MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, APRIL 8, 1998 (6)
INTERNATIONAL, Con't
India - Fresh Incentives For Intensifying Oil Exploration In Offing
The slump in crude prices by over 40 per cent to the lowest levels since 1988 has given cause for concern to the members of the organisation of petroleum exporting countries (OPEC). The demand for crude and petroleum products declined sharply in the ASEAN region while even in India the growth in consumption is only six per cent against eight per cent in earlier years. This is perhaps due to the reduction in freight traffic of road transport operators. It is difficult to explain why there has been a negative trend having regard to the fact that the output of food and cash crops in the 1996-97 season constituted an all time record.
The large sales of cement, fertilizers and coal, which are the main bulk commodities, should have provided additional custom to the road transport operators. There has, of course, been a big decline in the output of sugar due to the shortage of cane supplies and the drop is as much as 45 lakh tonnes from the peak of 1995-96. The transport of cane from the fields to the factories is therefore lower by about 40 million tonnes. But these supplies are moved only over short distances and should not have affected the operations of commercial vehicle owners to any great extent.
Low international prices
With a view to shoring up prices for crude and petroleum products, the output of the former has been curtailed by OPEC members in consultation also with members of the non-OPEC countries. However, the effect of this decision has not been reflected in any smart recovery in crude prices as there will also be a seasonal decline in demand for petro products in the summer months.
Crucial role for PSEs
Even if crude prices improve by about 10 per cent in the coming months, it will be possible for the Union Ministry of Petroleum and Natural Gas to reduce the outgo in foreign exchange on imports. There will, of course, be an increase in demand for petro products by about five million tonnes which would mean an increase in foreign exchange expenditure on imports. The experience in 1997-98 has, of course, been encouraging as the oil import bill will be only $7.70 billion against $9.64 billion in 1996-97. As the offtake of petro products may be increasing by the end of Ninth Plan, the total requirements will be around 110 million tonnes. It has thus become necessary to intensify exploration in new areas and effect exploitation of proved reserves.
The Union Minister of Petroleum and Natural Gas, Mr. V. K. Ramamuthy, showed keen awareness of the problems involved and has announced at a seminar in New Delhi in which international majors like Mobil and Shell were present, that the desired incentives would be provided for locating new reserves and that Indian and foreign entrepreneurs would be encouraged to function in this vital segment of the petroleum sector. Mr. Ramamurthy has also observed that the public sector companies will have to play a crucial role in this connection. He was probably having in mind the profitably functioning public sector enterprises (PSEs) though it is not clear whether they will be prepared to execute projects aimed at backward integration of operations. The decisions in this regard are anxiously awaited in petroleum circles.
Meanwhile, cheaper crude and petroleum products have facilitated a downward revision of selling prices for high speed diesel oil while seven products including naphtha will not be subject to the administered price mechanism (APM). There will, however, be no changes in prices for motor spirit, aviation turbine and LPG as in the absence of deregulation there will have to the cross subsidisation and the users of gasoline will continue to be penalised. At the present level of international prices, gasoline should be available at Rs. 20 per litre even allowing for the sharp depreciation in the external parity of the rupee. This would mean that the subsidy element has increased unnoticeably and the oil pool account should have generated surpluses against deficits until March last year.
The objective seems to be to maximise credits to the oil pool account for the Centre to be in a position to redeem the non- negotiable bonds for Rs. 12,984 crores issued to the oil importing countries. Since a section of petroleum consumers are being penalised and even in respect of high speed diesel oil, there could have been a more pronounced downward adjustments in prices, the oil position should be reviewed when the Union Finance Minister presents his regular budget estimates for 1998-99.
As there has been a decline in petro product prices by over 40 per cent, the price of high speed diesel oil could have been correspondingly reduced even allowing for the higher landed cost of imports due to depreciation of the rupee. There is thus scope for taking a liberal decision in this regard. Ever since the price of high speed diesel oil was fixed at Rs. 11.20 per litre from November 1, there have been net downward adjustments of selling prices of high speed diesel oil by only 30-32 paise per litre. Earlier, the price was even hiked by 10 paise per litre.
The higher priced inventories have of course to be absorbed and the average decline in prices may not be to the full extent of the decline in world prices for related products. But these inventories should have been completely utilised and replaced by imports brought in at the prevailing low prices.
While fresh developments in world markets and in the petroleum sector in India are anxiously awaited, the users of petro products stand to gain considerably by the drop in prices for petroleum feedstocks. Since the products required by them are governed by variations in world prices, they will have to adjust their operations suitably. There will of course be severe competition from imports of intermediates and even finished products and selling prices for the related items will have to be lowered correspondingly. But the adjustments to the new situation would have been completed in recent months and the working results of Reliance Industries and others for 1998-99 should be creditable.
The oil refineries too will be on a better wicket as they will have the benefit of higher margins from the sale of products outside APM. But there will have to be a change in the formula for rewarding refineries on the basis of throughput as the outlays on expansion schemes of the existing refineries and new projects of those in the public and private sectors will be involving considerably higher capital outlay.
As many new refineries will be arriving on the scene in the coming years and it is likely that international majors will be inclined to establish new refineries in a big way, as in the ASEAN region, early decisions for improving profitability of refineries will have to be taken. It will be interesting to watch how the petrochemical producers will fare in 1998-99. However, there is no doubt that the oil refineries, particularly those having lower capital outlays, will be benefited considerably.
Indonesia Firm No Longer Involved In Iran Oil Deal With Bow Valley Energy
Indonesian oil company Bakrie Minorak Petroleum Co. Ltd. is no longer involved in a $180-million Iranian oil project operated by Canada's Bow Valley Energy Ltd. (BVX/TSE), Bow Valley Chief Executive Walter DeBoni said on Wednesday.
''They're out of the project, period,'' DeBoni told Reuters. ''We're in the process of talking with a variety of companies to replace them.''
In January, Calgary based Bow Valley presented Bakrie with a settlement plan aimed at allowing the Indonesian firm to hand back its interest in the controversial Balal offshore oil development project.
The move was sparked by Bakrie's inability to meet its funding obligations as a result of Indonesia's economic and currency crisis.
DeBoni said Bakrie did not agree to the offer presented in January but declined to give details of its eventual pullout from the deal.
''I'd rather not discuss it, but it was kind of a long process to reach an appropriate settlement,'' he said.
Bow Valley plans to develop the 40,000-barrel-a-day field, which has estimated reserves of 105 million barrels, over a three to four year period.
The small exploration company has made headlines for its role in the Iran project, which the United States has said could make it a target of sanctions under the U.S. Iran-Libya Sanctions Act.
Alterra Resources & Abstract Enterprises Enter Into Trinidad Agreement
Alterra Resources (ALRI/CDN) announced the signing of a letter of intent to enter into a definitive agreement with Abstract Enterprises Inc.of Vancouver (AEP:VSE) whereby Abstract will earn a 50% working interest in Alterra's 2,000 acre South Erin oil and gas lands in Southern Trinidad.
The agreement requires Abstract to fund 100% of the cost to drill four (4) vertical wells on the property. In return Abstract will earn 100% interest in the net revenue before pay-out, and a 75% interest therein after pay-out. Completion of the four well program will earn Abstract a 50% working interest at the 2,000 acre South Erin lands wherein any future participation will be on a shared 50/50 basis with Alterra. A performance bond of $US 100,000 required by the Trinidadian Government will be posted by Abstract.
A recent (March 1998) independent economic evaluation of the South Erin acreage conducted by ''Professional Petroleum Services Ltd.'' of Trinidad concluded that a successful eight well development program (4 vertical wells and 4 horizontal wells) would have a pay-back time, assuming all wells are successful, of less than one year with production peaking at 3,000 barrels of oil per day in the second year. Professional Petroleum Services Ltd. based the conclusion of the March 1998 economic evaluation on wells drilled near the South Erin lands.
SERVICE SECTOR
Ryan Energy EM Communication Technology Successfully Utilized in Underbalanced Drilling
Ryan Energy Technologies Inc. (RYN/TSE) has successfully completed its first underbalanced well using its Electromagnetic (EM) Communication technology. This technology utilizes low frequency radio waves to transmit directional and geological information to the surface while drilling. Ryan has commercially offered its EM Communication services for conventional drilling applications since late 1997.
This significant advancement positions Ryan to expand its services in the growing underbalanced drilling market. "Ryan's EM Communication equipment didn't just perform well, it outperformed all our expectations." stated Dan Stevens, Drilling Manager of Enerplus Energy Services Inc. Though drilling conditions were more severe than expected (due to the high rates of Nitrogen pumped and low amounts of fluids) the EM system continued to work flawlessly. Ryan's Tru Vu(TM) electronic data recording equipment captured and managed an expanded array of drilling information at the wellsite, and was made available to Enerplus on a real time basis. The Tru Vu(TM) system is imperative for efficient, real time management of surface and sub-surface data at underbalanced drilling locations.
To the Company's knowledge, Ryan's EM Communication equipment is the only "fully retrievable/re-seatable" system available in the world. This aspect of the Corporation's EM Communication technology is considered a competitive advantage, potentially saving its customers significant expense should the drilling assembly become stuck during these sophisticated drilling operations.
Ryan is manufacturing additional EM Communication systems based on current and anticipated customer demand for this service. The Company manufactures its proprietary MWD and LWD equipment at its Technical Center located in Calgary, Alberta.
Ryan Energy Technologies Inc. is an industry leader in the development and provision of horizontal and directional drilling technology and services including Measurement While Drilling (MWD), Logging While Drilling (LWD), and Down-hole Drilling Motors. This equipment is used to steer and evaluate horizontal and directional well-bores for major, intermediate, and junior oil and gas companies in Western Canada and the United States.
E.S.I. Environmental Sensors: Oil Well Sensor Successfully Completes Phase II
E.S.I. Environmental Sensors Inc.(ENV/VSE) announced that the Company and its Oil Well Sensor Research partners held their Phase II Project Review March 27th at the Company's office in Victoria, and that all partners were impressed with continued progress and project results to date.
The review committee includes representatives from Saskatchewan Research Council (SRC), partner oil company engineering staff and an outside independent consultant, Mr. T. J. McCann, who has 30 years experience in the oil industry. Both Phase I and Phase II of the Oil Well Sensor Research Project were completed on time andon budget. The electronics for the first product model are currently being finalized
and evaluated, while test results on flows at SRC's laboratory in Saskatoon have met or exceeded expectations. Pressure testing will take place during Phase III.
Field testing will commence on wells operated by Wascana later this summer. Other major oil companies have expressed interest, however management does not intend to negotiate further partnerships until the field testing has been completed. ESI will be the sole owner of this newly developed technology and expects to patent the technology. Delivery of commercial units is anticipated by the end of 1998. Industry statistics indicate that there are 900,000 operating wells worldwide, many of which would benefit greatly from the sensor. It is estimated that the total global market for this type of sensor is more than $3.5 billion. |
