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Gold/Mining/Energy : KERM'S KORNER -- Ignore unavailable to you. Want to Upgrade?

To: Kerm Yerman who wrote (13552)	11/17/1998 10:03:00 AM
From: Kerm Yerman	Read Replies (3) \| Respond to of 15196

IN THE NEWS / Downsizing May Hit Oil Firms Drive Into Gulf Upstream LONDON, Nov 17 - Oil majors seeking big Gulf upstream roles could lose some of the skills and assets necessary for the job if a price-led wave of downsizing and consolidation continues, a conference heard on Tuesday. Pressure from investors for better returns and cost-cutting could result in "anorexic" oil companies lacking the depth of skills or access to capital to provide attractive partners for oil-dependent Gulf states, oil executives and bankers said. "The opportunities are likely to be more numerous than the ability of the industry to pay for them at current cash flows," Pierre Jungels, chief executive of British independent Enterprise Oil <ETP.L>, told the Oil and Money conference in London. "The industry will also find it can't get the people with the ability to do these projects if the current bout of downsizing continues," he said. "Some logic of efficiency can apply if the assets are in the same area but not in the case of pure exploration. There will always be some small companies that are more successful than large ones." Oil-rich Gulf states such as Kuwait and Iran are seeking foreign involvement to boost production capacity and meet growing world demand. In response, majors are scrambling for opportunities to reenter the Gulf, currently enjoying the word's cheapest recovery rates, more than 20 years after they were barred from producing in the region by nationalisation. Prices running at near 10-year lows have spurred the search for cheap Gulf oil as exploration and development in more remote, expensive areas becomes less economic. Phillips Petroleum <P.N> chairman Wayne Allen, commenting on the outlook for such developments, said a volatile oil market had the potential to "wreak havoc around the world" and especially in the 20 or so countries that depend mainly on oil for their export income. Allen questioned the wisdom of consolidation in the industry, referring generally to a wave of alliances and tie-ups this year that resulted in a mega-merger between British Petroleum <BP.L> and Amoco Corp <AN.N>. The BP-Amoco alliance, aimed at producing combined cost savings of some $2 billion annually, will put the merged entity in a league of so-called supergiant companies alongside Exxon <XON.N> and Royal Dutch/Shell <RD.AS> <SHEL.L>. "Consolidation is a short term strategy. It does not address the root causes of the industry's problems (such as oversupply). I do not feel that bigger is necessarily better. It is more important to generate an acceptable rate of return. Nevertheless oil companies had the trump card of access to capital and technology that would always be needed by Gulf states under pressure to fund generous welfare and social programmes, bankers said. Dod Fraser, managing director of Chase Manhattan Bank <CMB.N> of New York, said pressure from growing populations required oil-dependent Gulf states squeezed by low prices to seek foreign capital. "The underlying economic and social forces which are forcing Saudi Arabia and Kuwait to reopen will sweep over the entire region," said Fraser. Allen said that Gulf governments would be better able to fulfill their social responsibilities once they had gained access through Western oil compaies to foreign capital. Executives identified foreign oil investment in Russia, a former petroleum superpower dogged by decline because of financial and political turmoil, as a casualty of the Gulf upstream reopening. "This is just what Russia needs," was the ironic comment by Schlumberger <SLB.N> chairman Euan Baird. "There is no oil province in the world that can compete with the Middle East. I suspect that Russia is one of the major casualtes of what is going on today."