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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (33166)	12/18/1998 10:11:00 PM
From: Tomas	Respond to of 95453

Mexico ready to cut oil exports more, if other producers follow By Timna Tanners MEXICO CITY, Dec 18 (Reuters) - Mexico wouldn't hesitate to cut its oil exports further to prop up prices at 25-year lows, so long as other producers follow suit and the price recovery justifies the move, government officials and oil analysts say. Unlike cuts by other oil producers, Mexico's 200,000 barrel per day (bpd) reduction in oil exports hardly drew a peep domestically. The oil union and opposition legislators backed the move. Energy Minister Luis Tellez has defended his unprecedented cooperation earlier this year with Saudi Arabia and Venezuela to cut oil supply as essential to keeping his government's oil revenue from sinking even further. Prices for Mexico's oil mix have already fallen to about half what they were a year ago. Earlier this month, Mexico's oil price hit a 25-year low of an average $6.95 per barrel. On Friday, Mexico's crude traded at a price similar to Thursday's close of $7.40 per barrel. Tellez has pledged to take measures to bring Mexico's average 1999 oil price to $9.25 per barrel, the reference level in the government's budget. That price corresponds to about $13 per barrel for benchmark IPE Brent, analysts say. ''Certainly, we are going to work together to stabilize the markets and...look to establish oil prices around the price that we need for our budget and we are not going to hold back from taking the actions needed,'' Tellez told Mexican media while in Madrid Thursday for a meeting with his Saudi and Venezuelan counterparts. Adrian Lajous, chief of Mexican oil monopoly Petroleos Mexicanos or Pemex, also has said he is open to more cuts. Yet Mexico will not act alone, he has said, but push for concerted action with other producers. Energy Ministry sources add that further oil export cuts must be justified by a higher price, to compensate for lost export sales. Still, Mexico cannot afford to sit by passively while prices sink, analysts say. ''Unfortunately, there are a lot of political issues, but the economic, logical outcome has to be further cuts,'' said Ken Miller, senior principal with Houston energy consultants Purvin & Gertz. ''The problem is an oversupply of crude. Period.'' Mexico's oil income accounts for a third of government spending, already cut to the bone. After trimming spending by some $4 billion in 1998, when oil prices sank to 25-year lows, the government is approaching 1999 strapped for cash as key presidential elections, scheduled for 2000, are in sight. ''Hydrocarbon producers should act to revert the recent price behavior,'' Lajous said, while in Madrid. ''They should do it to protect income that is so needed in the short term and to develop projects that will determine medium-term supply.'' As the sole producer of Mexican oil, Pemex and the government can single-handedly decide at what level to set exports, analysts note. Pemex's approximately 100,000 workers under contract have not criticized the exports reduction, saying they do not complain so long as jobs are safe. ''We have no opposition. We are part of the production, not the sales. It means the same to us,'' oil union spokesman Victor Garcia Solis told Reuters. biz.yahoo.com

To: Tomas who wrote (33166)	12/18/1998 10:26:00 PM
From: Tomas	Respond to of 95453

Venezuela's Chavez may alter oil contracts, some fear By Tom Ashby CARACAS, Dec 18 (Reuters) - The election of nationalist Hugo Chavez as president of Venezuela has raised the prospect of a messy legal battle with foreign oil companies over disputed oil exploration contracts. The eight contracts, approved by Venezuela's Congress in 1995, marked a key stage in the reopening of the country's oil industry to foreign multinationals that were ejected 20 years earlier. But these contracts were immediately challenged in the Supreme Court by a congressman who is now one of Chavez's top advisers. The court has yet to rule. Ali Rodriguez, a left-wing senator tipped as possibly the next energy and mines minister, challenged the legality of seven of 23 clauses in these contracts. The case has been delayed for three years under the current administration, but could be processed early in the next government, beginning in February, a Supreme Court official said. ''There is a time bomb in this issue and it is difficult to defuse it. There is potentially a major conflict on the way,'' said Bernard Mommer, a Venezuelan research fellow at the Oxford Institute for Energy Studies. Chavez, who won a landslide victory on an anti-establishment platform, has said he will respect the contracts signed with the private sector. And some industry experts do not expect him to open the ''can of worms.'' But his advisers say the disputes still stand and it is difficult to see how he could make them go away. ''What has been presented to the Supreme Court are some specific disputes in those contracts,'' Alvaro Silva, Chavez's oil sector spokesman, told Reuters this week. ''We have to wait and see what the court says and bring these contracts up to scratch with the law that the court decides.'' The contracts were awarded to eight consortia. Participants in these groups include four U.S.-based oil companies -- Mobil; Amoco; Enron and Conoco, still majority owned by DuPont. -- as well as France's Elf Aquitaine and Total SA , and British Petroleum and Argentina's Perez Companc. This year, Exxon announced it would buy Mobil, in the biggest industrial merger ever, and BP said it would buy Amoco. In addition to cash bonuses of $230 million to obtain the deals, the companies this year spent $580 million on drilling nine exploration wells and are expected in 1999 to drill another 11 at a cost of $360 million, according to state oil company Petroleos de Venezuela (PDVSA). None has yet declared a commercial discovery. The contracts specify a minimum amount of exploration work to be carried out at the companies' risk. In the case of a commercial discovery, a joint venture company is set up with PDVSA which, in addition to normal taxes and royalties, pays a fixed percentage of its profits to the state. In two separate lawsuits challenging these contracts, Rodriguez argued that: -- International arbitration is unconstitutional; -- PDVSA has no right to license the areas, insisting it should be done by the Ministry of Energy and Mines; -- The joint venture controlling committee usurps powers of the ministry; -- The areas licensed for exploration do not count as ''special cases'' as the law allows; -- Royalty reductions based on return on capital break the law; -- The contract involves potential benefits but no possibility of losses by PDVSA, which contravenes the law, and -- The exemption from municipal and state taxes violates the constitution. Tim Bordelon, general manager of Mobil's La Ceiba contract, singled out two points of particular concern. ''On the municipal tax, we currently have an exemption and if we lost that, we would be very disappointed. What we would do about it I really can't say. I just don't know,'' he told Reuters. ''There is a provision for a royalty reduction in the contract in the initial period of production; again, if we lost that it would make it would make it much less economical for the foreign contractors to develop these properties,'' Bordelon added. When the contracts were signed, PDVSA wrote a letter to companies in which it guaranteed a ''fair renegotiation of contractual terms if an unforeseen change in circumstances results in a significant adverse economic impact on any party.'' Mommer said Chavez would probably try to avoid a messy legal battle with some of the country's biggest foreign investors. ''They can do two things, either not touch anything or get involved. If they get involved, there will be big trouble ahead,'' he said. ''I can't imagine a Supreme Court decision about royalty declaring these contracts illegal and the company accepting that without a major campaign against the government,'' Mommer said. ''This was signed by Congress and approved by both houses.'' biz.yahoo.com