www.sfgate.com Carolyn Said, Chronicle Staff Writer Thursday, February 27, 2003

With war clouds on the horizon and frigid weather gripping the Midwest and East Coast, energy prices across the nation have soared to record highs, while inventories have fallen.

Crude oil futures for April delivery hit $37.70 a barrel Wednesday, their highest level since Iraq's 1990 occupation of Kuwait.

The higher prices and tight supplies are hitting crude oil, gasoline, heating oil, diesel and natural gas.

"This is serious," said John Kingston, global director of oil for Platts, a McGraw-Hill energy information service in New York. "Everybody has been stunned by this continued cold weather; it is fricking freezing out here. We're seriously pulling on inventories at a time when we should not be pulling on them."

Jitters over a potential war with Iraq and a Venezuelan strike that constrained that country's oil exports have helped fuel a 43 percent jump in oil prices over the past three months. Iraq and Venezuela produce about 7 percent of the world oil supply.

Consumers are feeling immediate sticker shock from the increased fuel costs when they fill their gas tanks and pay their heating bills. Higher fuel costs also are likely to propel the cost of a range of energy-dependent products and services, from airline tickets to UPS deliveries.

"This will cause short-term economic difficulties, no question about it," said Ross DeVol, an economist with the Milken Institute in Santa Monica. "Consumers are running out of steam. This will take discretionary income out of consumers' pocketbooks at a time when consumers had been carrying the economy. It comes at a very problematic period."

Adrian Hines of Belmont, who drives at least 100 miles a day for his job installing DirecTV satellite TV systems, is one consumer who's already reining in discretionary spending because of the gas hikes. Hines, who pays for gas out of his own pocket, winces when it's time to fill up his 1986 Ford Ranger now that prices are around $2 a gallon.

"It's definitely going to be a drain on my profit," he said. He, his wife and their 7-year-old will try to save the money elsewhere. "We're going to have to cut back on leisure-time things, movies, dinners out, taking trips," he said.

Bay Area utility customers, the majority of whom heat their homes with natural gas, also are likely to feel some fallout from higher natural gas prices nationally.

Natural gas prices surged earlier this week to their highest level in two years before dropping slightly on Wednesday.

"We could be in shorts weather here, but if it's 35 below in Chicago, it has an impact on us," said Jason Alderman, a spokesman for PG&E in San Francisco.

PG&E BUYS IN SUMMER

PG&E cushions price fluctuations by buying natural gas in summer, when prices are low, and injecting it into huge underground storage facilities for use during the winter. But the company still buys some portion of its natural gas at market prices -- for competitive reasons, it declined to specify how much. PG&E doesn't take a markup on gas; it passes along market costs plus a transport charge.

"There's definitely an impact on our residential customers when prices go up so dramatically nationwide, but that is tempered by our shrewd buying habits," Alderman said. "We're looking at prices in New York and Chicago and Louisiana going up by 50 percent to 100 percent within the past week. Our customers will not see anything like that."

The utility is now calculating how much February gas prices will rise for customers, he said; it expects to have that figure available today.

Natural gas prices have been affected by the freezing weather in much of the country, which has increased its use for heating. Inventories are 43 percent less than last year at this time -- and there's no easy way to increase supplies because the whole country gets gas from the same existing fields in the United States and Canada.

"You're fighting with everyone else for the same commodity," said Paul Rolniak, vice president of EAI Inc., a Denver energy consulting firm.

"If there's a squeeze on supplies, there's nothing that can come to the rescue," Kingston said. "You can bring some in (from overseas) in liquefied form, but you can't ramp that up very easily. Even if you had a flotilla of it coming it, it would have a relatively small impact."

Natural gas prices also affect the cost of electricity, much of which is produced in gas-fueled plants. PG&E says "only a tiny sliver" -- less than 2 percent -- of its electricity is bought on the spot market, where wholesale prices have risen to $140 a megawatt hour. PG&E electricity rates for consumers are set by state regulators, rather than directly linked to market fluctuations.

ALASKAN PRICES

Meanwhile, crude oil prices are being dramatically affected by ongoing geopolitical uncertainty.

"Last year, crude oil was 21 bucks a barrel," Rolniak said. "Now, the Alaskan North Slope crude being delivered into California refineries is around 36 bucks a barrel."

Gasoline, heating oil and diesel are all refined from crude oil and so reflect any increases in crude prices.

On Wednesday, the Department of Energy reported declines in U.S. inventories of oil and petroleum products, further spooking energy traders.

Oil inventories fell by 1 million barrels to 271.9 million barrels for the week ended Feb. 21, the Energy Department said. That was 14 percent less than last year at this time.

On Tuesday, Energy Secretary Spencer Abraham told a Senate hearing that the Strategic Petroleum Reserve should not be used to manage price fluctuations. The 600 million barrels of oil stored in underground salt caverns on the Gulf of Mexico will be used only in case of "any severe disruptions," Abraham said.

In other words, energy analysts say, the government will tap its emergency oil reserves only for major events, such as a war with Iraq.

"If war came, and Iraq's 2 million barrels a day (were no longer available),

the Strategic Petroleum Reserve could do that, no problem," said Kingston.

In ultimate worst-case scenarios -- if the Iraqi military somehow cut off production or exports from Kuwait and even Saudi Arabi -- "that would be complete chaos," he said. "Taken to the extreme, that would take 10 to 12 million barrels a day out of 77 million barrels a day world consumption. No way in hell could you replace that."

The Bloomberg News service contributed to this report. / E-mail Carolyn Said at csaid@sfchronicle.com.

biz.yahoo.com biz.yahoo.com Thursday February 27, 6:00 am ET

HOUSTON, Feb. 27 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. (NYSE: HNR - News) today provided guidance for certain financial and operating assumptions for 2003 and 2004.

Oil production from Venezuela during 2003 is estimated at 21,000 to 23,000 barrels of oil per day (Bopd) assuming no further interruptions in production and a return to full production capability. The lower level of estimated production is the result of first quarter 2003 production curtailments and the Company's previously announced plans to defer the infill drilling program to 2004. Natural gas production and sales are expected to begin in the fourth quarter of this year resulting in projected combined 2003 oil and gas production of 22,000 to 25,000 barrels of oil equivalent per day (Boepd) compared with 26,600 barrels of oil per day in 2002. Combined oil and natural gas production is projected to increase in 2004 to between 31,000 to 36,000 Boepd.

Harvest President and Chief Executive Officer, Dr. Peter J. Hill, said, "The first quarter curtailments of production in Venezuela will reduce our 2003 annual oil production rates by 3,000 to 4,000 Bopd. This year will be a transition year for Harvest as we transform our production profile to include first production of natural gas. We plan to drill three oil wells in the West Bombal Field, which is a field that we have not previously developed. The opportunity to exploit sizeable natural gas reserves makes it more cost effective to complete future Uracoa Field oil wells just below the natural gas cap to maximize both oil and gas production in 2004 and beyond. As a result, additional drilling in the Uracoa Field will be delayed until 2004 after we begin producing natural gas."

Benton-Vinccler, C.A., our 80 percent owned Venezuelan company, has hedged a portion of its 2003 oil production by purchasing a West Texas Intermediate "put" to protect its 2003 cash flow. The put is for 10,000 Bopd for the period of March 1, 2003 through December 31, 2003. Due to the pricing structure for the Company's Venezuela oil, the put has the economic effect of hedging approximately 20,000 Bopd. The put has a strike price of $30.00 per barrel. The cost was $2.50 per barrel, or approximately $7.7 million.

Operating costs are expected to rise slightly to between $3.75 to 4.25 per barrel of oil equivalent (Boe) from $3.50 in 2002 due to increased water handling and workover expense before falling in 2004 to between $3.25 to $3.75 per Boe as production increases. As a result, net income is expected to be $4.0 million to $6.0 million and discretionary cash flow is projected to be between $30 million to $35 million.

Capital expenditures for 2003 are projected to be $45.0 to $50.0 million dollars compared with 2002 capital expenditures of $43.3 million. To partially fund the 2003 capital program, Benton-Vinccler borrowed $15.5 million in October 2002 to fund construction of the pipeline to deliver natural gas to Petroleos de Venezuela, S.A.

Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent oil and gas exploration and development company with principal operations in Venezuela and Russia. For more information visit the Company's website at www.harvestnr.com.

                            Actual 2002    2003 Guidance    2004 Guidance
Production
Oil (Bopd)                       26,600  21,000 - 23,000  23,000 - 27,000
Natural Gas (MMcfpd)                 --           5 - 10          45 - 55
Boe per day                      26,600  22,000 - 25,000  31,000 - 36,000

Price
Oil ($/Bbl)                      $13.08  $12.00 - $12.50
Natural Gas ($/Mcf)                                $1.03

Costs per Boe
Operating                         $3.50    $3.75 - $4.25    $3.25 - $3.75
G & A                             $1.70    $1.60 - $1.75    $1.50 - $1.75

Income (loss) from Geoilbent ($MM) $1.6      $1.5 - $2.5

Net income ($MM)                 $100.4      $4.0 - $6.0
Diluted earnings per share        $2.78    $0.11 - $0.17

Discretionary cash flow *         $59.3    $30.0 - $35.0

Capital Expenditures ($MM)        $43.3    $45.0 - $50.0    $30.0 - $35.0

* Discretionary cash flow is defined as cash flows from operating
  activities before changes in operating assets and liabilities.

GAAP vs Non-GAAP Reconciliation:
Net cash provided by
 operating activities             $42.6    $28.0 - $30.0
Estimated total changes in
 operating assets & liabilities   $16.7      $2.0 - $5.0
Discretionary cash flow           $59.3    $30.0 - $35.0

This press release may contain "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this release may constitute forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from the Company's expectations due to changes in operating performance, project schedules, oil and gas demands and prices, and other technical and economic factors.

Source: Harvest Natural Resources, Inc.

www.democratandchronicle.com By Todd Grady Democrat and Chronicle AIMEE K. WILES

Tom Sadler, a driver for Bisig Oil Corp., fills a city heating oil customer’s fuel tank earlier this week. The per-gallon cost of oil for Bisig customers has jumped from $1.05 in October to about $1.50.

(February 27, 2003) — Unusually cold weather and rapidly rising energy costs have combined to create monstrous heating bills for many local residents. Karina Barker of Ionia, Ontario County, said she has had to cut corners on the family budget in order to afford the propane heating bill for her home. “It’s hurting pretty badly,” Barker said. “We’ve had to completely rethink how we purchase groceries and other consumables.” The Barkers’ budget payment to heat less than 2,000 square feet of space has jumped this heating season from $93 to $241. Laron Hagan, a single parent of five, said monthly natural gas heating bills for the Rochester home he rents are nearly double what they were last year. “The bills are very high, they’re unbearable,” said Hagan, who is on injury leave from auto parts manufacturer Valeo Electrical Systems Inc. “I’ve been struggling with the amount to pay the bills.” Those whose homes are heated with oil also are feeling the pinch, as are drivers at the gasoline pump, where prices hit a local record last week. Skyrocketing energy prices are blamed on a number of factors. They include rising commodity prices for oil and natural gas, oil supply disruptions caused by a strike in Venezuela, a 28-year low in U.S. oil supplies and the growing likelihood of war in Iraq. Wednesday, the March contract price for natural gas on the New York Mercantile Exchange closed at $9.13 per million British thermal units, up $2.52 this week. The price of a barrel of oil for April delivery closed at $37.70, up $16.41 from a year ago. It’s the highest close since Oct. 16, 1990. Sen. Charles Schumer, D-N.Y., released a forecast Wednesday showing that Rochester and Finger Lakes-area residents would pay $855 more this year for gasoline and home heating oil. Schumer repeated his request that President Bush authorize release of oil from the nation’s reserve, which the administration has said it will do only to offset supply disruptions, not to bring down prices. The rising prices have many people seeking help to pay their bills. “People were managing as best they could,” said Florence Wawrzyniak, coordinator of the Red Cross/RG&E Heating Fund. “But now that we’re into the real cold weather that we’ve had in the last three to six weeks, we are seeing more individuals who probably would really never want to call us.” The fund has allocated more than 160 grants totaling more than $69,000 this heating season. “People are maxed out on these bills and the prices are continuing higher,” said Jim Bisig, co-owner of Bisig Oil Corp. in Greece. The per-gallon cost of oil for Bisig customers has jumped from $1.05 in October to about $1.50. RG&E did not release a heating forecast this season, but customers know bills are higher than last year’s. The utility delivers natural gas to about 296,000 customers. Galen Parker of Greece said he has never had a utility bill over $300 until now. Parker, an RG&E customer who heats his home with natural gas and uses a setback thermostat, called the situation “outrageous.” For some, their bills are a reminder of two years ago, when the price of natural gas soared to records because of high demand. That year, RG&E’s average residential customer, who used 745 therms of gas, paid $787.78 between November and March. Last year, the average residential customer used 604 therms and paid $536.55. It is uncertain what the final tab will be for this heating season, which ends in March. E-mail address: tgrady@DemocratandChronicle.com

reuters.com Thu February 27, 2003 05:47 AM ET By Ellie Tzortzi

VIENNA (Reuters) - OPEC said Thursday it could cover any stoppage of Iraqi oil during war without the need for consumer countries to release emergency reserves.

"Yes, we are confident we can manage the situation given the level of production in Iraq," cartel secretary-general Alvaro Silva told reporters at a news conference at OPEC headquarters.

"OPEC has been managing the case of Iraq for more than 10 years. We will try to alleviate the situation in the normal way and meet our commitment to stabilize the market."

Silva said the producer group was already pumping beyond official output limits but could not stop speculators driving oil prices higher.

Speaking as U.S. oil prices set a post-Gulf war high of $38.66 a barrel, he said: "This is not a problem of oil in the market, it is a problem of speculation."

"We put 2.8 million barrels a day more in the market in December and January and you can see the result," he said of extra OPEC output.

Industrialized consumer nations have yet to decide whether or not they will release crude from emergency stockpiles, should the United States launch an attack against Baghdad.

OPEC is hoping it has convinced the Paris-based International Energy Agency, which controls the reserves, that a repeat of its 1991 Gulf War emergency release will not be required.

OPEC says it has the capacity to fill any shortage from Iraq, as well as compensate for shortfalls from Venezuela, where a strike is in its 12th week.

Silva said OPEC had another four million barrels a day of spare supply ready to call on, easily enough to cover Baghdad's 1.7 million bpd of exports.

But with leading OPEC member Saudi Arabia already thought pumping nine million of its available 10.5 million bpd, independent experts put spare supply in the cartel at little more than two million.

OPEC meets on March 11 and is expected to leave official supply quotas unchanged.

Delegates have said it may suspend quotas altogether during the period of any war although Silva played down that possibility.

"It is not an issue of suspending quotas. The quotas have been functioning well," he said.

"But of course in the case of catastrophe that's another question. Nobody knows the result of a war."

www.pandct.com 27/02/03

BP announced today that it has agreed to transfer to Perenco its interests in two Venezuelan production assets for $160 million in a cash transaction. The interests are a 60 per cent stake in the Boqueron field in eastern Venezuela and 100 per cent in the DZO (Desarrollo Zulia Occidental) field in the west of the country. BP currently operates both fields. BP's share of production from these fields averaged 26,100 barrels of oil a day in 2002. The deal is subject to approval from PDVSA. This transaction follows a number of recent disposals that BP has made in other parts of the world, including the sale of several UK Southern North Sea gas production assets to Perenco. This deal will strengthen Perenco's overall position in Venezuela.