January 1998 Vol. 219 No. 1  Offshore

Robert E. Snyder,  Editor

The Euros are coming, other developments

A report in the October 27 Deloitte & Touche Review says that, as of Jan. 1, 1999, the Euro will be adopted as the national currency of participating member states of the European Union (EU) that meet the Maastricht Treaty's convergence criteria. Euro notes and coins will not begin circulation until Jan. 1, 2002, and will likely coexist with the country's old currency for a short period. During the three-year transition period, the Euro is expected to become the currency of business for corporations operating within the EU.

Participating countries that meet convergence criteria will be identified in April or May of 1998, when 1997 economic statistics are published. Based on preliminary information, of the 15 EU countries, seven are strongly committed and are expected to meet the criteria; these are: Austria, Belgium, France, Germany, Ireland, Luxembourg and the Netherlands.

Denmark, Sweden and the UK are not expected to be in the first group to join the monetary union. The first two negotiated derogations from the Treaty that committed member states to replace their national currency with the Euro. A decision by Sweden was not expected until late 1997. Four other countries are attempting to meet the criteria—Italy, Finland, Portugal and Spain. If this happens, their commitment "will be an important factor in political negotiations that will occur in the spring of 1998." Greece is unlikely to meet the criteria, the report notes.

When European monetary union takes place on Jan. 1, 1999, currencies of participating countries will convert at permanently fixed rates against the Euro. At that time, exchange gains and losses on monetary assets, and liabilities between participating currencies, will be realized. The treatment of these gains and losses differs among the EU countries.

Deloitte conducted a survey to assess each EU country's preparedness for monetary union. A report summarizes legal, accounting and tax requirements, and discusses questions to be resolved before the Euro can be substituted for the national currency. For more information, or a copy of Managing the Euro—A practical guide to the legal, accounting and tax implications in European Union member states, contact John Kilby at 212 436 5405; e-mail: jkilby@dttus.com.

Hibernia flows first oil. On November 17, Hibernia Management and Development Co. Ltd., the company formed by partners Petro-Canada, Mobil, Chevron, Canada Hibernia Holding Corp., Murphy and Norsk Hydro, produced oil from the first well into the gravity base structure, and the second well was expected to come on before year-end. From the GBS, crude will be transferred via subsea pipelines, a subsurface buoy and flexible loading hoses to two 850,000-bbl shuttle tankers for transport to a terminal in Placentia Bay, Newfoundland. Associated gas production will be reinjected initially.

And in the Gulf of Mexico, BP Exploration, as operator, has started production from its Troika field, located in 2,700-ft water, 90 mi offshore Louisiana. The field has a subsea template with 8-well capacity, to be developed with five wells as the base case. Two insulated 10-in., 14-mi flowlines transport production to Shell's Bullwinkle platform for processing and export. Initial production was some 6,500 boepd, which is expected to increase to 30,000 boepd as additional wells are brought on.

Marathon discovered Troika in 1994, and operated the prospect with equal partners BP and Shell. Operatorship was later transferred to BP. Recoverable reserves are in the range of 200 million bbl oil equivalent.

Sonat makes big acquisition move. As reported in the Gulf of Mexico Newsletter, Alabama-based Sonat Inc. has entered into a definitive agreement to acquire privately-held Zilkha Energy of Houston in a stock deal valued just over $1 billion. Sonat will also assume debt and other obligations, bringing the total consideration to $1.3 billion. Subject to antitrust review, Sonat shareholder approval, and other things, the deal is expected to close in first-quarter 1998.

Zilkha has extensive offshore interests, including 421 federal leases in the Gulf of Mexico, with 75% undeveloped, plus 3-D seismic data covering a significant portion of the shelf and deep water. An active player in federal lease sales, the company acquired more than 70 leases in the two 1997 sales. And it was the most active bidder in 1996's Central Gulf Sale, with high bids on 115 blocks.

Sonat holds interest in 53 producing blocks in the GOM. It is a partner in Destin Pipeline which will construct a 210-mi line to transport gas from the Eastern Gulf. Sonat said the acquisition will make it the sixth largest U.S. independent. Combining Zilkha's prospect inventory with Sonat's financial resources will allow the new company to drill the wells necessary to exploit reserve growth opportunities, Sonat notes.

Too many FPSOs? The President of the Bluewater Group, Hugo Heerema, told attendees of a recent UK conference that there is a "danger" of too many production ships being built. According to The Offshore International Newsletter, Heerema implies that contractors could be "playing into the hands of oil companies seeking cutthroat deals." The wave of new floating production, storage, offloading vessels could lead to a 30 to 40% oversupply.

Heerema says, over the next three years, some forecasts estimate demand for 11–14 FPSOs in the North Sea, but a more realistic estimate is five to eight units. And in the Far East/Australia, other forecasters say 12–18 units will be needed; a better estimate is five to eight.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company