www.quicken.com Tuesday, March 4, 2003 02:07 AM ET  Printer-friendly version (From The Wall Street Journal)

Schlumberger Ltd.'s (SLB, news) chief executive said international oil companies aren't likely to invest big dollars to pump up a postwar Iraqi oil industry in the first few years, and he predicted Iraq could only modestly increase production without developing new fields.

Andrew Gould, who last month took over as chairman and CEO of the oil-services company, based in New York, said that any postwar government in Iraq isn't likely to be "sufficiently stable" in the short term to allow the private international oil industry to invest in Iraq. Big oil companies would require " all sorts of guarantees" before investing in the first phase of a postwar Iraq, he said.

Mr. Gould, addressing analysts in New York, also laid out plans for the company to shave its debt by one-third this year through asset sales and tighter control of spending. The announcements came after the 4 p.m. close of regular trading on the New York Stock Exchange.

Iraq can increase its oil production by only 500,000 barrels a day above its peak production in the past two years of about two million barrels a day, Mr. Gould said. That increase assumes that Iraq can upgrade 90% of the country's 3, 000 wells. To take production to an even higher level will require developing new fields, which would take three to five more years, Mr. Gould said.

"The key trigger here is not the U.S. invading Iraq; it is when the United Nations embargo is lifted," he said.

Mr. Gould said Venezuela has lost 10% to 15% of its production permanently because of a lockout by workers at its state oil company. Restoring oil production there will depend on whether the government of President Hugo Chavez extends a moratorium on the firing of trained professionals from Petroleos de Venezuela, the state oil company, and whether he can lure them back to work. Mr. Chavez has fired about a third of

PdVSA's 38,000 employees since the strike began.

World crude-oil prices have risen more than a third in the past three months because of fears of a war with Iraq and because of the supply shortfall caused by the Venezuelan oil strike. Venezuela is operating at only about half of its prestrike level of three million barrels a day.

"They no longer have the technical staff inside PdVSA that can build activity back up," Mr. Gould said.

Mr. Gould said Schlumberger expects to cut its debt below $4 billion this year, from $6.03 billion, through assets sales of $1.4 billion and more capital discipline, including giving regional managers more motivation to share capital across the company.

Schlumberger has struggled amid a poor seismic-testing climate and a depressed market for information technology, and has been criticized for mediocre results from its 2001 acquisition of software firm Sema PLC for $5.2 billion. Mr. Gould acknowledged that the Sema acquisition had reduced the company's financial flexibility. He reiterated the push, announced in December, to reorganize the unit to focus on developing Schlumberger's core oil-field-service business.

Write to Alexei Barrionuevo at Alexei.Barrionuevo@wsj.com.

news.ft.com By Kevin Morrison in London Published: March 3 2003 4:00 | Last Updated: March 3 2003 4:00

Last week's spike in US oil prices to post-Gulf war peaks of almost $40 a barrel could be repeated, analysts say - but it was only partly attributable to the build-up to a potential war in Iraq.

The strains in the US oil market are underlined by a 75 per cent rise in prices over the past 12 months. Paul Horsnell, oil economist at JP Morgan, said the combination of tensions over Iraq, and domestic oil market conditions, has created a potent mix that will result in further price spikes.

"It's not only speculation that is driving the oil price. You have unseasonally high demand for heating oil, a severe winter in the north-east, the disruption in oil supplies from Venezuela and a shortage of gas that is causing some users to switch to oil at a time when inventories are at 27-year low," Mr Horsnell said.

Evidence for the view that the spike is at least partly driven by domestic issues comes from the divergence between movement in the key European oil benchmark price - IPE Brent futures for April delivery - and its counterpart in the US, the Nymex WTI for April delivery.

The Brent price lagged about $6 behind its peer when Nymex crude peaked at $39.99 last Thursday, or four times the average price difference during the past 12 months.

The cold winter means a drop of more than 30 per cent in stocks of heating oil compared with a year ago. With more bad weather forecast this week, US heating oil futures hit a record high of $1.22 a gallon on Friday - double the price it was a year ago.

The supply disruptions from Venezuela and the severe winter have contributed to commercial US crude stockpiles falling below 270m barrels, 50m barrels down on a year ago and viewed as the minimum level required to keep the distribution system working smoothly.

Pressure on the market has been further intensified by gas shortages that could push some power stations and industrial users to switch to oil.

US gas futures prices have risen to more than $8 per million British thermal units, or more than four times the average gas price during most of the 1990s.

"The last time there was a shortage of this magnitude, which was in 2001, it saw demand switch to oil. This added another 600-700,000 barrels a day to oil consumption," said Mr Horsnell.

"This may not be big in relation to the size of the market, but when supplies are tight and stocks are down, this puts further strain on the system," he said.

Mr Horsnell said the shortage in natural gas was due to falling production in both the US and Canada, and the time lag before new pilelines from the Alaskan gas fields come on stream, not expected for another two to three years.

Jay Saunders, an oil strategist with Deutsche Bank in New York, said there were further worries about the low inventories because once the winter is over, the US driving season starts, a period when Americans spend more time driving their cars and guzzle more gasoline.

biz.yahoo.com Reuters Sunday March 2, 2:42 pm ET

CARACAS, Venezuela, March 2 (Reuters) - Venezuela's crude output remained stunted over the weekend after state oil firm Petroleos de Venezuela (PDVSA) was forced to shut in 450,000 barrels per day (bpd) of production last week, dissident oil workers said.

The government, battling to restart the country's strategic oil sector amid a strike that began Dec. 2, temporarily reduced flows from eastern Venezuela by nearly 500,000 bpd on Friday due to an export slowdown.

As shipments decreased, crude stocks at lifting terminals built up and eventually caused oil to be shut at the wellhead.

Dissident PDVSA workers, thousands of whom were fired by President Hugo Chavez during the two-month strike, reported Venezuela was pumping only 1.09 million bpd over the weekend, about 40,000 bpd below Friday levels.

But Energy Minister Rafael Ramirez told state news agency Venpres on Sunday that output was 2 million bpd, flat with levels before the shutdown. But PDVSA managers admitted last week that eastern output had been reduced, although they said fields could be restarted quickly when tankers drained crude stocks.

The OPEC member nation's exports have been held to about half of the nearly 2.7 million bpd shipped before the strike in recent weeks despite government efforts. Oil sales provide 50 percent of state revenue.

Normally the world's No. 5 oil exporter, Venezuelan production has been slashed from 3.1 million bpd in November to under 150,000 bpd at its lowest point during the stoppage, which also cut domestic refinery runs.

Ramirez said an attempt was made on Friday to sabotage a natural gas pipeline feeding the giant 940,000 bpd Amuay-Cardon refinery. However, he said the Cardon plant was still producing 60,000 bpd of gasoline, and that the Amuay plant was on track to restart 140,000 bpd of gasoline production this week.

With the restoration of Amuay-Cardon gasoline units, the government hopes to once again be self-sufficient in fuel supplies by the middle of March. Due to strike-related disruptions, Venezuela has been importing gasoline to meet domestic demand of about 200,000 bpd.

By PATRICE M. JONES, Knight Ridder Newspapers March 01, 2003

CARACAS, Venezuela -- The lifeblood of Venezuela's economy, its oil industry, is slowly rebounding, analysts say, after a crippling strike disrupted exports to the United States and left Venezuela's president clinging to power. Venezuela's energy minister, Rafael Ramirez, had a rosy forecast for Washington officials last week. He described the emergence of a reorganized, leaner, better-run state oil company that is recovering well despite operating with about 40 percent fewer workers. But despite progress, many analysts say Venezuela's sick oil industry is far from full recovery. Venezuelan officials say the oil giant should be close to producing 3.1 million barrels daily -- nearly matching prestrike levels -- by the end of this month. But analysts and oil experts say those claims are too optimistic and could hide dangers both for Venezuela and its most important client, the United States. Analysts say the state oil company, Petroleos de Venezuela S.A., was severely damaged by the strike and it could be years before the company restores its worldwide reputation, if it ever does. Venezuela lost billions of dollars in oil exports during the two-month strike that fizzled in early February. The government fired 16,000 workers who took part in the stoppage, which was aimed at pressuring the government of President Hugo Chavez. With the dismissals, much of the oil company's knowledge and expertise from its senior managers, scientists, economists and technicians was lost. ''You cannot take a something that took decades to build and rebuild it in a few months,'' said Ramon Espinasa, former chief economist for the oil company and now a consultant for the Inter-American Development Bank. ''There are many reasons to believe the government's statements about the future are not very credible,'' added Michael Gavin, managing director in emerging markets research for UBS Warburg investment bank. The fallout for Venezuela if its oil industry does not fully recover could be devastating. Oil has long been Venezuela's claim to international prestige, and its most important economic engine. Venezuela's government depends on oil for half its revenue and 80 percent of the country's exports. Once the world's fifth-largest oil producer, Venezuela has long been a major supplier for the United States, accounting for about 15 percent of U.S. oil imports last year, or about 1.5 million barrels a day. ''Venezuela was by far the most reliable market for the U.S., and so the strike meant a very important change and rethinking,'' Espinasa said. Energy analysts have questioned whether other producing countries with spare production capacity, mainly Saudi Arabia, could replace both lost Venezuelan and Iraqi oil should war erupt in Iraq and Venezuela's problems are not be resolved. On Wednesday, Energy Secretary Spencer Abraham said at a Senate hearing it might be two to three months before Venezuelan imports return to normal. Adding to the uncertainty is Venezuela's continuing political instability. In the past week, Chavez has launched a crackdown on the architects of the nationwide strike that included a walkout in the oil industry as well as a strike among businesses and unions. Business chamber leader Carlos Fernandez was recently placed under house arrest and is facing up to 26 years in prison for his involvement in the strike. Seven other strike leaders, all former oil managers, also have had warrants issued for their arrest, although they are fighting to nullify the arrest order in the courts. ''Chavez is desperate to arrest anyone who opposes him,'' said Juan Fernandez, a former financial planning manager at the oil company, who is among the group of seven that could face jail time. ''To prove they have things under control and that they have the power, they will continue the arrests,'' he said. But there is also a problem in Venezuela's oil fields, where only minimal staffs are handling everything from managing computer systems to restarting inactive fields. Sand built up in some wells that were left inactive during the strike, which means now that some wells will have to be redrilled and some could simply be worthless. Experts estimate between 300,000 and 400,000 barrels a day of production could be permanently lost. On the other hand, Ramirez told Washington officials of current successes. Production has risen from nothing when Venezuela's December oil strike began to the current level of just over 2 million barrels a day. Striking workers recently pegged the level at 1.58 million barrels a day. And while Venezuela's government says it will reach prestrike production by the end of the month, many analyst forecast the company is likely to reach only about 2.3 million barrels daily by the end of the year.

www.miami.com Posted on Sat, Mar. 01, 2003 BY KEN MORITSUGU kmoritsugu@krwashington.com

WASHINGTON - While uncertainty about a war against Iraq has contributed to a sudden spike in oil prices, those prices could remain high even if a U.S. invasion achieves quick victory.

And even if crude oil prices fall, gasoline prices likely would remain high at least into late spring, analysts say. It generally takes one to two months for oil price shifts to feed through to gasoline. Any postwar declines could be offset by upward pressure on pump prices as demand picks up with the start of summer.

The nationwide average price for unleaded regular is $1.67 a gallon, according to the American Automobile Association, 54 cents higher than a year ago.

Natural-gas prices also have risen, pushing up heating and electricity costs for many homes and businesses. High energy prices slow economic growth and increase the chances of recession.

''Unless it reverses itself quickly, the energy shock is big enough to threaten the economy,'' said Richard Berner, the chief domestic economist at the Morgan Stanley investment bank in New York. He put the chance of recession at one in four in a report to clients Friday. ''While it's anyone's guess how long it will last, the fundamentals don't suggest quick relief,'' he added.

Global Insight, an economic consulting firm in Lexington, Mass., doesn't expect gasoline prices to ease from today's level until July or August at the earliest.

Most analysts attribute part of the rise in oil prices to fears about potential war-related disruptions to oil production. The analysts conclude that a swift and successful war, with minimal damage to oil wells, would eliminate this ''war premium'' from the price.

Certainly, war rumors have created short-term havoc in oil markets, pushing the price of oil on the New York Mercantile Exchange up to $37.70 a barrel on Wednesday -- the highest since the Iraqi invasion of Kuwait in 1990 -- before dropping back to close at $36.60 on Friday. A barrel is 42 gallons.

''I call it March missile madness,'' said Phil Flynn, a futures trader at Alaron Trading in Chicago. He attributed the midweek run-up in oil prices to the market's getting ``a tad ahead of itself on war concerns.''

Yet some economists argue that oil prices would be high today with or without the so-called war premium. They note several other factors, such as low inventories of crude oil, high demand for heating oil because of the cold winter, and the disruption of production in Venezuela due to political unrest.

These factors alone are enough to account for much of the 45 percent rise in oil prices from $25 a barrel since November, said Dave Costello, an economist with the federal Energy Information Administration.