technology allows oil companies to operate with fewer employees while greatly reducing the cost of finding and producing new oil and natural-gas reserves.
Although modern computers made the job of processing vast amounts of seismic and production data easier and faster, perhaps the most important innovation is the use of three-dimensional seismology. Simply put, 3-D allows geologists and other technicians to create realistic computer images of geological structures far beneath the surface of the earth. That enables them to pinpoint oil and gas deposits with greater accuracy. Result: The industry's success rate at making new discoveries has increased in the past decade from one strike for every four wells drilled to one in two.
Another breakthrough is the increased use of horizontal drilling. From a conventional drilling platform, a well is dug straight down to a hydrocarbon-bearing structure. Then the well slants off horizontally and slices through a rock formation, which is usually longer and narrower than it is deep. Thinner pipe, made of more flexible alloys, has been developed to make it easier and faster to drill through a formation. The goal is to expose more oil-bearing rock to the well bore, which increases the production from each well and drains the reservoir faster with fewer wells. Horizontal wells drilled in North Dakota and south Texas show daily production rates three to five times those of conventional wells.
These technologies and others have reduced the cost of finding and producing oil and natural gas by 20% since 1986, from $5.50 per barrel to $4.40 per barrel. Exxon pursues only huge new fields; its finding cost per barrel is 50 cents, an 85% reduction in the past ten years. As a result, says the Fed's Bill Gilmer, the industry can thrive at $17 per barrel for oil and $1.70 per 1,000 cubic feet for natural gas. Until recently, oil sold for about $20 a barrel, and natural-gas prices were running above $2 per 1,000 cubic feet.
Improvements in deep-water-drilling technology have enabled oil companies to search in areas formerly considered inaccessible. As recently as 1992, oil and gas producers had written off the Gulf of Mexico as the "Dead Sea." They believed that all the oil and natural gas there had been found over decades of intensive exploration. Today the Gulf is one of the world's hottest exploration areas as companies venture into deeper and deeper water. The deepest well in the Gulf in 1987 was in about 1,300 feet of water. Exxon made two discoveries last year in 4,800 feet of water that contain the equivalent of 300 million barrels of oil. Shell Oil, a subsidiary of the Royal Dutch Shell Group, began producing natural gas last July from a record depth of 5,300 feet. In 1996 Shell drilled an exploratory well in 7,612 feet of water--also a world record.
Companies can operate at those depths by using floating platforms that are held in place by steel cables attached to the ocean floor. Another system, called subsea production, allows a company to install wellheads on the ocean floor and pump the oil and gas to a platform on the surface.
The impact of these new technologies has spread worldwide. A recent study estimated that between 1991 and 1995, new drilling techniques added 4.8 billion barrels of commercial reserves to the North Sea alone, worth from $30 billion to $40 billion. Some 60% of the gain came from new discoveries and 40% from earlier discoveries that had previously been unprofitable. Likewise, technological advances have led to a 40% increase in proven reserves in Alaska's Prudhoe Bay field since 1990.
Small is beautiful, too
Ranger Oil And Partners Tap N.W.T. Find
The Financial Post
Several firms are sharing a big natural gas discovery in the Canadian North and the size of its reserves could grow with more drilling.
Ranger Oil Ltd. (with a 50% interest) and partners Unocal Canada Exploration Ltd. (35%) and Canadian Forest Oil Ltd. (15%) estimate they have found at least 200 billion cubic feet of gas with their well near Fort Liard, N.W.T.
Because of technical and weather problems, the discovery wasn't cheap. Ranger president and chief executive Fred Dyment would not give specifics, but said the final bill was well above the rumored price tag of $10 million. But the end would seem to justify the means. "We think the potential of the feature could be bigger," he said. "It's just going to take some time to define that."
Seismic data will be gathered south of the well, called P-66A, this summer and a follow-up test will be drilled in January. The discovery is about 20 kilometres from the northern end of Westcoast Energy Inc.'s pipeline, so connecting the find will not be very expensive, Dyment said. Sales of 20 million cubic feet a day are slated to begin in 1999.
Ranger's 4,000-metre-deep discovery won't spark a land rush in the region. Last year, the federal government auctioned postings in the central Mackenzie Valley, a noted gas-bearing area, but sales in the region are on hold until Ottawa and two native groups finish a review of the sale process, a federal official said.
Neutrino Resources Revenue Up Sharply
Calgary Sun
Calgary-based Neutrino Resources Inc. boosted revenues by 56% last year. Revenues before royalties went up to $21.1 million for the 12 months ended Dec. 31, 1997.
The company, considered a bright light among junior oil and gas producers, reported cash flow of $8.7 million, up 74% from $5 million in 1996. Average daily production rose 70% to 2,792 barrels of oil equivalent. In the face of dwindling oil prices, Neutrino has shifted production towards natural gas.
Syncrude's Aurora Gets Final Approval
Fort McMurray Today
Syncrude's Aurora mine has quietly cleared its last regulatory hurdle.
The Alberta cabinet passed an order in council on March 11 that gave final approval to the $1.5-billion project, which is already under construction.
The mine is part of nearly $6 billion in expansion projects that Syncrude Canada plans over the next 10 years. The plans include $3 billion in additions to its heavy oil upgrader at Mildred Lake.
Despite their massive size, the plans did not come under a federal environmental review, nor were they put before environmental panel hearings.
"The process is the application is filed with the Energy and Utilities Board and over two years we spent consulting with stakeholders," said Syncrude spokeswoman Barbara Shumsky.
She said the company met with more than 160 groups. "Once you get to the point you've talked to everyone, the EUB looks and sees whether an environmental hearing is required."
She said it's not unusual not to have the hearings.
"Steepbank at Suncor was similar. The efforts in consulting and the benefits of the project meant there were no unsatisfied concerns of stakeholders in the region."
The plans were considered an amendment of an existing licence, not new projects.
Most people had already assumed the Aurora mine had been given final approval, said Shumsky. That's why no publicity accompanied the actual approval.
''We didn't want to confuse the issue,'' she said.
The expansion is expected to create 1,000 construction jobs.
Last summer, a federal report listed increased acid rain, higher greenhouse gas emissions and the destruction of thousands of hectares of forest habitat as likely results of oilsands expansion projects by Syncrude and others.
At the time, the five energy companies involved promised a study of the cumulative effects of their proposals, which amount to $25 billion over 25 years.
The study was expected to be complete by April.
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