Current political and economic outlook for the mining and petroleum industry: Proceedings of the Symposium on the occasion of the 95th anniversary of the 'Mijnbouwkundige Vereeniging'

CURRENT POLITICAL AND ECONOMIC

OUTLOOK FOR THE MINING AND

PETROLEUM INDUSTRY

Proceedings of the Symposium on the occasion of

the 95th anniversary of the

'

Mijnbouwkundige Vereeniging

'

CURRENT POLITICAL AND ECONOMIC

OUTLOOK FOR THE MINING AND

PETROLEUM INDUSTRY

Bibliotheek TU Delft

C

0003814974

2413

275

9

COMMITTEE OF RECOMMENDA TION Mr. H.V. van Walsum Prof.dr. J.M. Dirken Dr. J.S. Jennings P.R.G. Kütemann Mr. H.B. van Liemt Ir. G. Ockeloen

Prof. O.G. Price 13.sc,e.Eng.

Ir. J.J. Slechte

Prof.mr .ir. J:).G. Taverne

- Mayor of Delft

- Rector Magnificus Delft University of Technology

- Group iVlanaging Director Royal Dutch Shell Group

- President-Director Dietsmann International B.V.

- Chairman of the J:)oard Dutch State Mines - Inspector General

State Supervision of Mines - Former Dean Faculty of Mining and

Petroleum Engineering Delft University of Technology - President-Director Billiton

International Metals B. V. - Professor of Mining Law and

Mining Policies Delft University of Technology ProLir. J.J. van der Vuurst de Vries- Dean Faculty of Mining and

Petroleum Engineering Delft University of Technology

ADVISOR Y COMMlTTEE

I3.Q. l3etlem

ProL ir . W.P.e. Duyvesteyn S.M. Fentener van Vlissingen Drs. P.H. van der Kleijn Drs. G.L. van Luijk Ir. P. V. Steeneken Prof.rnr.ir. tl.G. Taverne

Mobil Producing Netherlands Delft University of Technology Boetes

Delft University of Technology Royal Dutch Shell Group Billi ton Metals Interna tional Delft University of Technology

ORGANISING COMMlTTEE D.G.P. Dolhain J.W. van Hoogstraten i~.J. Ooms S.A. l<eiman President Secretary Treasurer Cornmissioner

CURRENT POLITICAL AND ECONOMIC

OUTLOOK FOR THE MINING AND

PETROLEUM INDUSTRY

Proceedings

of

the

Symposium on

the

occasion of

the 95th anniversary of the

'

Mijnbouwkundige

Vereeniging'

Delft University of Technology Delft, The Netherlands

November 3-4, 1987

Published and distributed by

:

Delft University Press Stevinweg 1

2628 CN Delft, The Netherlands Tel. (015) 783254

Symposium organised

by:

~

The 'Mijnbouwkundige Vereeniging' ~ Mij nbouwstraat 120

2628 RX Delft, The Netherlands Tel. (015) 786039

With

special thanks fo:

B.Q. Betlem

S.M. Fentener van Vlissingen Drs. P.H. van der Kleijn P.R.G. Kütemann

Prof. mr. ir. B.G. Taverne

Sponsored by:

Royal Institute of Engineers (KIVI) Chapter Mining Engineering Chapter Petroleum Technology

CIP-GEGEVENS KONINKLIJKE BIBLIOTHEEK, THE HAGUE ISBN 90-6275-382-5

Copyright © 1987 by Mijnbouwkundige Vereeniging All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without written permission of Delft University Press, Delft, The Netherlands.

-- ---~

~-CURRENT POLITICAL AND ECONOMIC

OUTLOOK FOR THE MINING AND

CURRENT POLITICAL AND ECONOMIC OUTLOOK

MlNERALS UPSTREAM Chairman: F.D. Scott (Westminster Bank, London)

The Global Distribution and Availability of Resources Dr. P.C.F. CROWSON (Rio Tinto Zinc Metals, London) Political and Economic Constraints of New Policies and Strategies on New Mining Ventures: A Banker's View J.E. lvlARTIN (AlvlRO Bank, Amsterdam) Lomé Convent ion H. MARTIN (E.E.C., Directorate General 8, Brussels)

OIL AND GAS UPSTREAM Chairman: Drs. H.K. van Dijk

(Dutch State Mines, Heerlen)

Future of North Sea Exploration Efforts, K. HELLE (StatoiJ, Sleipner Division, Stavangen) Long Term Role for Operational Contractors C. BOYELDIEU (Schlumberger, London) Legislation on Abandonment of North Sea Installations Dr. P.D. CAivlERON (International lnstitute tor Energy law, Leiden) Use and Abuse of the Scenario Approach Dr. J.L. de VRIES (Shell Planning, London)

FOR THE MINING AND PETROLEUM INDUSTRY

INVESTMENT CLIMATE

Chairmen: Prof.mr .ir. B.G. Taverne (University of Technology, Delft)

J.E. Martin (AMRO Bank, Amsterdam)

OPEC's Effort to Stabilise the Oil Price Structure His ExceJlency RiJwanu LUKMAN

(Minister of Petroleum Resources, Nigeria & President OPEC Conference) The Role of Private Investment in the Oil Industry

Ir.drs. P.W.H. HOUX

(Oranje- Nassau Groep B.V., The Hague) Government View on Promoting Investments N.H.H. DRYLAND

(NM Rothschild & Sons Ltd., London) Multilateral Investment Guaranty Agency Ibrahim F.I. SHIHATA

(The World bank, Washington)

METALS DOWNSTREAM Chairmen: Ir. P.V. Steeneken

(BiJliton Metals, The Hague)

Drs. P.H. van der Kleijn (University of Technology, Delft)

The Changing Patterns of Metal Consumption Dr. W. SIES

(tVletallgesellschaft, Frankfurt)

Processing, Substitution and Recycling Technology ProLir. W.P.c. DUYVESTEYN

(University of Technology, Delft)

The Role of the Metal Markets; The Tin Case

A.L. DANGEARD

PREFACE

To celebrate its 95 th anniversary, the Mijnbouwkundige Vereeniging -being the students association of the faculty of Mining and Petroleum Ëngineering of the Delft University of Technology- has organized a two day symposium. This compila-tion of papers serves as a permanent record of the given lectures at the symposium, entitled: "Current political and economie outlook for the Mining and Petroleum Industry". We, the editors of the proceedings for the Symposium regard this compilation as valuable to those who, in the fut ure, wiU look back and analyze their strategies of the past in order to revise or consolidate their views. For the attending technical students the symposium certainly is an additional asset to their study considering the paramount importance of economie considerations.

We believe the symposium, if not the symposiurr. papers, wiU lead to comprehension towards the political and economie aspects of the Mining and Petroleum Jndustry for all concerned.

The Editor ial Committee: T. van der Harst J. de Jong

MINERALS UPSTREAM

About the author:

Phillip Crowson is Head of RTZ's Economic Department, a post which he has held since I 98 I, having joined the Group ten years earlier as Senior Economist. Before coming to R TZ, Mr. Crowson worked as an Economist for DistilIers (196 l-1967), for BP Chemica1s (1967-1968) and for Albright and Wilson (1968-1970). During 1964- he was seconded to the nationa1 Economic Deve10pment Office (NEDO). Mr. Crowson was educated at Reed's School, Cobham, Surrey, and at Fitzwilliam Collec;e, Cambridge, where he took first class honors in Economics. He edits the Minerals handbook published biannually by ivlacmillan, and the third edition of his textbook "Economics for Managers: A ProfessionaJ's Guide" appeared in 1985. He has written many published papers and articles on aspects of the mineral industries, including contributed chapters to several books, and also lectures frequently. Mr. Crowson is the Chairman of the World Bureau of Metal Statistics, and the International Lead and Zinc Study Group's Sub Committee on New Mine and Smelter Projects. He is a member of the Euratom Supply Agency's Advisory Committee, and plays an active role in various committees in the copper and uranium industries.

Chart

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The Global Djstrjbutjon and AvailabHity of Mjneral Resources

Phjlljp CROWSON Head Economics Department

Rio Tinto Zinc Metals London

INTRODUCTION

The grandiose title of this paper is broad enough to encompass almost anything. It is, therefore, worth imposing some constraints at the outset. The paper does not look at fuel minerals or bulk construction materiaIs. Lists of the geographical distribution of the resources and production of the different minerals are readily available (in, for example, Minerals Handbook 1986-87. Edited by Phillip Crowson. Macmillan 1986). In themselves they are none too informative, except to collectors of arcane statistics. The approach of th is paper is to draw out some common themes on minerals availability over the medium to longer term from only a few major minerais, namely, iron ore, copper, bauxite, and phosphate rock.

THE ECONOMIC CONJUNCTURE

One of the mineral industry's more common failings (and it is by no means unique in th is respect) is the lack of an adequate historical perspective. It is also too often that the trends and relationships of the recent past will persist indefinitely. Markets do, however, eventually react against prolonged periods of imbalance, and always tend towards equilibrium, but with 50 many leads and lags that there is an inevitable tendency towards overshooting.

Since the 1972-73 world boom most mineral markets exhibited varying degrees of over supply. The price rises of 1979-80 temporarily postponed the need for the industry to adjust to the slower rates of growth of demand that have prevailed since the early 19705. Prices in 1979-80 were buoyed up by temporary supply disruptions of various types and by the speculative activity associated with the final stages of the Great Inflation of the 1970'5. When the speculative bubble burst, prices slumped.

The prolonged decline since 1980 partly resulted from currency movements, and in particular the 1983-85 surge of the US dollar. The main cause was, however, the persistence of excess capacity, whether imagined or real, and the ready availability of materials from stock.

When prices failed to recover with economic activity af ter the 1982 recession at a time of historically high real interest rates, mine ral producers were compelled to

Ph. Crowson CHART 2 CENTS/LB

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CASH BREAKEVEN COST

1981

1987

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CUMULATIVE PRODUCT ION MTONNES

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The Global Distribution and Availibility of Mineral Resources

reduce their effective costs or close down. All mineral commodities faced such a price/cost squeeze, but to differing degrees. The common view about the relation-ship between costs and prices was turned on its head, an inevitable consequence of over capacity. Economic necessity bred the inevitable innovations and technical changes enabling mineral producers to lower their costs by more than was thought possible, all immediately inessential spending was cancelled or postponed, extern al charges renegotiated, labour forces reduced and wages sometimes rolled back. Survival became more important than extracting all the remaining ore, 50 that many

mining plans have been recast to raise cut off grades at the expense of mine lives. The experiences of the copper industry have been typical of those of the mining industry as a whoIe.

Chart 2 shows the change in the copper industry's cumulative cash breakeven costs between 1981 when costs were at their highest, and 1987. Movements in exchange rates explain only part of the downward shift. Not all producers had the same scope or incentive to reduce costs, 50 that the pattern of relative costs has changed

within the overall decline. Only a proportion of the recent cost reductions is permanent and many will be reversed if and when priees recover significantly. In many instanees expenditure has merely been delayed, and the delay will raise the underJying level of costs. None the less, thè drop has helped restrain prices during a period when the underJying supply /demand balances for many materials have tightened. This tightening, which has long been apparent in the behaviour of stocks, is now showing through in prices.

The stock/consumption ratios of aluminium and copper, show typical trends. They have fallen substantially from their 1982-83 peaks and they are now lower than at any time during the past decade at least. Market prices are now reflecting th is underJying improvement and there has been a marked change in sentiment within the past six months.

CAPACITY

The behaviour of inventories raises the question as to why prices did not recover somewhat earJier. In part this has been because of the general perception of ample capacity. The text chart is a rough and ready means of showing the 'adequacy' of capacity for a fairly wide range of minerals in recent years. It compares estimated world production in 1984 with the US Bureau of Mines' predictions of capacity in 1985. There are innumerable assumptions, both implicit and explicit, buried in these seemingly innocuous numbers which mean that they should be treated with great caution.

In particular the estimated capacities contain an element of forecasting; given the problems faced by the mineral industries in the 19805 some of the capacity included may have been postponed.

In only four minerals did capacity utilization as defined exceed 80% and in only ten out of forty-four did it equal or exceed 75%. In many of these there were special factors at work. Gypsum, for example, is by no means the only source of calcium sulphate, and there are abundant above ground stocks of silver. Given that demand for most minerals has grown at, or rather below, the overall pace of economie

Ph. Crowson

CHART 4

WORLD 'CAPACITY UTILISATION' IN MINERALS : MlD 1980S Production in 1984 as % of estimated capacities in 1985 In most instances the percentages are based on mine output only.

Capacity Utilisation % No of Minerals

Over 80 4 75 - 80 6 70 - 75 6 65 - 70 7 60 - 65 7 55 - 60 7 50 - 55 2 45 - 50 3 Under 45 2 Total : 44

Aluminium : bauxite 56 Mercury 44

alumina 64 Mica 47

metal 63 Molybdenum 57

Antimony 59 Nickel 58

Arsenic 43 Niobium 47

Asbestos 60 Phosphate 79

Barytes 70 Platinum Group 77

Bismuth 58 Potash 76 Borates 60 Salt 73 Bromine 76 Silver 82 Cadmium 58 Strontium 86 Chromium 69 Sulphur 67 Cobalt 69 Tantalum 61 Copper 68 Thallium 68 Fluorine 65 Tin 70

Graphite 91 Titanium: Ilmenite 62

Gypsum 94 Rutile 75

Iron Ore 54 Tungsten 73

Lead 72 Vanadium 46

Lithium 5} Vermiculite 63

Magnesium 51 Zinc 75

Manganese 66 Zirconium 70

Sources Capacity from Mineral Facts & Problems 1980 Edition . USBM Circular 671.

Production from Mineral Commodity Summaries 1985. USBM.

The Global Distribution and Availibility of Mineral Resources

activity, existing capacity appeared theoretically adequate for many years, allowing an ample safety margin for strikes and other disruptions and for regular main-tenance shutdowns. To give an example, it takes five years of 5% per annum growth for capacity utilization to rise from 75% to 95%, and eight years of 3% per annum growth. Not only was capacity utililization weil below the 75% level for most mineraIs, but some limited investment has occurred, and demand has often grown more slowly than 3% per annum.

Such has been the conventional wisdom, but too much attention has been devoted to nominal capacities, and insufficient to what has been effectively available. Even where plants we re in place, they may have been forced to close. The widespread view has been that most mothballed plant could reopen relatively quickly if suffi-cient demand were forthcoming at the 'right' price. This overlooks the heavy costs inevitably involved in reopening mines which have been shut for several years. It is seldom possible merely to press a button, figuratively speaking, in order to regain maximum output. The operating mines, as already shown, have not stood still in recent years, but have lowered their costs, partly by changing their operating procedures as much as by capital spending. Mothballed plants could seldom catch up quickly.

Further more, nominal capacity is a rather tenuous concept in the mining industry, where ore grades, recovery rates, and operating rates vary widely. The next chart(5), again drawn from the copper industry but generally applicabIe, shows how effective operating rates can differ.

Note: Maximum effective throughput of ore as a percentage of nominal milling capacity (in tonnes oJ ore per day) based on 1981-85 period. The utiliza-tion rates are only for mills that we re operating during 1985. This chart merely examines mill throughput rates. It shows the highest rates achieved over the 1981-85 period for all conventional milling facilities operating in 1985. The theoretical maximum of 100% or 365 days was seldom achieved. Mexico's 82,3%, for example, was the equivalent of 300 days. Estimates of nominal capacity are usually based on maximum throughput rates. Another source of potential exag-geration is that little if any allowance is made for economic factors. Much of any excess processing capacity might be located inland near exhausted ore deposits, or away from growing markets. Even large price rises might be insufficient to bring it back into production.

There has undoubtedly been substantial excess capacity in mining in the past decade, and this has held down prices. Insufficient allowance does, however, appear to have been made for the ameliorating effects of time. In many mineraIs, including the base metals, demand is now possible close to effectively available capacity. That has interesting implications for prices and the availability of supplies if the economic upswing persists into 1989-90.

Ph. Crowson

I

CHART 5

WESTERN WORLD: UTILISATION RATES OF COPPER MILLING CAPACITY

Percentages early 1980s Papua New Guinea

Chile

United States South Africa Peru

~ESTERN WORLD AVERAGE Australia Philippines Zaire Canada Zambia Mexico Other Countries 100 98.9 97.3 96.7 93.0 89.9 89.0 88.1 84.6 83.9 82.8 82.3 77.1

Source RTZ Mine Information System

I

Chart 6: E:.rQpel3n C'Jmpl3n i es 'E:-pend ; ture

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The Global Distribution and Availibility of Mineral Resources

EXPLORA nON SPENDING

Given the mining industry's present understandable ca ut ion, bred of bitter ex-perience, new investment could be delayed. In many minerals there is no shortage of known ore deposits awaiting development, and in many instances there is a surplus. Many deposits were, however, discovered under a totally different set of input prices than now prevails. The weakness of mine ral priees in recent years has greatly discouraged exploration. The next chart(6) shows, for example, the worldwide expenditure of the European Mining Companies in real terms since 1966.

This excludes spending on oil, gas, and uranium. The latter rose to a marked peak in the early 1980s. In real terms, the companies' spending was lower in 1985 than at any time since 1970.

Lest the European experience be thought atypical, the next chart(7) shows the behaviour of exploration spending in Canada, again in real terms since the mid 1960s.

Note: Money spending in Canadian dollars deflated to real 1985 terms with the

Canadian GNE defJator. Figures cover all spending on-and-off property. The spending of the early 1980s was swollen by the uranium boom. That aside, Canadian expenditure appears to have held up much better than that of the European companies. In 1985, however, a1most 7% of Canadian exploration was for uranium, and no 1ess than 64% for precious metals, notab1y gold. Just as the uranium boom took a disproportionate amount of exploration spending in the late

1970s and early 1980s, so most attent ion is now devoted to gold. Spending on other minerals is relatively low. That is not, in itself, any cause for alarm, given the evident responsiveness of exploration to economie incentives. It should, however, puncture undue complacency about mineral supplies in the 1990s.

CASE STUDIES

The remainder of this paper builds on th is general introduction by briefly examining four different mineral commodities. This examination further emphasizes the importance of the price/cost relationship in any discussion of mineral resources and availability. Each commodity is influenced by specific technical, political,institutional and economic circumstances, but common themes are apparent. The effects of the individual producing countries' general economic competitiveness, as measured by changes in real exchange rates, on their commercial success, can be offset or reinforced by a variety of specifie factors.

-Iron ore

Against a background of a 14% drop in the Western World's production of iron ore between 1974 and 1985, there have been some significant changes in market share.

Ph. Crowson

CANADIAN EXPENDITURES ON MINERAL EXPLORATION

(All minerals except oil and gas)

750 ₇₅₀ 600 600 '" 1-.!!! Q50 0 450 c on ., '" 300 ₃₀₀ ~ 0

..

c: 150 ~ 150 i 0 1965 1970 1975 1980 1985

Sou ree Statistics Canada and Mining Association of Canada

The Global Distribution and Availibility of Mineral Resources

Chart 8: Iron ore: Share of Western World Production 1974 & 1985 (Appendix table J. Columns 1 and 2).

BraziI, India and Mexico greatly increased their output, measured in terms of iron ore content, largely through bringing on new deposits. The United States, France and Sweden saw marked drops in their shares. These changes were partly linked to the differing fortunes of steel producers across the world, with North America and Europe losing out to producers elsewhere.

Chart 9: Iron ore: Changes in Shares and Competitiveness 1974 to 1985 (Appendix table 1. Columns 5 and 6).

Most of the changes in the geographical distribution of production might be explained by shifts in national competitiveness as reflected in changes in real exchange rates.

Chart 10: Iron ore:Comparative Ore Grades 1974 and 1985 (Appendix table I. Columns 3 and 4).

These external influences have been accentuated by differences and changes in the quality of individual nation's ore deposits. The low grade of French ore helps explain why France has seen such a marked drop in market share. Sweden's arduous mining and transport conditions similarly might help explain its relative decline.

Stress has of ten been laid on the role of state owned companies in prolonging over capacity both by producing at a loss and by expanding output in periods of market weakness. Such changes as have occurred in the iron ore mark et can, however, be largely explained by more basic economic factors. The shares of many state owned producers have fallen at least as rapidly as those of other countries. Brazil's Carajas development might be regarded as an excep-tion, but it is undoubtedly attractive resource. Several African countries have fairly attractive deposits that they are anxious to develop, but they are inhibited by weak markets and lack of infrastructure. Iron ore production has become more concentrated over the past "decade. This raises a question as to the extent to which consumers can or do pay much regard to the longer term security or diversity of supply of their raw materiaIs.

- Copper

Changes in markets and in the regional distribution of downstream consumption have been much less important for copper than for iron ore. The involvement of state owned mining companies has been advanced by US mining companies as the main reason for their loss of market share and the rise of Chile. Chart 11: Copper: Shares of Western Mine Production 1974 and 1986

(Appendix 2. Columns 1 and 2).

Ph. Crowson

State owned producers in Zambia and Zaire have, however, seen falling shares,

and in Zambia's case the decline has been far more pronounced than th at of the USA. These changes in market shares have occurred against the

back-ground of a 5% rise in the Western World's total production.

Again relative movements in comparative national costs can explain most of the shift in market shares.

Chart 12: Copper: Changes in shares and competitiveness 197/t to 1986

(Appendix table 2. Columns 7 and 8).

The central African producers of Zaire and Zambia appear to be most out of

line. This partly reflects the logistic and other problems arising from African

political developments over the period. The average ore grades of both

countries are substantially higher than those of most countries, although

Zambia's average head grade has admittedly fallen.

Chart 13: Copper: Comparative average he ad grades 197/t and 1985

(Appendix table 2. Columns 3, /t, 5 and 6).

Copper, like most other base metals, is of ten mined in association with other metals, which contribute substantially to a min's economics. This is ciearly

brought out in the chart. Basic copper grades can be powerfully augmented by

credits for other metals. The general tendency has been for such credits to

rise relatively. The exceptions, such as Mexico, have normally been where large

new mines have entered production.

Grade is only one aspect of inherent competitiveness and movements in real

exchange rates only show overall trenqs. The next chart shows how mining and milling costs have moved relatively.

Chart l/t: Copper: Comparative mmmg and milling costs

(Appendix table 2. Columns 9 and 10).

This chart shows all costs/tonne mi lied in real US dollars terms expressed in

index number from with the Western World's average in 197/t taken as the

base. Zaire's anomalous position is brought out.

-Bauxite

Changes in the geographical distribution of aluminium production are almost as important in explaining market shares of bauxite producers as changes in steel

production are for iron ore.

Chart 15: Bauxite: Shares of Western World Production 197/t and 1986

(Appendix Table 3. Columns land 2).

The Global Distribution and Availibility of Mineral Resources

New mine developments in Brazil, Guinea and Australia explain their growing

shares in a total market which increased by some 7% between 1974 and 1986.

In the latter year output was weil below its 1979-80 peak.

Relative national cost movements help explain the behaviour of market share.

Chart 16: Bauxite: Changes in Shares and Competitiveness 1974 and 1986.

(Appendix Table 3. Columns land 2).

In the case of France and Greece, older established and gradually depleting

deposits could not compete with the more efficient and larger scale operations

in the tropical regions. Governmental interference appears to have damaged

Jamaican product ion in that the tax system established in the early 1970s

proved far too onerous. The Jamaican authorities greatly over-estimated what

the market would bear, with strongly adverse results. Political factors can

easily offset technical and economic influences.

- Phosphate Rock

The same message comes out from phosphate rock.

Chart 17: Phosphate Rock: Shares of Western World Product ion 1974 &

1985. (Appendix Table 4. Columns land 2).

The dominant US producers saw a modest drop in their share but in a market

whose volume rose by 32%. They have suffered from the deteriorating national

competitiviness of the USA and from increasingly onerous environmental

controls. They are competing with predominantly state-owned producers

overseas, but they have not blamed the ·Iatter for declining prices. The other

major producer, Morocco, differed from Chile in that it put its faith in

cartelisation and the New International Economic Order in the early 1970s. It

ignored the basic characteristics of most mineral markets and lost market

share in consequence. Indeed, its production, measured in terms of its P205

content actually feil, although it has ample reserves of good quality ore.

Ph. Crowson

CHART 18

SOUTH AFRICA'S SHARES OF WORLD PRODUCTION OF SELECTED MINERALS

1970 1986

Shares of Total World Production

Chrome 23.7 33.6

Manganese 12.3 15.2

Vanadium n.a. 47.1

Shares of Western World Producion

Chrome 38.6 55.7

Manganese 23.0 29.3

Vanadium 25.3 86.5

Source USBM Mineral Commodity Summaries 1971 and 1987.

The Global Distribution and Availibility of Mineral Resources

CONCLUDING COMMENTS

The case studies bring out the complexity of mineral markets, their widely differing structures, and the need to pay due regard to economie influences in any analysis of mineral supply. This latter point is amply borne out by trends in South Africa's share of world production of those minerals which it dominated.

In spite of widespread and growing concern in consuming countries about reliance on South Afriean supplies, South Afriea's share of world output has increased over the past sixteen years. Whether by accident or design, South Afriean supply has proved suffieiently low cost to drive higher cost mines out of business. This again highlights the apparently insignificant premium placed by consumers on their long term security of supply.

On a much more general note, this paper has demonstrated that the sou rees of mineral supply are anything but statie and that they respond to economie stimuli. The mining industries are emerging from their prolonged reces sion with many casualities. The battle scarred survivors are today very cautious about the duration and extent of any improvement in mineral markets. Most are avidly pursuing the gleam of gold in their search for profit, which is, af ter all, their main objective. The consuming countries may, therefore, need to pay rather more regard to the continuity and adequacy of their mineral supplies than has been necessary in the recent years of excess. Asl< not for whom the bell tolls!

Ph. Crowson

LIST OF CHARTS 1. IMF index of Metal Prices 1980 = I 00.

2. Copper Cash Breakeven Costs 1981 and 1987. 3. Stock: Consumption Ratios: Aluminium and Copper. 4. World capacity utilisation in Minerais. Mid 1980s.

5. Western World Effective copper Mdl Utilisation Rates. Mid 1980s. 6. European Companies' Expenditure on Minerals Exploration (excluding uranium). 7. Canadian Expenditures on Minerals Exploration.

8. Iron Ore: Shares of Western World Production 1974 and 1985 (Appendix Tabie' 1, columns 1 and 2).

9. Iron Ore: Changes in Shares and 'Competitiveness' 1974 to 1985 (Appendix Table I, columns 5 and 6).

10. Iron Ore: Comparitive Ore Grades 1974 and 1985 (Appendix Table 1, columns 3 and 4).

11. Copper: Shares of Western World Mine Production 1974 and 1986 (Appendix Table 2, columns 1 and 2).

12. Copper: Changes in Shares and 'Competiti vess' 1974 to 1986 (Appendix Table 2, columns 7 and 8).

13. Copper: Comparative Average Head Grades 1974 and 1985. (Appendix Table 2, columns 3, 4, 5 and 6).

14. Copper: Comparative Mining and Milling Costs (Appendix Table 2, columns 9 and 10).

15. Bauxite: Shares of Western World Production 1974 and 1986 (Appendix Table 3, columns 1 and 2).

16. Bauxite: Changes in Shares and Competitiveness 1974 to 1986 (Appendix Table 3, columns 3 and 4).

17. Phosphate Rock: Shares of Western World Production 1974 and 1985 (Appendix Table 4, columns land 2).

18. South Africa's Shares of World Production of Selected Minerals 1970 and 1986.

The Global Distribution and Availibility of Mineral Resources

APPENDIX

Data on Iron Ore, Copper, BauxÏte &: Phosphate Rock

The four tables contain the data used to i1lustrate the points made in the main text

about the four commodities. In the oral present at ion of the paper, the data are

displayed in a series of charts.

Each table is self contained, except for the following general note on real exchange

rates.

The percentage changes in real exchange rates in the tables on iron ore, copper and bauxite are derived from data in the IMF's International Financial

Statistics. Average exchange rates ot each currency against SDRs (Special

Drawing Rights) are extracted tor 1974 and 1986. The percentage change

between 1974 and 1986 is adjusted by the changes in relative inflation rates

over the same period. A national price index (usually of wholesale prices) is

compared with the IMF's index of export prices of industrial countries,

re-expressed in SDR terms). The resultant is the change in each country's real

exchange rate (i.e. national inflation index for 1986 (1974 = 100) divided by

international inflation index for 1986 (J 974 = 100) multiplied by 1974 average

exchange rate divided by 1986 average exchange rate (both expressed in

currency units per SDR).

N

(Xl

1. IRON ORE

[Charts 8, 9, and 10]

Column (1) (2) (3) (4) (5)

Shares of Western World Average grade of % change in

Production (fe content) Production market share

(percent) (% fe.) 1974 1985 1974 1985 1974-1985 Australia 17.5 18.6 63.1 60.6 + 6.3 Brazil 15.5 25.5 68.0 64.0 +64.5 United States 14.7 9.7 60.3 60.0 -34.0 Canada 8.5 7.9 63.0 61.0 - 7.1 Sweden 6.5 4.1 63.2 61.0 -37.0 India 6.3 8.8 62.0 62.0 +39.7 France 4.8 1.5 30.6 30.0 -68.7 Venezuela 4.4 3.2 59.1 64.8 -27.3 Liberia 4.3 3.3 57.8 61.0 -23.3 Mauritania 2.2 2.0 68.2 65.0 - 9.1 Chile 1.8 1.2 61.1 63.1 -33.3 Peru 1.8 1.1 65.0 66.7 -38.9 Spain 1.3 1.2 51.8 54.0 - 7.7 Mexico 1.0 2.0 66.6 62.0 +106.0

Other Countries 9.4 9.9 n.a. n.a. + 5.3

Total Western World (a) 100.0 100.0 58.5 60.1

-Source: UNCTAD Statistics on Iron Ore October 1986. IMF International Financial Statistics.

(a) Total Western World output was 14.2% lower in 1985 than in 1974.

(6) ()

_.,

o ~ VI o ::J % change in real exchange rate 1974-1986 -12 -13.9 + 6.5 -11. 4 - 9 -23.6 -16.3 +14.9 +22.0 + 8.5 -15.3 -14.2 - 6.1 -30.4 n.a.

-2. COPPER !Charts 11, 12, 13 and 141

Column (1) (2) (3) (4) (5) (6) (7) (8) (9) ( 10)

Share of Western % change % change

World Product ion Average grades of Production (b) in market in real

(cu. content) (% cu. content) share exchange Relative Mining &

per cent Base Adjusted rate milling costs (c)

1974 1986 1974 1985 1974 1985 1974-86 1974-86 1974 1985 United States 23.6 17.8 0.60 0.65 0.73 0.80 - 24.6 + 6.5 62 44 Chile 14.7 21.7 1.72 1. 51 1. 78 1. 80 + 47.6 -15.3 162 36 Canada 13.4 11. 5 0.75 0.74 1. 74 2.11 - 14.2 -11. 4 112 70 Zambia 11. 4 7.7 2.45 1.92 2.49 2.34 - 32.5 -59.1 177 62 Zaire 8.1 7.4 4.63 4.03 5.62 5.86 - 8.6 -29.2 132 135 Australia 4.1 3.7 1. 86 2.34 2.86 5.74 - 9.8 -12 206 184 Philippines 3.7 3.4 0.55 0.39 0.65 0.61 - 8.1 - 37 32 Peru 3.4 6.0 1. 35 0.96 2.34 1.77 + 76.5 -14.2 141 51

Papua New Guinea 3.0 2.7 0.70 0.42 0.93 0.69 - 10.0 -12.8 47 28 South Africa 2.9 3.2 0.46 0.41 1. 25 2.37 + 10.3 -20.6 129 78

Mexico 1.3 2.6 0.77 0.50 2.35 1. 39 +100 -30.4 137 47

Other Countries 10.5 12.3 n.a. n.a. n.a. n.a. + 17.1 n.a. n.a n.a

Total Western World (al 100 100 0.97 0.90 1. 42 1. 61 n.a. n.a. 100 56 (a)Total Western World Production rose 5.1% between 1974 and 1986.

(b) The basic data are average head grades of copper milled. The adjusted figures allow for the by/co-product content of the treated ores, by raising the basic data proportionately to the ratio bet ween total revenu es and revenues from copper.

(c) Mining & milli.ng costs/tonne of ore milled in real 1987 terms expressed as index numbers with the Western World's 1974 average

=

100.

Sources: World Bureau of Metal Statistics. RTZ Mine Information System. IMF International Financial Statistics.

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Ph. Crowson

3. BAUXITE

[Charts 15 & 16]

Column (1) (2) (3) (4)

Shares of Western % Change in % change in

World Product ion market share real exchange

(gross weight) rate

percentages 1974 1986 1974-86 1974-86 Australia 28.0 39.5 +41.1 -12 Jamaica 21.5 9.1 -57.7 -29.3 Guinea 10.6 18.7 +76.4 n.a. Surinam 9.6 4.9 -49 +61.8 Guyana 5.0 2.9 -42 +44.4 France 4.1 1.7 -58.5 -16.3 Greece 3.9 2.9 -25.6 -15.8 Brazil 1.2 8.1 +57.5 -13.9 Other Countries 16.0 12.3 -23.1 n.a.

,

Total Western World(a) 100 100 -

-I

Sources World Bureau of Metal Statistics. IMF International Financial Statistics. (a) Total Western World production was 7.3% higher in 1986 than in 1974

The Global Distribution and Availibility of Mineral Resources

4. PHOSPHATE ROCK

!Chart 17]

Column (1) (2) (3)

Shares of Western World % change in

Production (P

205 content) market share

1974 1985 1974-85 United States 49.8 46.7 - 6.2 Morocco 27.8 19.6 -29.5 Tunisia 4.2 3.9 - 7.1 Togo 3.7 2.7 - 2.7 Nauru 3.5 1.7 -51. 4 Christmas Island 2.4 1.3 -45.8 Senegal 2.3 1.8 -21.7 South Africa 1.9 2.6 +36.8 Israel 1.3 3.6 +176.9 Jorddn 0.9 6.0 +567 Brazil 0.4 4.4 +1000 Other Countries 4.6 5.7 +62.3

I

Total Western World (a) 100 100

-I

I

(a) Total Western World output rose 31.8% between 1974 and 1985.

Source : US Bureau of Mines. Minerals Yearbooks.

About the author:

Mr John E. Martin is Senior Vice President Amsterdam-Rotterdam Bank N. V. and is based in Amsterdam in the Bank's International Corporate Banking Division. He is responsible for the management of the Bank's relationships with major mining and energy companies around the world.

Mr Martin has more than 12 years experience in the financing of international mining and energy corporations specialising in financing of natural resource development projects.

He holds a Bachelor of Business Degree in Accounting and Finance fr om Q.1eensland Institute of Technology and a Master of Business Administration Degree from Macquarie University, Sydney.

He has authored a number of articles in the field of project finance.

Political and Economical Constraints of New Policies and Strategies on new Mining Ventures: A Banker's View

John E. MARTIN

Executive Vice President Amsterdam-Rotterdam Bank N.V.

SYNOPSIS

A commercial banker's perspective on the impact of political and economic con-straints on the development of new mining projects is presented. In particular , the paper examines how the recent major changes in the worJd mining industry have influenced the general current policies and strategies of governments, international mining corporations and commercial banks. These influences wiJl determine the future direction and outlook for most metal commodities.

Continuing depressed worJd market conditions, uncertainties with many aspects of host government policies in both developed countries and less developed countries, political interference or instability, greater financial uncertainties with respect to mine economics, overhangs in metal inventories or potential supply are among factors which have necessitated the formulation of new policies and strategies. Reflecting the costly lessons that were learnt during the growth periods of the 1960s and early 1970s, policy formulation, by minedevelopers and project financiers (such as commercial banks), is now more cautious and more risk averse. Policies and strategies which were previously based on continued growth and fut ure resource

shortages and which resulted in significant additions to mine productio"n tapacity, have now proven inappropriate given the changed international market conditions. Four areas of policy change are briefly examined:

ownership arrangements for new mining ventures

sources of new production (Jocation of new mining ventures)

changing patterns and funds in mineral trade and availability of finance

FinaUy, a number of trends in policies and strategies are identified which may reduce political and economic risks of new mining projects. Innovative methods of reducing project risks to project sponsors and financiers are likely to increase. Location of new mining ventures wiU likely favor only highly selected less deve-loped countries with more concentration on developed resource producing countries such as Australia and Canada. Governments in less developed countries and many developed economics need to reassess" mineral policies to place more emphasis on long term broadly based economie benefits of new mining ventures rather than short term revenue raising policies which have eventualy Iimited the economie impacts of mining activities.

About the author:

Henri Martin who is an engineer has worked with the Commission of the ï:.uropean Communities successively for the Directroate General for Research and Development and fOr the Directorate General for Development which is in charge of the im-plementation of the Lomé Convention signed between the European Community and the African, Carribean and Pacific countries. He has been involved in the financing of infrastructure and industrial projects and since 1982 he is responsible for the

cooperation in the mining sector.,

The Lomé III Convent ion

Perspei:::tives for cooperation in the mining sector

with so-called "ACP" countries (Africa, Caribbean, Pacific)

Henri MARTIN

Commission of the European Cornmunities Directorate-General Development

Brussels

The Lomé Conventions which, following the enlargement of the European Community

in 1975, took the place of the Yaoundé Conventions, link the Community over

five-year periods to an ever increasing number of developing countries in Africa, the

Caribbean and the Pacific. Thus, the third Lomé Convention covering the period

1985-1990, concerns 66 ACP countries, and in particular, all independent states of

black Africa (Angola and Mozambique being the two new African partners).

Under agIobal, contractual agreement, the Convention defines the modalities for

not only commercial, financial and technical cooperations, but also for cultural

cooperation between the Community and ACP States.

From a financial and technical point of view, this cooperation joins that already

established by the members states of the Community within the framework of their

bilateral aid programmes.

The new Lomé III Convention has set as its general target for community

coopera-ti on a more autonomous and self-sufficient development of ACP countries.

In view of the variety of problems the majority of these countries face, especially

in Africa, Lomé gives special emphasis to agricultural and rural development, aiming

for a secure food supply and striving to solve such longterm problems as the fight

against drought and desertification.

Nevertheless, the problems encountered by countries with a mining industry anxious

to ensure the profitable exploitation of their mineral resources, do not go unheeded,

and the mining sector remains an important area of ACP / EEC cooperation endowed

with specific "tools"; these have been confirmed under the new Convention while at

the same time means have been increased.

H. Martin

REASON FOR CHOOSING TH IS SECTOR

Mutual interest

- for the ACP concerned:often very important source of foreign exchange source of

employmenttransfer of technology stimulus for industrial

development.

- for the Community: heavy dependence on mineral producers diversification of

sources of supply (particulary certain strategic ores)

sizeable external market and its knock-on effect on em-ployment.

SPECIFIC NATURE OF THE SECTOR

Characteristics and situation of the sector

- Highly capital-intensive;

- Very long lead times on investments (particulary for large mines. To be qualified

for smaller mines), hence very low elasticity of supply, which partly explains the

considerable price fluctuations;

- World recession, on which are superimposed structural changes specific to the

sector: decline in specific consumption of metals, alternative materiaIs, extent of

recycling, hence decline in demand. The overcapacity installed in the sixties/early

seventies has still not been absorbed;

- Considerable increase in capital costs, current cycle of recession longer than previous ones, skimming off by governments of the "superprofits" made during

favourable periods have had the effect of lowering investment and even led to

difficulties in meeting the financial requirements for renewal.

The ACP mineral resources, particularly those in Africa, do not appear to attract

mining investors in search of deposits as much as other continents. There is a growing imbalance in the geographical breakdown of capital

expendi-ture and an equally marked imbalance with regard to expenditure on prospecting,

notably to the detriment of Africa.

There are many reasons for this state of affairs: cumbersomeness, complexity or

absence of government project study departments, lack of infrastructure, high cost of technical assistance.

With regard to the local processing of mineral commodities, the limited size of

the ACP States' nat ion al markets makes it necessary to take a regional view of

the problem.

The Lomé III Convention

Imperatives of mining development

A threefold responsibility must be taken on board by the various operators in order

to avoid serious disruptions in the operation of the commodity markets and in that

of the economics which they supply:

- explore the necessary reserves

- develop them in time in order to ensure that production is satisfactorily phased

(in order, for instance, to avoid shortages)

- produce without flooding the markets.

To these, must be added a fourth responsibility:

- Harness the mine to serve the development of the host ACP State's economy.

ACP IEEC MINING COOPERA nON

J. The aim of stepping up this mining cooperation is to help the ACP States face up

to these responsibilities and to help provide responses to these problems.

The main themes of this cooperation must be:

- to prepare for the future by bringing the ACP on to a par with other

geogra-phical areas in terms of knowledge of their mineral resources so that, when the

time comes, they are in a position to respond to international demand in the same

way as other countries.

- support for existing facilities and, if necessary, the creation of new mines,

all in line with market forces and the criteria of economic viability.

- support for conversion of these sector

- support for administrative structures,

and are reflected in operations at the level of:

- prospecting and exploring in order to overcome the " geological risk" barrier:

mineral survey, basic prospecting, remote sensing, targeted prospecting. The

last-named category may be aimed at consolidating existing facilities

(additional or higher-grade reserves) and the country's mining objectives.

- pre-investment studies in order to compiIe bankable dossiers

- a close association bet ween consultants and national departments which must be

the rule

- investment, which, for the Lomé III period, will be primarily devoted to the

reha-bilitation, maintenance, and even the rationalization or conversion of existing

facilities; in view of their social impact, the fact that they can adapt better to

market fluctuations and are less capital-intensive, support for and, if necessary,

the opening of small or medium-sized mines should be encouraged where they are

economically viabie.

H. Martin

A number of factors must be borne in mind when exammmg possible operations: - Too of ten, little value is attached to the market situation and the guaran

tees to be obtained with regard to disposing of the ores produced.

- In the case of processed products this market still applies, to which must be added the regional dimension (South-South cooperation), making it possible to enlarge the national market, which is generally too smal!.

- The growing role of governments in the mining sector, which is aimed at overall national objectives (employment, foreign exchange revenue at any cost), of ten conflicts with the interest of the industry and of sound management (maintenance of unprofitable production units, market disruptions), matters to which mining operators, both investors and managers, are particulary attentive. A fair com-promise must therefore be sought.

- The indebtedness of promoting country. Technical assistance and/or training is essential:

- in order to strengthen the ACP State's scientific and technical capabilities, with regard to both prospecting and the supervision of capital projects

- or in the legislative field (mining code), which determines the investment climate.

2. At the request of ACP countries, the Community takes part in the financing of projects, particulary those concerning the mining sector, through the agency of two institutions: the Commission of the European Communities and the European Invest-ment Bank.

In general, the third Lomé Convention has further defined and confirmed the objec-tives of ACP/EEC cooperation for the development of the mining sector of ACP States, and it continues toemploy not only the classica I means (financial and tech-nical cooperation common to all sectors and implemented according to the objectives and priorities laid down by the ACP States), but also means specifically entrusted for this purpose to the Commission and the European Investment Bank (that is to say, as regards the Commission, special financing called Sysmin, which from a tech-nical and financial point of view have been considerably extended, and as regards the European Investment Bank, the possibility of additional investments drawn from its own resources for mining projects of mutual interest).

In other words, to the traditional programmabIe financial instrument must be added: - non-programmable EIB resources

- the specific instruments constituted by Sysmin, which is non-programmable and of an uncertain nature and may operate in the event of serious exceptional difficul-ties affecting the mining sectors that are vital for the develop'ment of certain ACP countries. Sysmin operations may apply to the mining sector experiencing difficulties (rehabilitation, restructuring) or to other development projects con-nected, particulary with regard to their financing, to the mining sector and con-sequently jeopardized by the difficulties in this sector.

All these instruments may be used in isolation or as part of cofinancing operations. In all cases, a close consultation with the Member States' bilateral aid agencies is seeked.

The Lomé III Convention

3. Whilst it can be said that strong mutual interests are at the basis of cooperation

in the mining sector (it does, indeed, need to be remembered that, apart from the Community's heavy dependence with regard to the supply of mineral products, nearly one third of the ACP countries is dependent on mining), it should however be noted th at cooperation has been somewhat reoriented compared to the former Lomé II

Convention, where for the first time development of the mining sector was defined

as an objective of APC/ EEC cooperation. At that time, in fact, the vigilance of the

negotiating parties had been aroused by a certain number of signs pointing to a marked slowing down of mining activity in the ACP States: the fal! in prospecting,

the scarcity of new projects as wel! as the increasingly unbalanced geographieal

distribution of expenditure, both with regard to investment and prospecting, to the detriment of Africa where the average level of mining production for non-fuel mine-rals taken as a whoIe, is lower.

However, the economie situation has since altered. Major iluctuations in demand, the resulting lasting world crisis in the mining sector and its consequences for the

economy of ACP countries have necessitated a redefinition of ACP/EEC cooperation

with a view to helping the countries adapt to the crisis rather than developing their production. A number of countries, in fact, risk seeing their revenue from the mining sector, which often constitutes the principal and only source of the foreign

currency so vital to their economy, considerably reduced.

This redefinition first found concrete expression in the texts as an extension of the

special financing facilities made available to the mining sector (Sysmin), in order

th at a greater number of ACP countries may benefit. This was rendered possible by taking new criteria for financing applicability i"nto consideration, such as the overall

dependence odd a country on its mining sector or the supervention of major

techni-cal or economic changes affecting production profitability.

As in the past, the objective of Sysmirl, which is not a system of automatic

com-pensation for export losses, is to help ACP countries heavily dependent on their

mining sector, to face up to exceptional!y unfavourable circumstances seriously

affecting these sectors. However, Sysmin wil! no longer be solely employed to

pro-tect production and export capacity, but wil! also be able to help rationalize

pro-duction or, if the viability of the sector cannot be reestablished, help promote a

diversification of investment.

Likewise, for the ot her types of in ter vent ion th is redefinition wil! very probably

result in:

- an increase in the aid accorded to projects for the rehabilitation, modernization

or rationalization of equipment and plants, in order to raise competitiveness

- emphasis on the exploitation of minerals for industry and agriculture, with the

aim to achieve a more self-sufficient development

- promotion of small-scale mining

- strengthening of support for regional cooperation

- final!y, an increase of training activity in order to build up the scientifie,

techni-cal and administrative capacities of ACP States.

H. Martin

Although it will doubtlessly be more selective than in the past, the Community will concurrently continue to offer adequate support to research and exploration so that when the times comes, the ACP countries may effectively participate in the ex-pected world economie revival, or contribute to a bet ter diversification of the Com-munity's supply sou rees for certain kinds of strategie ore.

Nevertheless, in view of the general situation of the mineral raw materials market, it can be seen that the perspectives for cooperation between the Community and the ACP States under the present Convention lie principally in the rehabilitation of production units and in the endeavors to adapt fluctuations of the economy.

OIL A N D GAS

UPSTREAM

About the author:

Claude Boyeldieu is currently Vice President Industry Relations for Schlumberger Wireline and testing. He graduated in 1951 from the Institut Industriel du Nord in LUIe, took a degree in tvletallurgy from the Institut Superieur des Materiaux in Paris in 1953 and then attended the Institut Franç:ais du Petrole where he received an Engineering degree in drilling and production in 1955. He then joined Schlumberger holding various positions from field Engineer to district Manager in Algeria-Ger-many-Libya and Holland - He was later Sales Manager Europe and Libya - From

1971 he held the positions of Marketing Manager in South and Central America (1971-73) Europe (1977-80) and Far East (1980-82).

Long Term Role for Operational Con tractors

Claude BOYELDIEU

Vice President Industry Relations

Schlumberger Wireline and Testing

INTRODUCTION

In the last century which has seen the rise of the International Oil Industry, one

has witnessed an irreversible move in the organization of the search for and

production of, hydrocarbons. At the beginning Oil companies were involved in all

aspects of the oil activity, mainly surface geology, drilling, cementing and

produ-cing. Even some forty years ago oil companies were owning rigs and their drilling

departments were taking care also of the cementing and testing of the wells.

Nowadays, with some exceptions found in a few national oil companies and in the

Eastern Countries, all the activities related to finding and producing oi!; and gas

can be contracted outside, from the seismie to the construction of platforms and

laying pipe-lines. The Oil companies have kept for themselves, naturally, the

financing, the control and supervision of the various phases of the activity, the

analysis and the interpretation of the measurements and results provided by the

contractors and, finally, the decision making. In fact everything could be con-tracted, even the supervision and the decision making through the consuIting companies. On a drilling rig, on a platform now, service company men outnumber

the oi! company personneJ.

SERVICE COMPANIES

We find service companies in all areas of exploration, development and production

of oil and gas. Though most oi! companies still control their geological surveys

seismie campaigns are contracted out to geophysical companies, all over the world.

These contracting geophysical companies are also able to process and interpret their

own survey data. Seismic surveys, offshore, are sometimes also performed under the

sole responsibility of the seismic companies, to be sold later on to the oil company

owning the bloek. Simi!arly drilling work that follows is contracted to the many

drilling companies. Rare now are The National Oil companies owning and operating

rigs. Probably the first contractor was an independent drilling contractor , followed

by the geophysical service companies. The start of the wireline industry providing direct petrophysical measurements in the wells drilled is a result of the invention of an resistivity measurement technique by the two Schlumberger brothers. This

technique was first applied on the surface, horizontally, to detect geophysical

structures before being used vertically in the bore holes, as a formation resistivity

survey. The purpose was to detect permeable from non permeable zones, and oi!

bearing layer from water bearing ones. It is one of the examples of a technique

C. Boyeldieu

which first was not directly designed for the Oil industry and second was offered by individuals who at that time were not employees of any of the Oil companies. Over the past 50 years the service companies have developed to cover all aspects of the industry from seismie to completion and production monitoring the reservoirs. International and loc al contractors are offering geological supervision, mud logging,

cementing, wireline logging, testing, perforating. They acquire all necessary measurements which wil! permit Oil Companies to identify and evaluate hydrocarbon bearing formations, to map the reservoirs, to estimate reserves and production, and final!y to monitor the producing zones to secondary or tertiary recovery techniques. There are also service contractors which wil! .not only deliver data, petrophysical measurements but which wil! offer interpreted product package sand reports easing the final decision of the oil company management. Their involvement in the interpretation of the results, even if most of th is task is carried out by the oil companies, in particular the Majors, is essen ti al for development of new and more appropriate techniques.

LONG TERM ROLE OF THE OPERATIONAL CONTRACTORS

First the International Contractor had to provide the services of its domain where the Oil Companies have decided to go. It can be recalled that the slogan of Schlumberger was and is still:

"Wherever the dril! goes - Schlumberger goes"

In addition, the drastic evolution of the industry relying more and more on the service companies, leads to a substantial shift of responsibilities from the oil companies to the service contractors in the domain of research and engineering. Major Oil Companies participate heavily in research in most of the phases of their activity, however the technology field is 50 vast that a few techniques are left more than others to the discretion of the operational Contractors. It may be especially the case in geophysic and wireline logging.

Service companies have grown to cover all the needs of the oil industry - Their involvement in research is therefore essentiaJ. Such situation has several advantages: Lower cost expertise (no hiring - training - wider experience benefits for the oil companies in particular for the Independents and most of the OPEC National Oil Companies).

Low cost equipment (no design - manufacturing) Planning f1exibility (taster availability, faster release).

Research and Engineering costs are spread over the entire industry - Techniques and tools are tested over a wide range of conditions in the various hydrocarbon basins of the world.