Date: Mar 21, 1998 [ 0: 0: 1]

Subject: DNI-NEWS Digest - 18 Mar 1998 to 20 Mar 1998

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There are 2 messages totalling 324 lines in this issue.

Topics of the day:

1. Iran Writers Protest at Travel Curbs on Journalist
2. Oil in a Time of Glut


Date: Thu, 19 Mar 1998 20:12:26 -0500
From: Rahim Bajoghli <rbajoghli@JUNO.COM>
Subject: Iran Writers Protest at Travel Curbs on Journalist

Iran Writers Protest at Travel Curbs on Journalist


TEHRAN, March 19 (Reuters) - A group of Iranian writers urged President
Mohammad Khatami's government to allow a dissident journalist recently
released from jail to travel abroad to visit his family, a newspaper said
on Thursday.

The daily Jameah said the 50, including some of Iran's most prominent
writers and poets, called for a passport to be issued to Faraj Sarkuhi,
who was freed in January after serving a one-year term for ``spreading
propaganda'' against the government.

Sarkuhi said in recent interviews that the authorities had refused to
issue a passport to him, preventing him from travelling to Germany, where
his wife and two children live.

The letter also said Sarkuhi's freedom would not be complete unless he
was allowed to attend international cultural meetings, including events
in Stockholm and Copenhagen to which he has been invited, the newspaper

Sarkuhi's case strained relations between Iran and Germany last year
after Bonn repeatedly raised the journalist's plight with Iranian
officials following reports that he was arrested at Tehran airport as he
was about to leave for Frankfurt.

Iran announced in February 1997 that Sarkuhi had been detained in
southwestern Iran, while allegedly trying to leave the country illegally.

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Date: Sat, 21 Mar 1998 00:51:52 -0500
From: Rahim Bajoghli <rbajoghli@JUNO.COM>
Subject: Oil in a Time of Glut

The Kiplinger Washington Editors
April 1998
Oil in a Time of Glut
By Ken Sheets

Thanks to technology, U.S. oil companies can make good profits without
the help of OPEC.

Every time trouble breaks out in the Middle East, Americans fear a
reprise of the grim fuel shortages of the 1970s. Indeed, there are
parallels between the latest trouble with Iraq and the energy crisis that
began in 1973. Then, a scandal-tinged president tried to bring peace
between Arab states and Israel. The nation was dependent on foreign oil
to keep its transportation system and factories working. And oil prices
rose when a shooting war erupted in 1973, as they undoubtedly would
today. But there are big differences between then and now: There will be
no oil shortages, and any run-up in prices will be temporary. Investors
who may be tempted to buy oil-company stocks in hopes of another big
surge in corporate profits should reconsider. Oil companies are still
excellent investments, but only for the long term.

So the next time you pull your 230-horsepower, four-wheel-drive Lincoln
Navigator into the service station for a fill-up, thank your lucky stars
that experts 25 years ago were astonishingly myopic in their vision of
the future. Otherwise, you'd be paying about $5 a gallon and it would be
considered unpatriotic--if not illegal--to be driving a big gas guzzler.

In the dark months that followed the outbreak of war on October 6, 1973,
Arab countries embargoed oil exports and crude-oil prices soared. The
Organization of Petroleum Exporting Countries, a cartel dominated by
Saudi Arabia, boosted prices from $2.90 per barrel before the embargo to
$11.65 by Christmas. Prices on the spot market were even steeper; some
Iranian oil sold for $17 per barrel.

The impact of shortages and higher prices rippled through the economy and
left an indelible imprint on the national psyche. "Motorists waiting in
line an hour or two, with their engines running and their temperatures
rising, sometimes seemed to burn more gas than they were able to
purchase," wrote Daniel Yergin in The Prize, his epic history of the
petroleum industry. Airlines canceled flights. A 55-mile-per-hour speed
limit and year-round daylight savings times were imposed as energy-saving
measures. Christmas light displays were banned in many communities.
Thermostats were dialed down. Office-building lights were extinguished
and big-city skylines faded into the night.

The embargo ended in the spring of 1974. But a second oil shock jolted
the industrial world in the winter of 1978-79, when crude shipments from
Iran were halted by a revolution and the overthrow of the Shah. Chaotic
price increases resumed, hitting a high of $50 per barrel on the spot
market. Motorists again lined up outside service stations. And economists
gravely warned that the cost of this scarce resource would go to $60 or
even $100 a barrel by early in the next century. Yes, you'd pay dearly to
travel--and even heat your home.

Survival of the Biggest

Today, the predictions of 25 years ago seem quaint. Oil a scarce
resource? Hah! The industry estimates that the world's proven reserves of
petroleum have expanded 50%, to one trillion barrels. Gasoline is in
ample supply and (after discounting for inflation) cheaper now than in
1973. Americans are back to driving big cars. Oil prices are set by the
marketplace rather than by Riyadh.

The return of the free market has proved to be a mixed blessing for U.S.
oil companies, which prospered during the crisis despite government price
controls. Every time OPEC boosted prices, the industry's in-ground
reserves increased in value. That cozy arrangement came to a crashing
halt in the mid 1980s, when an oil glut developed as a result of a global
recession and strict conservation measures. The price of crude oil
plunged from $32 a barrel in November 1985 to $10 a few weeks later. Some
Persian Gulf cargoes sold for about $6 a barrel.

By the late 1980s the petroleum industry was in a deep recession.
Companies restructured, downsized, consolidated and adapted. Many,
such as Gulf Oil and Standard Oil of Ohio (John D. Rockefeller's original
company), merged into other companies. Some 450,000 geologists,
engineers, managers and oil-field workers lost their jobs and have never
been replaced. "The industry has been cut in half since 1981," says Bill
Gilmer, senior economist at the Houston branch of the Federal Reserve
Bank of Dallas.

But a leaner, more focused industry emerged. Big companies got out of
unrelated lines of business and sold small, inefficient oil and gas
fields to smaller firms (many of which were founded by the unemployed
geologists and engineers). That allowed the big boys to concentrate on
finding huge new fields in foreign countries and deep waters off the U.S.

No company exemplifies the changes that have swept through the
industry better than Exxon, the world's most profitable oil company.
After losing its shirt in the office-equipment business in the 1980s and
spending $1 billion on a hopeless venture to develop Colorado's vast
oil-shale reserves, Exxon (symbol XON, New York Stock Exchange, recent
price $62) has quietly and methodically restructured its global
operations. Some 16,000 jobs were eliminated. Headquarters moved from
high-rent Rockefeller Center, in New York City, to the Dallas suburb of
Irving. Those cost-cutting measures, along with Exxon's ability to
replace its oil and natural-gas production with new discoveries at a
price, have served shareholders well. They have reaped a 21% annualized
return (with reinvested dividends) for the past 15 years despite low
crude-oil prices during most of that period. Dividends have increased at
a 5.3% annual rate (current yield is 2.6%). Exxon reported record
earnings of $8.46 billion for 1997, or $3.37 per share. That compares
with $3.01 per share in 1996, which was its previous record for earnings.

The recent decline in oil prices, much of which occurred in the final
three months of 1997, will take a toll on earnings in the near term.
Exxon is expected to earn $3.13 per share this year and $3.02 in 1999,
according to analysts surveyed by Zacks Investment Research. Exxon
recently traded at 20 times 1998 estimated earnings--one of the highest
valuations in the industry. But Donaldson, Lufkin & Jenrette analyst John
Hervey thinks the premium is justified by Exxon's pluses: low debt burden
(14% of capitalization), strong management, a share-repurchase program
($2.6 billion in 1997) and excess cash flow--all of which provides
stability in a volatile industry.

Other big oil companies prospered mightily in 1997 but face a similar
decline in earnings in 1998 and perhaps even in 1999. Texaco (TX, NYSE,
$55) reported 1997 operating profits of $1.9 billion, or $3.52 per
share--a 14% increase from 1996. But Zacks estimates that earnings will
drift down to $3.42 per share this year and $3.24 per share in 1999.
Still, with a price-earnings ratio of 17 times 1999 earnings, Texaco is
one of the cheaper big oil companies. Hervey says that rapidly rising oil
and natural-gas production, particularly from foreign
fields--coupled with $800 million in savings from a
refining-and-marketing partnership among Texaco, Shell and Aramco (the
Saudi Arabian state oil company)--makes Texaco an excellent long-term
investment. And the stock yields 3.3% while you wait for a return to
higher crude prices.

Chevron (CHV, NYSE, $77), the company that acquired Gulf Oil, is
currently a favorite among analysts, who point out that heavy exploration
outlays in recent years are beginning to pay off in a big way. Chevron
has made some potentially huge discoveries in deep water off the coast of
Angola, which could increase the company's proven reserves by the
equivalent of a whopping four billion barrels of oil. Prudential analyst
Steven Pfeifer points out that Chevron is earning a 20% return on oil
discovered earlier in waters off Angola.

Chevron recently reported 1997 earnings of $3.31 billion, or $5.03 per
share in 1997--a 27% increase over 1996. Earnings are estimated at $4.57
per share for 1998 and $4.31 per share for 1999. Its dividend yields

Saved by Technology

Though the price of a barrel of crude was recently $16, oil companies,
both big and small, are making money. That's because the historic link
between oil-company profits and crude-oil prices--a relationship which
suggests that these companies should be on the ropes again--hardly exists
anymore. "Technology and cost control, rather than oil prices, now rule
the industry," observes Prudential Securities analyst Jeffrey Freedman.
What he means is that technology allows oil companies to operate with
fewer employees while greatly reducing the cost of finding and producing
new oil and natural-gas reserves.

Although modern computers made the job of processing vast amounts of
seismic and production data easier and faster, perhaps the most
important innovation is the use of three-dimensional seismology. Simply
put, 3-D allows geologists and other technicians to create realistic
computer images of geological structures far beneath the surface of the
earth. That enables them to pinpoint oil and gas deposits with greater
accuracy. Result: The industry's success rate at making new discoveries
has increased in the past decade from one strike for every four wells
drilled to one in two.

Another breakthrough is the increased use of horizontal drilling. From a
conventional drilling platform, a well is dug straight down to a
hydrocarbon-bearing structure. Then the well slants off horizontally and
slices through a rock formation, which is usually longer and narrower
than it is deep. Thinner pipe, made of more flexible alloys, has been
developed to make it easier and faster to drill through a formation. The
goal is to expose more oil-bearing rock to the well bore, which increases
the production from each well and drains the reservoir faster with fewer
wells. Horizontal wells drilled in North Dakota and south Texas show
daily production rates three to five times those of conventional wells.

These technologies and others have reduced the cost of finding and
producing oil and natural gas by 20% since 1986, from $5.50 per barrel to
$4.40 per barrel. Exxon pursues only huge new fields; its finding cost
per barrel is 50 cents, an 85% reduction in the past ten years. As a
result, says the Fed's Bill Gilmer, the industry can thrive at $17 per
barrel for oil and $1.70 per 1,000 cubic feet for natural gas. Until
recently, oil sold for about $20 a barrel, and natural-gas prices were
running above $2 per 1,000 cubic feet.

Improvements in deep-water-drilling technology have enabled oil
companies to search in areas formerly considered inaccessible. As
recently as 1992, oil and gas producers had written off the Gulf of
Mexico as the "Dead Sea." They believed that all the oil and natural gas
there had been found over decades of intensive exploration. Today the
Gulf is one of the world's hottest exploration areas as companies venture
into deeper and deeper water. The deepest well in the Gulf in 1987 was in
about 1,300 feet of water. Exxon made two discoveries last year in 4,800
feet of water that contain the equivalent of 300 million barrels of oil.
Shell Oil, a subsidiary of the Royal Dutch Shell Group, began producing
natural gas last July from a record depth of 5,300 feet. In 1996 Shell
drilled an exploratory well in 7,612 feet of water--also a world record.

Companies can operate at those depths by using floating platforms that
are held in place by steel cables attached to the ocean floor. Another
system, called subsea production, allows a company to install wellheads
on the ocean floor and pump the oil and gas to a platform on the surface.

The impact of these new technologies has spread worldwide. A recent study
estimated that between 1991 and 1995, new drilling techniques added 4.8
billion barrels of commercial reserves to the North Sea alone, worth from
$30 billion to $40 billion. Some 60% of the gain came from new
discoveries and 40% from earlier discoveries that had previously been
unprofitable. Likewise, technological advances have led to a 40% increase
in proven reserves in Alaska's Prudhoe Bay field since 1990.

Small is beautiful, too

Major oil companies are not the only beneficiaries of recent
technological breakthroughs. Smaller companies, such as Houston's
Santa Fe Energy Resources (SFR, NYSE, $11), operate successfully
in the deep waters of the Gulf of Mexico and other locales that were once
the exclusive province of the majors. For example, Santa Fe has drilled
several horizontal wells on the Indonesian island of Sumatra, and it is
using a development called floating-and-storage off-loading (essentially
using a floating tanker for storage and then transferring its cargo to
another tanker) in the South China Sea. "Before, we would have had to
build a pipeline to get the oil to an onshore storage facility," says Tim
Parker, division manager of international exploration. "That dramatically
changes the profitability of smaller fields." Parker says smaller
companies, like the majors, are now forced to venture abroad. "North
America is the most picked-over part of the world," he adds. "There are
simply more opportunities abroad, and a lot of them haven't been exposed
to the new technology."

Even so, Santa Fe does not compete directly with the majors. Parker says
his company concentrates on finding and developing fields containing 50
million to 100 million barrels of oil and natural gas. Fields of that
size, he adds, are the most common but are too small to satisfy the
appetites of the big companies. Santa Fe's formula for success is paying
off. The company increased its reserves by 38%, to the equivalent of
171.1 million barrels of oil in 1997. Earnings last year rose to 32 cents
per share, versus 4 cents in 1996. Ellen Hannan, an analyst at
Prudential, predicts Santa Fe will earn 50 cents per share in 1998 and 70
cents per share in 1999.

Technology has also proved a blessing for niche players such as
Denbury Resources (DNR, NYSE, $20). Denbury, headquartered in
Dallas, uses horizontal drilling and 3-D imaging to find oil and gas in
Mississippi and Louisiana, states that were thoroughly explored by the
major oil companies in the 1940s and 1950s. The majors left behind many
small deposits that are ideal for horizontal drilling. Denbury drilled
one well in Mississippi at a cost of $950,000 that has already produced
65,000 barrels of oil and paid for itself in less than ten months. It is
eventually expected to produce 430,000 barrels of oil at a per-barrel
of $2.50.

The company earned 62 cents per share in 1997, up from 50 cents in
1996. According to analysts surveyed by Zacks, Denbury should earn 80
cents per share this year. The stock trades at 25 times that 1998

Recently, historian Yergin was asked why the U.S. and other industrial
countries are so blase about the potential impact of the Iraqi crisis on
world supplies. "We now have a free market in oil and, most important, we
know that it works," he said. "In 1973 there was a mind-set that oil, as
a dwindling resource, had to be regulated by the government."

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End of DNI-NEWS Digest - 18 Mar 1998 to 20 Mar 1998