International Focus

The reconstitution of Royal Dutch Shell

The graybeards grouped around the table in the inter sanctum of Royal Dutch Shell in the Hague have apparently finally gotten the word that the golden scallop they hold so dear has come to represent rather than a consummate member of the international community, an avaricious, uncaring corporation. Thus, they sprang into action in the ponderous way Shell has of doing things...they did a survey - not of their detractors, who are numerous from Nigeria to the North Sea, but of petroleum journalists - to determine if our admiration of their deepwater prowess clouds our view of the company as a part of the world community, if our fascination with Shell's remarkable technological advances prevents us from recognizing its ethnocentricity and disregard for human rights.

Over the course of the last two years, Shell has precipitated the epithets have rained down on it by not rectifying the causes of its tarnished image. Rather, it tried, as do so many large bureaucratic organizations, to conceal them from public view - by attempting to dump the Brent Spar and ceasing operations in the environmentally scarred Ogoni region of Nigeria, to name but the two most notorious incidents. Neither, of course, succeeded, and thus the public scorn that Shell has suffered. Now, however, Shell has seen the light and begun to make amends - not because of the survey, but because it finally became manifest (perhaps to stockholders) that that was the right thing to do. The Brent Spar is being recycled, and Shell is spending millions to clean up the Ogoniland environment it damaged and bring jobs and social development to the region as restitution.

But Shell isn't stopping at these tokens of its newfound enlightenment. It is now seeking ways of becoming a more concerned member of the world society. According to the company's chief economist, Dr. Vincent Cable, who spoke to a London conference in March, Shell has now recognized the need for social responsibility and not simply the pursuit of profits. To that end, the company has pledged to consult with human rights and environmental groups before launching future sensitive projects. Perhaps it will. The question is whether it will continue to look the other way when local governments abrogate human rights to protect its interests. The proof of its professed change of heart will be Shell's action, not a procession of public pronouncements and press releases followed by image surveys of the petroleum press. The ghost of Ken Saro-Wiwa is watching.

Soaring rig rates, sagging oil prices plague India

For seemingly the hundredth time, the Indian government is blathering about new legislation for offshore exploration that would induce greater private sector investment in India's oil industry. To peak interest, all sorts of draft laws are floating about, and petroleum ministry officials are saying that market-oriented pricing and a cutback in subsidies are just around the corner. To add further fillip, officials have said Indian private sector and both resident and non-resident foreign companies are allowed to select oil-bearing areas beyond those offered during bidding rounds. They say the Indian government has committed to buy produced oil at international prices. And, these bureaucrats add, there are also no upfront payments, no discovery or production bonds or import duties imposed on oil explorers.

ONGC (Oil & Natural Gas Corporation), one of two state-owned oil companies, has signed some 30 contracts for oil exploration, but officials are quick to say the oil and gas sector is still a relatively greenfield investment, particularly since the Indian demand for petroleum products is growing at an astronomical rate - the highest in the world.

But before this picture becomes too rosy for belief, there is the double-edged sword of high rig rates and slumping oil prices to trim down any ebullient enthusiasm for entering the Indian offshore play. Charter rates offshore India have more than doubled this year, making offshore exploration and production of crude oil and gas extremely expensive.

Rates for 300-ft cantilever jackup rigs, the most commonly used rigs in India, have jumped from $24,000 a day in February 1997 to $50,000 a day now. A similar rise in charter rates has been witnessed for other categories of rigs as well. This, combined with the drop in oil prices (Dubai Brent is now being quoted around $17.50 a barrel against $22 in January this year), has made oil exploration in Indian waters an extremely unattractive proposition. In the absence of a discovery, the cost of spudding a dry well is twice what it would have been a year ago. If there is a discovery, the oil will pay much less in the international market because of the slump in the crude oil market.

If a new exploration licensing policy, as announced by the Indian government in its budget for 1997-98, actually is promulgated and passed into law, it could finally make India and attractive destination for international operators, including majors, who have generally avoided Indian waters. The drop in the international prices of crude oil and the increase in rig rates nevertheless are a dampener at a time when the country needs to increase indigenous production of crude oil urgently to cut the oil pool account deficit.

And, to add further to Indian anxiety, the rise in rig chartering rates is causing many of the companies that have chartered their rigs to ONGC and are working in the Bombay High, such as Sedco-Forex and Ensco, are planning to pull them out at the end of their current contracts to deploy them where higher rates are being offered.

Oil for abstinence

Not long ago, a spectacular causeway was completed across the Gulf of Bahrain connecting Saudi Arabia and the island shaikhdom of Bahrain, which is noted in the Gulf area as a socially liberal oasis amid the conservative Arab states. It offered nightclubs and entertainment and liquor where they were unavailable if not actually against the law.

Not long after that, about a year ago, Saudi Arabia agreed to let Bahrain have all the proceeds from the Abu Saafa Field, which lies between the two countries and produces about 140,000 b/d oil. The gift of its portion of production was ostensibly to prop up the Bahraini economy, but, in reality, appears to have been a veiled bribe to persuade Bahrain to stop selling liquor and allowing nightclubs to operate within such easy access of the Saudi Kingdom. Randy young Saudis were congesting the causeway with their Mercedes and partaking frequently to excess of Bahrain's delights.

Bahrain's ruler Shaikh Khalifa refused to allow Saudi control of his shaikhdom's social life or to dictate policy, so now Riyadh is threatening to renege on its offer and take back the 40,000 b/d or so of Abu Saafa Field production (Bahrain has the larger share of 100,000 b/d), saying the Al-Khalifa family is squandering the revenues on luxuries for themselves rather than financing better social services for their people.

The outcome of this oil vs. liquor imbroglio is yet to be seen. Abu Saafa continues to pump, and so do the bartenders of Manama

Briefs. . .

Americas:

Petrobras, in need of deepwater rigs for its Campos development program, has contracted to employ two newbuild semis being commissioned from Workships/ Maritima, the Amethyst II and Amethyst III, which are to be delivered late next year. They'll be put to work on five-year contracts.

Brazil's Petrobras has logged two new discoveries - the first, 1-RJS-504, near the Espadarte Field in deepwater Campos Basin, which tested 6,300 b/d oil, with reserves of 30 million bbl, the second, 1-CES-127, in shallow water Potiguar Basin, which tested 360 b/d oil.

Europe:

Mid-Norway's deepwater discovery Kristin probably has even greater oil reserves than its neighbor, the Lavrans Field, with an estimated 650 million bbl oil equivalent. Saga Petroleum made the find to break the dry hole streak in the Asgard area.

Africa:

Côte d'Ivoire is attracting quite a number of independents to its waters. Now comes Santa Fe Energy Resources, for a PS contract for Block CI-202, lodged between the UMC operated Block CI-01 and the Bellier Field Block C-24.

Madagascar is about to award the first of several exploration concessions to Canada's Gulfstream Resources, the Antonibe Block offshore Mahajanga, a highly prospective gas play. Quite a number of other majors and independents led by Conoco are lining up to explore the island's aquatory.

Triton has been awarded a five-year PS contract by Equatorial Guinea for Blocks F and G off the mainland region of Rio Muni. Seismic is to be acquired and at least one well drilled within the first two years.

Another deepwater discovery has been made off Nigeria by Shell. Although the company is keeping mum on it at this time, it is reportedly the Ngolo Field in OPL219, which was drilled by Sedco-Forex's Sedco 709 in 800 meters water depth. Following suspension, the semi moved over to OPL212 for another deepwater drilling, the Bonga-2, in 1,860 meters of water.

Ghana has signed two E&P agreements. The first, with the Nuevo-Yukong JV for the Eastern Cape Three Points area, and the second, with the Seafield Resources-Dana Petroleum JV for the Western Tano Basin area. Nuevo Ghana will operate the first, while Dana Ghana will be the operator of the second.

Cairn has withdrawn from the Tunisian exploration blocks it held with ONGC-Videsh after taking over Command Petroleum. The blocks were abandoned after a thorough exploration found them without commercial levels of hydrocarbons.

Mideast:

The exploration half of British Gas, now called BG plc, has had its first gas discovery in the Egyptian Mediterranean aquatory on its Rosetta concession, some 70 km northeast of the Abu Qir Field. The discovery well tested 20 million cf/d.

Egypt's IEOC has had a discovery in its Timsah Block in the Nile Delta. At 82 ft water depth, the Abu Seif-1 well tested 10.2 million c/d gas.

Asia

India has awarded Cairn Energy two more exploration fields in the Arabian Sea, Blocks KG06 and CB02. The company developed the nearby Ravva Field 18 months ahead of schedule, and is now producing 35,000 b/d oil, 450,000 cm/d gas. Deepwater prospects are also being investigated.

The Carigali-Triton Operating Co. (CTOC), on the other hand, is said to have hit a huge natural gas reservoir in the northern end of its Cakerawala Field on Block A-18 of the Gulf of Thailand. Tests are ongoing, but estimates are it holds some 8 tcf gas.

Vietnam's state oil company PetroVietnam is threatening to develop the Lan Tay and Lan Do gas fields in Block 06-1, which hold reserves of 2 tcf and are capable of producing 300 MM cf/d, if it is unable to reach an accord with the BP/Statoil operators for gas sales. Development is set at $1 billion. PetroVietnam considers the $2.10/million BTU price too high.

The Australian-Indonesian Zone of Cooperation giant Bayu-Undan Field, with its reserves of more than 3.1 tcf gas and 240 million bbl condensate, is to be operated by BHP, who will develop the field with a floating LNG processing facility at a cost of more than $3 billion. BHP holds majority interest in Undan Field, while Phillips holds majority interest in Bayu. Production is expected in 2001.

New 3D seismic survey done by Australia's Geological Survey Organization, may prove up three new structures that could double Australia's reserves. The structures with a possibility of 13 billion bbl reserves, are south of Tasmania and near Lord Howe and Norfolk Islands.