BP News - 2008
News summaries from
press releases and from unaffiliated news agencies are provided below. The summaries are sorted by month and are further categorized as upstream news, downstream news, and business/finance news.
oilprimer.com makes no claim as to the authenticity of the information posted here, but provides it as a courtesy to our visitors. The information provided on this page was obtained from company-provided press releases and the New York Times and the Los Angeles Times, and is believed to be reliable, but we do not guarantee its accuracy. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any stock or option or any claim of authenticity. You are encouraged to contact the relevant corporations and news agencies for the most accurate information.
• Upstream news:
- BP Egypt announced that it has made a significant gas discovery at record depths in the Nile Delta. The Satis discovery is located in the North El Burg Offshore, Nile Delta concession, some 50 kilometres north of Damietta. The well was drilled to a Nile Delta record depth of more than 6,500 metres and is the first significant high-pressure, high-temperature, offshore Oligocene discovery. Satis is a major technical achievement that demonstrates the great potential of the deeper reservoirs within the Nile Delta and will require further appraisal.
• Downstream news:
- BP announced during a ceremony in the Great Hall of People in Beijing that it had signed a series of agreements to enhance its commitment to China. These agreements involve strategic integration and commercialisation of clean coal conversion technologies, wind power generation and world-class acetic acid production. The British Prime Minister, the Rt. Hon. Gordon Brown and the Chinese Premier Wen Jiabao, as well as officials from both British and Chinese governments, witnessed the signing.
- Masdar, Abu Dhabi’s initiative for renewable and alternative energy and clean technology, and Hydrogen Energy, the joint venture between BP Alternative Energy and Rio Tinto, announced the signing of an agreement to work together on the front-end engineering design of an industrial-scale hydrogen-fired power generation project with capture of the carbon dioxide (CO2), which would then be available for transportation and storage. The plant would be located in Abu Dhabi.
• Business/Finance news:
• Upstream news:
- BP and its partner, Marathon Petroleum West of Shetlands Ltd, announced a new oil discovery in Block 204/23, following drilling on the South-West Foinaven prospect, some 190 kilometres west of the Shetland Islands. The exploration well 204/23-2 was drilled using the Paul B Loyd Junior semi-submersible drilling rig. Located 11 kilometres south-west of the Foinaven Floating, Production, Storage & Offloading (FPSO) vessel, the well reached a total depth of 2,528 metres below sea level.
- Sociedade Nacional de Combustíveis de Angola (Sonangol EP) and BP Exploration (Angola) Limited announced the Portia oil discovery in ultra-deepwater Block 31, offshore Angola. Portia is the fifteenth discovery that BP has drilled in Block 31. The well is located approximately 7 kilometres to the north of the Titania discovery and 10.5 km south west of the Plutao field. Portia was drilled in a water depth of 2,012 metres, some 386 km northwest of Luanda and reached a total depth of 5,678 metres TVD below sea level. This is the fourth discovery in Block 31 where the exploration well has been drilled through salt to access the oil bearing sandstone reservoir beneath. The well test results confirmed the capacity of the reservoir to flow in excess of 5,000 barrels per day under production conditions.
- BP replaced its annual production by 112 per cent in 2007, taking its proved reserves of oil and gas to 17.8 billion barrels. It also added some 2.4 billion new barrels to its non-proved resource base which now stands at a further 42.1 billion barrels of oil equivalent. Assuming a $60 oil price, the strength of this position – reinforced by recent access to new opportunities in Oman, Libya and Colombia, along with heavy oil in Canada – supports production potential of around 4.3 million barrels a day by 2012, BP chief executive Tony Hayward said.
• Downstream news:
• Business/Finance news:
- The board of BP announced that Dr David Allen will retire from BP at the end of March, 2008. He will stand down as a director at the same time after five years on the board. Since 2000 Dr Allen has been group chief of staff with accountability for strategy, planning, communication, and technology.
- BP's fourth-quarter replacement cost profit was $2,972 million, compared with $3,895 million a year ago, a decrease of 24%. For the full year, replacement cost profit was $17,287 million compared with $22,253 million, down 22%. The fourth-quarter result included a net non-operating charge of $1,030 million, including pre-tax charges of $603 million for the impairment of US Convenience Retail and $338 million for restructuring, integration and rationalization costs associated with BP's Forward Agenda. This compares with a net non-operating charge of $152 million in the fourth quarter of 2006. For the full year, the net non-operating charge was $272 million compared with a net non-operating gain of $1,062 million in 2006. Net cash provided by operating activities for the quarter and year was $4.3 billion and $24.7 billion respectively compared with $5.0 billion and $28.2 billion a year ago.
- BP announced an increase of 25 per cent in its quarterly dividend, taking it to a level 31 per cent higher than a year ago. Chief Executive Tony Hayward said the rise reflected the company’s increasingly robust view of the future and greater confidence in its ability to deliver sustained dividend income to shareholders. The move also marks a shift in the balance between dividends and buybacks as a means of returning value to shareholders. BP said the repurchase of its own stock over the past eight years had shrunk its equity base by some 16 per cent, making a higher dividend more affordable. Hayward said the company would continue to buy back its shares, as appropriate.
- The board of BP announced that it has appointed Mr George David as a non-executive director of BP p.l.c. with immediate effect. Mr David is the chairman and chief executive officer of United Technologies Corporation, a company which he joined in 1975. United Technologies Corporation provides high technology products and services to the building systems and aerospace industries worldwide. He is also a non-executive director of Citigroup.
- As part of a plan to make the company more efficient, the British oil giant BP said that it would cut 5,000 jobs by the middle of next year. The company also announced a fourth-quarter profit that missed analyst estimates.
- BP, the British oil giant, announced that it would cut an additional 5,000 jobs by the middle of next year, part of a plan by the chief executive, Anthony B. Hayward, to slim management and make the company more efficient. The company also announced a fourth-quarter profit that missed analyst estimates, but said it would raise its dividend 31 percent, citing an “increasingly robust” outlook. Profit in the last three months of 2007 rose 53 percent, to $4.4 billion, from $2.88 billion, in the period a year earlier. Excluding gains or losses from holding inventories or one-time items, profit was $4 billion, which was about 10 percent less than analysts expected. Still, BP said overall oil and gas production was expected to grow this year, justifying the increase in the dividend, to 13.5 cents a share. “The rise reflected the company’s increasingly robust view of the future and greater confidence in its ability to deliver sustained dividend income to shareholders,” Mr. Hayward said. Mr. Hayward, who took over from John Browne last year, is trying to improve performance and efficiency by streamlining operations, removing management layers and cutting jobs. Some investors hope Mr. Hayward can help BP leave behind its recent past, which is marred by a fatal explosion at a Texas refinery in 2005 and leaks of crude oil from pipelines in Alaska. Part of that history lingered in BP’s fourth-quarter results, which were hurt as its refining and marketing business suffered from poor reliability in some American refineries. BP said most of the additional job cuts would be at major corporate offices, like the London headquarters. The cuts will come on top of 9,500 jobs that are moving off BP’s payroll as part of a plan announced in November to sell gasoline stations in the United States. Combined, the job cuts represent about 15 percent of BP’s work force. BP’s shares edged higher in London, but fell in New York to $63.48, down 1.4 percent. The company said that its refinery in Texas City, Tex., would increase production to almost full capacity by the middle of the year. BP is still waiting for a final ruling on an agreed $50 million settlement deal for the 2005 plant explosion, which killed 15 and injured more than 170. A federal judge on Monday gave the victims and their lawyers two weeks to file briefs arguing why the settlement was too low. Like other oil companies, BP profited from the rise of oil prices, but needed to spend more to find oil. Like BP, Royal Dutch Shell’s fourth-quarter profit missed analyst estimates as lower production and declining refining margins — the money made from turning crude oil into gasoline or other fuels — hurt earnings. But Mr. Hayward said the company made progress in bringing new oil and gas fields online. BP, which sees oil at $60 to $90 a barrel over the coming years, said it expected extraction to increase to more than 4 million barrels of oil equivalent a day in 2009 and to about 4.3 million barrels a day in 2012. BP plans to increase spending by as much as $3 billion, to $22 billion this year, to find more oil and said that access to new sources of oil and gas in Oman, Libya and Canada was expected to improve its business. In a deal in December that was a turnaround from BP’s previous strategy, Mr. Hayward agreed to form a joint venture with Husky Energy to link a BP refinery in Ohio with Husky’s Sunrise oil sands project in Alberta. Under Mr. Browne, who considered oil sands as too costly and environmentally challenging, BP was the only major oil company without holdings in oil sands, the second-largest conventional oil reserves after Saudi Arabia.
- Lawyers for the Alaska Native coastal village of Kivalina, which is being forced to relocate because of flooding caused by the changing Arctic climate, filed suit in federal court arguing that 5 oil companies, 14 electric utilities and the country’s largest coal company were responsible for the village’s woes. The suit is the latest effort to hold companies like BP America, Chevron, Peabody Energy, Duke Energy and the Southern Company responsible for the impact of global warming because they emit millions of tons of greenhouse gases, or, in the case of Peabody, mine and market carbon-laden coal that is burned by others. It accused the companies of creating a public nuisance. In an unusual move, those five companies and three other defendants — the Exxon Mobil Corporation, American Electric Power and the Conoco Phillips Company — are also accused of conspiracy. “There has been a long campaign by power, coal and oil companies to mislead the public about the science of global warming,” the suit says. The campaign, it says, contributed “to the public nuisance of global warming by convincing the public at large and the victims of global warming that the process is not man-made when in fact it is.” Kivalina, an Inupiat village of 400 people on a barrier reef between the Chukchi Sea and two rivers, is being buffeted by waves that, in colder times, were blocked by sea ice, the suit says. The estimated cost of relocating the village is up to $400 million, the suit says.
• Upstream news:
• Downstream news:
- International oil major BP and regional refiner and marketer Irving Oil have entered into a Memorandum of Understanding to work together on the next phase of engineering, design, and feasibility for the proposed Eider Rock refinery in Saint John, New Brunswick, Canada. BP will contribute US$40 million as its share of funding for this stage of the study and the two companies will also investigate the possibility of forming a joint venture to build the refinery should they decide to proceed. Irving Oil conducted initial feasibility work and informal public consultation in 2006, and has been engaged since January 2007 in permitting, public consultation, and engineering design for the proposed 300,000 barrel per day refinery. The refinery would be situated close to Irving Oil's existing 300,000 barrel per day refinery and the existing Irving Canaport deepwater crude oil terminal which receives VLCC cargoes of crude oil and is located 65 miles (105 km) from the US border. This next phase of engineering, design and feasibility work, combined with ongoing permitting and community engagement activities represents over US$100 million of investment over the next 12-15 months.
• Business/Finance news:
- In accordance with Section 203.01 of the New York Stock Exchange Listed Company Manual, BP plc announces that it filed with the Securities and Exchange Commission an Annual Report on Form 20-F that included audited financial statements for the year ended December 31, 2007.
- Russian police accused an employee of BP's joint venture in Russia of industrial espionage, saying he sold classified information to foreigners.
- BP, the oil company, increased the amount of money it has set aside to settle claims from the deadly 2005 Texas City, Tex., refinery explosion by almost a third, to $2.1 billion. BP said in December that it had depleted its claims reserve of $1.6 billion. The company used the initial money to settle more than 2,000 cases, a spokeswoman, Wendy Silcock, said. In December, BP said it still had about 1,250 claims, none involving death, after it had spent the $1.6 billion. The company, based in London, raised the set-aside by $500 million. The explosion, on March 23, 2005, killed 15 workers.
- Investigators took documents from the headquarters of BP's joint venture, TNK-BP, which has had rocky relations with the Kremlin. The Russian ministry of interior is investigating a criminal case related to Sidanko, an oil company that merged with TNK-BP when BP bought into the venture in 2003, according to Irina V. Dudukina, a spokeswoman for the ministry's investigative committee. A spokeswoman for TNK-BP declined to comment. The venture is important for BP, based in London, because it accounts for about a quarter of the company's total production worldwide.
- Russian security services have detained an employee of BP's Russian joint venture and are accusing that man and his brother of industrial espionage. The arrest of the brothers by the F.S.B., the main successor agency to the K.G.B., bodes ill for BP's work here and is likely to send chills through the ranks of Russian employees at Western companies, particularly those out of favor, as BP has been. The brothers, Ilya and Aleksandr Saslavsky, both widely known in the foreign business community, were Russians who held American citizenship. Both graduated from Oxford University and were active in alumni organizations. A day earlier, the agents raided the offices of BP and the joint venture company, TNK-BP, which BP owns together with three Russian investors. It is the only major Russian oil company that is partly foreign-controlled, although Exxon Mobil is in a production-sharing agreement on Sakhalin Island. TNK-BP was formed in 2003 with the blessings of President Vladimir V. Putin and Prime Minister Tony Blair, who attended the signing ceremony. Since then, as oil prices have skyrocketed, Mr. Putin's government has tried to reverse such deals as unfavorable to Russia. The venture, though, has been a great success for BP and accounts for about a quarter of the British company's total worldwide production. A dissolution of TNK-BP could be devastating to BP. The joint venture was already under pressure to sell a large Siberian gas field to Gazprom. It has agreed to a deal but has not closed on it. The Kremlin may also be maneuvering to buy out BP's partners in the company, analysts have suggested, though the partners say they are not selling. A TNK-BP spokeswoman declined to comment on the arrests. Ilya Saslavsky worked at TNK-BP. His brother Aleksandr had worked ''as an energy consultant in New York and Moscow,'' according to a biography he sent by e-mail to alumni of British universities while running for president of the British Alumni Association last year. It did not specify his employer. From 2000 until 2003, a man by that name worked at the Eurasia Group, a global risk assessment company, according to Alexsandra Lloyd, a spokeswoman. In its statement, carried by Russian news agencies, the F.S.B. said that the brothers ''were illegally collecting classified commercial information for a number of foreign hydrocarbon companies which wished to have advantages over their Russian rivals.'' It said the brothers were detained on March 12 while seeking classified information from a Russian source. Russian news media reported that the information was a secret addendum to a published government report on Russia's energy strategy through 2020. In its search of the headquarters of TNK-BP and the representative office of BP in Moscow, the F.S.B. seized documents. Its statement said the seized items included ''material evidence of industrial espionage.'' The service said it found ''copies of documents issued by Russian state and executive agencies, reports, analytical materials'' and ''business cards of representatives of foreign defense departments and the Central Intelligence Agency.'' Alex Turkeltaub, a managing director at the Frontier Strategy Group, an American risk consulting company, said groups within the Russian government might be seeking to acquire valuable oil assets from foreign investors in a power struggle as Mr. Putin steps down as president this spring. Mr. Putin has said he will remain as prime minister to Dmitri A. Medvedev, now a first deputy prime minister, who was elected president on March 2.
- BP’s problems in Russia continued. A Russian environmental agency announced that it would inspect a large oil field in Siberia, the Samotlor, which is controlled by BP’s joint venture, TNK-BP. The announcement came a day after Russian security authorities arrested a TNK-BP employee on charges of industrial espionage. Notice of the inspection appeared Friday morning on the Web site of the ministry of natural resources, the Rosprirodnadzor. Russian security forces raided the Arbat Street headquarters of TNK-BP, as well as the offices of BP, carting away documents and computer hard drives in what oil analysts say appears to be a campaign of mounting pressure on BP. The F.S.B., the main successor agency to the Soviet-era K.G.B., announced the arrest of an employee who had dual Russian and American citizenship, and the employee’s brother, on charges of spying for Western oil companies. TNK-BP denied that the company had engaged in industrial espionage. The joint venture is the third-largest oil company in Russia and is BP’s main business here. Its fate is crucial to BP because it accounts for about a quarter of the company’s total worldwide oil production. BP is partner in the venture with three Russian billionaires. The Russian foreign ministry issued a statement saying the spy charges were not related to a diplomatic dispute between Russia and Britain that has been simmering since the radiation poisoning of an F.S.B. defector in London in 2006. The ministry characterized the arrests as purely a law enforcement matter. In another bad sign for BP in Russia, the Parliament passed in a preliminary reading a bill restricting foreign investment in assets deemed strategic for the country’s economy or national security; most large oil fields fall into this category. A spokeswoman for the ministry of natural resources characterized the inspection as routine and noted that it would cover other fields and other companies as well. Still, in 2006, the same Russian environmental agency threatened Royal Dutch Shell with multibillion-dollar fines in a months-long campaign that led to Shell’s selling a controlling stake of its Sakhalin Island oil and gas development to Gazprom. After Gazprom bought the stake, the agency dropped its environmental complaints and work continued. The same inspector in the Shell situation, Oleg L. Mitvol, the agency’s deputy director, was appointed to lead the investigation at TNK-BP’s Samotlor field, according to the statement. As with other oil developments from Soviet days, the Samotlor field has been plagued by environmental troubles. Part of the rationale for forming TNK-BP in 2003 was the environmental protection technology that BP promised to bring to the Samotlor field, which is among the worst environmental disasters in Siberia’s oil region. Oil leaks from hundreds of holes in corroded pipes. It has pooled in large slicks in the groundwater. And the field straddles the Ob River flood plain. TNK-BP has been in a dispute with Gazprom over the terms of sale of another large Siberian petroleum resource: a natural gas field within pipeline range of the Chinese border in the Irkutsk region. BP was seen as prescient for having invested in the remote field in the early 1990s in anticipation of a boom in Chinese energy demand that materialized a decade later. In spite of the pressure on foreign investors, Russia’s booming economy is luring companies here. Just this week, PepsiCo and its main bottler agreed to pay $1.4 billion for Russia’s leading juice company, Lebedyansky, in Pepsi’s biggest acquisition since the purchase of Quaker Oats in 2001.
- BP’s regulatory troubles in Russia deepened this week as authorities idled 148 expatriate engineers and geologists in a dispute over the legality of their work permits. Last week, BP’s joint venture in Russia, TNK-BP, was confronted with charges an employee engaged in industrial espionage and the announcement of an environmental inspection at its largest oil field. TNK-BP is in a dispute with Gazprom, the Russian state gas company, over the terms of sale of a large gas field in Siberia.
• Upstream news:
- The Azerbaijan International Operating Company (AIOC), operated by BP announced the start-up of oil production from the Deep Water Gunashli (DWG) platform complex as scheduled. Start-up of the DWG complex completes the third phase of development of the Azeri-Chirag-Gunashli (ACG) field in the Azerbaijan sector of the Caspian Sea. ACG participating interests are: BP (operator - 34.1%), Chevron (10.2%), SOCAR (10%), INPEX (10%), StatoilHydro (8.6%), ExxonMobil (8%), TPAO (6.8%), Devon (5.6%), ITOCHU (3.9%), Hess (2.7%). The DWG complex is located in a water depth of 175 metres on the east side of the Gunashli field. The complex comprises two platforms - a drilling and production platform bridge linked to a water injection and gas compression platform.
• Downstream news:
- BP [NYSE: BP] and ConocoPhillips [NYSE: COP] announced they have combined resources to start Denali - The Alaska Gas Pipeline. The pipeline will move approximately four billion cubic feet of natural gas per day to markets, and will be the largest private sector construction project ever built in North America. The project combines the financial strength, arctic experience and technical resources of two of the most capable and experienced companies in the world.
- BP Solar welcomed the announcement made by Prime Minister Rudd to provide support to the north-eastern Chinese city of Weihai in its effort to become the largest solar city in the world. Australia's market leader, BP Solar, was responsible for taking the Solar Cities concept to China, and will be part of a team managing the project's feasibility study.
- BP announced that it intends to take a 50 per cent stake in Tropical BioEnergia SA, a joint venture established by Brazilian companies Santelisa Vale and Maeda Group, which is constructing a 435 million liter (115 million gallons) a year ethanol refinery in Edéia, Goias State, Brazil. The joint venture, in which Santelisa Vale and Maeda Group would each hold 25 per cent, also intends to progress plans to build a second ethanol refinery, investing a total of approximately R$1.66 billion (US$1 billion) in the two refineries.
- Two of the world’s biggest oil companies, BP and ConocoPhillips, joined forces to try to break a longstanding deadlock over Alaska’s vast reserves of natural gas. They said they would spend billions to build a pipeline from the North Slope to feed energy-hungry markets in the United States and Canada. The proposal won praise from Alaska’s governor, Sarah Palin. “It’s a good day,” she told reporters in Alaska. The announcement comes at a time when consumption of natural gas in the United States is increasing and conventional production is declining. Natural gas is cleaner than other power sources, like coal, and analysts say it is becoming increasingly critical to the nation’s energy needs. BP and Conoco will initially spend $600 million in the next three years to drum up support for the project, seek state and federal approval, and secure gas supplies for the pipeline. BP and Conoco said the project would be the largest-ever private sector construction project in North America. The project, which would include a $5 billion gas-processing facility on the North Slope, would cost about $30 billion and take at least 10 years to complete. At a time when both energy prices and construction costs are soaring, the endeavor would dwarf the 800 mile trans-Alaska oil pipeline, a momentous project completed in 1977 and that brought jobs and revenue to Alaska. As oil production from the Prudhoe Bay field declines, Alaskans are hoping that natural gas will take over from oil. An Alaska gas pipeline has long been sought as a critical component of the nation’s energy security. The planned pipeline would have a daily capacity of 4 billion cubic feet of natural gas, or almost 7 percent of current United States consumption. But the companies will have to overcome some huge hurdles, said Christopher Ruppel, an energy analyst at Execution, a brokerage and research firm. The companies will need to secure more than 1,000 permits from local, state and federal authorities in both the United States and Canada, a process that will most likely take years. They need to negotiate with native tribes along the pipeline’s route to secure the right of way. If the oil pipeline is any guide, the gas line will also require vast engineering feats. But with higher prices, and a growing appetite for natural gas, the economics of such a large project are starting to make sense for oil companies. The companies said the initial plan is to build a 2,000-mile pipeline from Alaska’s North Slope to the Canadian province of Alberta; that would add to the total North American gas supply, freeing some Canadian gas for export to the United States. Eventually, the pipeline might be extended 1,500 miles, to Chicago. The plan to build a natural gas pipeline to export the state’s vast gas resources has been tangled in Alaskan politics for years. Today, Alaska’s estimated 35 trillion feet of gas reserves are either re-injected into oil fields or left dormant because of a lack of export facilities to bring them to consumers. When Governor Palin took office in late 2006, she interrupted pipeline negotiations that her predecessor, Frank H. Murkowski, had been pursuing with the North Slope oil operators, BP, Conoco and Exxon Mobil. She started from scratch after criticizing the previous talks as not being competitive enough, and sought to bring in new operators in order to secure better terms for Alaska. Her administration is evaluating a proposal made by a Canadian pipeline operator, TransCanada. But the oil companies complained about the delays and said the governor’s procedure was unrealistic. Eschewing $500 million in potential subsidies from the state, BP and ConocoPhillips declared that the economics of natural gas have reached the point that they can finance the pipeline on their own. James L. Bowles, the president of Conoco Alaska, said that while the companies would seek no state subsidies, they will try to meet requirements outlined by Alaskan authorities, like offering local delivery points on the pipeline to meet the state’s natural gas requirements. Ms. Palin welcomed BP’s and Conoco’s proposal, while stopping short of formally endorsing it. She told reporters that she would meet with executives from the companies to find out more about the joint project. Still, she added, “it sounds great for the state of Alaska.” The plan came as a surprise to Exxon, which said it had been invited to participate only a few days ago. The company will now “evaluate all options,” according to Margaret Ross, an Exxon spokeswoman. BP and Conoco said they would welcome Exxon’s participation. Many analysts have voiced concerns that natural gas prices would keep rising as domestic demand grows and Canada’s exports fall because of increased consumption there. Without a natural gas pipeline, the United States will increasingly depend on imports of natural gas in liquefied form, a source that is costly and potentially vulnerable to political instability in the Middle East, Africa and Latin America. Greater demand is already pushing prices higher, and adding to pressure to open deeper waters off the country’s coast for exploration. Amy Myers Jaffe, an energy analyst at Rice University, said a gas pipeline was badly needed, in addition to the liquefied natural gas projects under consideration. “In the long term it’s not going to mean we are not going to need L.N.G., but we would need a lot more L.N.G. if Alaska does not happen,” she said. Natural gas consumption rose by 6.2 percent in 2007, to 23 trillion cubic feet, from 21.7 trillion cubic feet in 2006, according to the Energy Information Administration. Natural gas prices, which averaged $2 a thousand cubic feet in the 1990s, have soared in the last decade. It recently traded at $9.74 a thousand cubic feet on the New York Mercantile Exchange.
• Business/Finance news:
- First quarter results announced.
- Higher oil and natural gas prices helped Royal Dutch Shell and BP report record first-quarter profits, beating analysts’ expectations and prompting share gains across the industry. The results of the oil companies, which are Europe’s two biggest, more than offset declining refining margins as crude oil nears $120 a barrel. A move by investors to commodities as an alternative to the shrinking dollar, combined with a spate of supply disruptions, helped push crude futures in the United States to a record $119.93. Shell’s net income in the first three months of the year rose 25 percent, to $9.08 billion. BP reported that its profit increased 63 percent, to $7.62 billion. In trading here on Tuesday, shares of Shell and BP rose more than in at least two years, leading other oil companies, like ConocoPhillips and Exxon Mobil, higher. Ms. Tiscareno and other analysts warned that while a rising oil price might benefit Shell and its rivals now, it would at some point start to hurt demand for gasoline. Despite recent disruptions at BP, oil and natural gas production was unchanged at 3.9 million barrels of oil equivalent a day, while output at Shell remained unchanged at 3.5 million barrels of oil equivalent a day. BP closed a pipeline system on Sunday after a strike at a refinery in Scotland cut supplies, and reopened it, the same day the strike ended. Some investors are particularly worried about supplies from Nigeria, which produces the higher-quality crude needed in the summer in the United States, when demand is at its peak. Shell said that attacks in Nigeria had halted production of 164,000 barrels of oil-equivalent a day. To improve earnings, Anthony B. Hayward, who succeeded John Browne as chief executive of BP last year, is focusing on restoring production capacity and finding new projects. BP began oil production at the Deep Water Gunashli field in the Azerbaijan section of the Caspian Sea this month. It expects its Thunder Horse production platform in the Gulf of Mexico, which cost more than $1 billion to build, to start production this year after a three-year delay. Oil companies are under pressure to find new reserves as their traditional fields age and they competition from state-run oil companies in Russia and the Middle East. Other oil companies that profited from higher prices included ConocoPhillips, whose first-quarter profit rose 17 percent to $4.14 billion. Exxon Mobil is set to report its figures on Thursday, followed the next day by Chevron.
• Upstream news:
- BP and its co-venturers, ENI UK Ltd and Petro Summit Investment UK Ltd, announced an oil discovery in North Sea Block 16/23s, some 230 kilometres north-east of Aberdeen to be named Kinnoull. BP and co-venturers are now evaluating the Kinnoull discovery and potential development options, including a subsea development tied back to BP’s Andrew field which is located around 25 kilometres to the south.
- BP Egypt, on behalf of its joint venture partners in the Gulf of Suez Petroleum Company (GUPCO), announced that oil production from the Saqqara field has started. The Saqqara field is located 12.5 kilometres offshore in the central Gulf of Suez. First oil was achieved on 15th May and following commissioning, the field has now ramped up to more than 30,000 barrels a day. Gas production is expected shortly.
• Downstream news:
• Business/Finance news:
- It seems quaint to think of it now, but it was only three years ago that lawmakers in Washington were debating whether to impose a windfall profits tax on the oil industry for all oil sold above $40 a barrel. Proponents of the tax argued that U.S. consumers simply couldn’t tolerate the gobs of profit oil companies were making as pump prices hovered around $2.60 for a gallon of regular unleaded. Oil was trading near $116 a barrel, gas was averaging $3.60 a gallon nationwide and $3.89 in California, and oil companies were making even bigger gobs of profit. Exxon Mobil, the world’s largest oil company, reported quarterly profit of $10.9 billion last week, up 17% from a year before. It was the second-most-lucrative quarter in the company’s history, after the record $11.7 billion pocketed in the previous three months. Chevron reported profit of $5.2 billion, up almost 10% from a year earlier. Europe’s Royal Dutch Shell said its quarterly profit jumped 25% to a record $9.1 billion, while BP said its profit soared 63% to a record $7.6 billion. Earlier, ConocoPhillips said its profit rose 17% to $4.1 billion, and Westwood-based Occidental Petroleum said its profit climbed 50% to a record $1.8 billion. So what about that windfall profits tax? The measure was vigorously opposed by the oil industry and voted down by the Senate in late 2005. But the situation that so vexed lawmakers remains. So does drivers’ anger toward the oil industry, which is seen as gleefully padding its pockets at the expense of cash-strapped consumers. I stopped by a Pasadena gas station where a gallon of regular unleaded was going for about $4.04 the other day. Every driver I spoke with said the oil companies were gouging people at the pump and that their profit levels were outrageous. “They’re killing us,” said Altadena resident Andrew McAllister, 48, as he filled his 1989 Honda Accord. “I can’t afford to drive, and I make a decent living.” Like others I spoke with, McAllister said he favored a windfall profits tax. “If they’re making record profits again and again, they need to give some of it back,” he said. Do they? I too got caught up in the outrage during an appearance last week on the cable channel CNBC, where I’d been asked to comment on what the oil companies should do with all that money. My proposal: Some sort of levy – call it a windfall profits tax, call it something else – that would raise billions of dollars annually for public transportation projects so that drivers would have viable alternatives to using their cars. This prompted a gusher of e-mail from CNBC viewers asking why I was seeking to punish oil companies for doing what companies are supposed to do – make money and enrich shareholders. It was a fair question. I took up the matter with Philip Verleger, an economist who, as an official in the Carter administration, was one of the architects of a windfall profits tax imposed on the oil industry in 1980. The eight-year levy on domestic production was intended to provide a sense of economic fairness to consumers as politicians lifted price controls imposed in 1971. It basically taxed all profits above a base price linked to the cost of oil in 1979, with annual adjustments for inflation. “Unless we tax the oil companies, they will reap huge and undeserved windfall profits,” President Carter declared at the time. Verleger said the windfall profits tax he helped devise had a clear purpose – to compensate for the lifting of price controls. He isn’t sure as clear a rationale exists today. “How would you measure the windfall?” Verleger asked. “If you can’t measure it, you can’t tax it.” The trick is setting the base price. Just three years ago, a windfall was seen as anything surpassing $40 a barrel for oil. Now we’re at almost three times that level, and Verleger said he believes oil will be at $200 a barrel by the end of the year. So where do fair (albeit high) profits end and windfalls begin? The oil industry already pays billions of dollars a year in taxes, but it also receives billions in government subsidies. The exact amount of tax breaks is difficult to calculate because of the variety and complexity of programs involved, but Greenpeace estimates the figure could be as high as $35 billion. Meanwhile, the perception remains among many drivers that the industry is taking advantage of people because, well, it can. “There’s nothing you can do,” La Cañada Flintridge resident Vanessa McEwen, 39, wearily declared as she filled her 2000 Jeep Cherokee in Pasadena and prepared to chauffeur her kids to an after-school activity. After thinking about it a bit, I suppose I have to grudgingly acknowledge that a windfall profits tax isn’t the solution. Like many people, I find the oil companies’ profits obscene. But they don’t control the market, and, yes, they’re in business to make money for shareholders. But that doesn’t mean they’re totally off the hook. Subsidies? Sayonara. The last thing these guys need are tax breaks. Lawmakers should immediately terminate all government programs that give the oil industry unfair (and unnecessary) advantages. And like Spider-Man says, with great power comes great responsibility. The oil companies should be required to devote a specific amount of their annual profit to public transportation and alternative energy projects. Call that a tax if you like. I see it as a recognition of the companies’ enormous potential to have a positive effect on society, rather than just being first-class riders on the economic gravy train. How much should they give? I don’t know. But I do know that the oil industry reaped more than $155 billion in profit last year, according to the Congressional Research Service. Exxon Mobil alone accounted for a quarter of the take. Something tells me these firms would somehow scrape by with a few billion less. At the Pasadena gas station, 34-year-old Darcy Fraser, who works as an assistant vice president at a well-known bank, said that with fuel, food, housing and healthcare costs all rising, the oil companies have a responsibility to give something back. “They should use some of their money to help out people who are suffering at the pump,” she said. “They should give us a little relief.” You know an industry is getting too fat when even a banker criticizes its profit level.
- With Big Oil pumping out immense profits, you’d think cash would be available to fund renewable-energy programs. It is, and there's plenty of it, yet the majors' outsize earnings may be leading them back to the oil patch instead. In February, BP said it would regard its impressive solar and wind operations strictly for their equity value and might spin them off. So much for Beyond Petroleum. More recently, Royal Dutch Shell withdrew from a landmark wind project in Britain and in 2006 sold the lion’s share of its solar interests to a German firm. Exxon Mobil Corp., the giant among giants, remains outspoken in its belief in the enduring primacy of oil -- an issue that activist shareholders challenged at the company's annual meeting today in Dallas. Energy alternatives have gotten a bit more traction at Chevron Corp. and ConocoPhillips, but they still take a far back seat to other priorities at those premier fossil fuel marketers. Big Oil commands the expertise, and certainly the resources, to play a transformative role in tackling the planet's energy dilemma. That, however, would entail a measure of self-transformation. At least in the short term, these profit machines have little incentive to bear the costs of a new mission or foster a culture of change. Contrast their stance with that of U.S. carmakers. General Motors Corp., for one, is scrambling for survival by investing in hybrids, fuel cells and other technologies that limit oil use and carbon emissions. "The auto industry has been disciplined by the marketplace," said Deron Lovaas, a transportation expert with the Natural Resources Defense Council. "Their profit margins are gone. The marketplace is not providing the discipline for the oil companies to help get us where we, and they, need to go." Instead, the majors are going to Canada’s Alberta province to squeeze oil out of tar sands. These lands contain potentially 175 billion recoverable barrels, but don't expect to see gushers. The oil is embedded in sand, clay and silt, and its extraction requires great flows of water and natural gas. In the process, a heavy load of CO2 is released, much more than in conventional oil operations. Costs are steep in the tar sands. The added overhead is justified only by the startling price the resource now fetches. Why are the majors going to such trouble? As the cliché says, the low-hanging fruit already has been picked. Access to the world’s rich fields is dwindling for the Western oil powers. Stagnant global output is fanning supply fears –- is "peak oil" approaching? -– and state-controlled companies overseas have a lock on the majority of the remaining assets. Consider that in the most recent quarter, maturing wells and confiscation in Venezuela factored into a 10% decline in production at Exxon Mobil. For investors, that was an oil shock of a different kind. "Many people in the industry I speak to off the record admit to being quite terrified about where future supply is coming from," said Andrew Logan, oil program director at CERES, which works with investors toward environmental goals. "They don’t know what to do, so they are investing in these secondary sources. They see where the future is going, but their business is so good currently that they fear the market response if they diversify." Indeed, Big Oil is finely attuned to rewarding shareholders by throwing off cash. Stock buybacks outstrip spending to find oil and gas, to say nothing of the industry’s minuscule investment in clean and renewable fuels. Exxon, for example, racked up almost $405 billion in revenue last year, taking home $40.6 billion in profit. About $21 billion was channeled into capital costs, including exploration. By contrast, the company laid out $31.8 billion to take its own shares out of circulation. And then there's the ever-rising dividend. Even after the buybacks, Exxon has $41.4 billion in cash sitting on its balance sheet. Exxon's direction is under fire from some activist investors. At the annual meeting ballots will be taken on a series of resolutions mandating sustainable-energy projects, along with a proposal to separate the roles of chief executive and chairman. The California Public Employees' Retirement System, the biggest public pension pool in the U.S., is an avid backer of the campaign, which CERES helped organize. Large swaths of the Rockefeller clan –- descendants of Exxon's founder, John D. -- are keen to see the company's top jobs divided. A smaller but still sizable contingent favors the green intitiatives. (Post-meeting update: The ballot measures failed. Go here for the results.) These investors say the firm's own sustainability is at risk, not just energy resources. To keep the rich returns coming, they argue, Exxon can't ignore the need to adapt to a low-carbon future, with momentum shifting to renewables. Better, why not lead the way? It's a future that's still blurry, but it promises to change the equation for Big Oil. As the majors tear up the tar sands and delve into even more experimental sources like the shale along the Continental Divide, each unit of energy becomes more costly to extract. Regulation is likely to pile on additional burdens. Lawmakers are expected to attach a price to carbon emissions in the coming years and potentially raise standards for clean-burning fuels. Investors aren't being warned because no one can put their finger on the charges. Analysts on Wall Street "don't know how to capture these potential costs yet," said Philip Weiss of Argus Research. If and when the numbers change, he said, oil company shareholders may be in for a rude surprise. Weiss applauds the majors' dive into the tar sands but also believes they need to direct some of their vast resources into alternatives. He favors the venture capital model rather than in-house projects -- he’s not sure these old hands are built to go about the task effectively themselves. "Oil is a depleting resource, and if I’m a shareholder, that's something I care about," Weiss said. "If the company does nothing to replace it, eventually that company is going to go away."
• Upstream news:
- The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand. This has put issues such as energy security and alternative energies at the forefront of the political agenda worldwide," said Tony Hayward, BP's chief executive at the launch of the 2008 BP Statistical Review of World Energy. The Review shows that the world's fossil fuel resource base remains sufficient to support growing levels of production but the continued weakness in oil supply and increasing demand outside the OECD also highlight the challenges that industry faces in maintaining secure energy supplies.
• Downstream news:
• Business/Finance news:
- Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power. Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat. The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations. The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production. There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry. Sensitive to the appearance that they were profiting from the war and already under pressure because of record high oil prices, senior officials of two of the companies, speaking only on the condition that they not be identified, said they were helping Iraq rebuild its decrepit oil industry. For an industry being frozen out of new ventures in the world’s dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity. While enriched by $140 per barrel oil, the oil majors are also struggling to replace their reserves as ever more of the world’s oil patch becomes off limits. Governments in countries like Bolivia and Venezuela are nationalizing their oil industries or seeking a larger share of the record profits for their national budgets. Russia and Kazakhstan have forced the major companies to renegotiate contracts. The Iraqi government’s stated goal in inviting back the major companies is to increase oil production by half a million barrels per day by attracting modern technology and expertise to oil fields now desperately short of both. The revenue would be used for reconstruction, although the Iraqi government has had trouble spending the oil revenues it now has, in part because of bureaucratic inefficiency. For the American government, increasing output in Iraq, as elsewhere, serves the foreign policy goal of increasing oil production globally to alleviate the exceptionally tight supply that is a cause of soaring prices. The Iraqi Oil Ministry, through a spokesman, said the no-bid contracts were a stop-gap measure to bring modern skills into the fields while the oil law was pending in Parliament. It said the companies had been chosen because they had been advising the ministry without charge for two years before being awarded the contracts, and because these companies had the needed technology. A Shell spokeswoman hinted at the kind of work the companies might be engaged in. “We can confirm that we have submitted a conceptual proposal to the Iraqi authorities to minimize current and future gas flaring in the south through gas gathering and utilization,” said the spokeswoman, Marnie Funk. “The contents of the proposal are confidential.” While small, the deals hold great promise for the companies. “The bigger prize everybody is waiting for is development of the giant new fields,” Leila Benali, an authority on Middle East oil at Cambridge Energy Research Associates, said in a telephone interview from the firm’s Paris office. The current contracts, she said, are a “foothold” in Iraq for companies striving for these longer-term deals.
• Upstream news:
- Chesapeake Energy Corporation (NYSE:CHK) and BP America Inc. (NYSE:BP) announced that BP has agreed to acquire all of Chesapeake’s interests in approximately 90,000 net acres of leasehold and producing natural gas properties in the Arkoma Basin Woodford Shale play for $1.75 billion in cash. The properties, which are located in Atoka, Coal, Hughes and Pittsburg counties, Oklahoma are currently producing approximately 50 million cubic feet of natural gas equivalent per day. The companies anticipate closing the transaction on August 8, 2008.
- BP Egypt, on behalf of its joint venture partner, Gulf of Suez Petroleum Company (GUPCO), announced that gas production from the Taurt field started at the beginning of July. The Taurt field is located in Ras El Bar concession, 70 kilometres offshore in the northeast of Port Said, East Nile Delta. The parties to Ras El Bar Offshore Concession agreement are BP Egypt (operator 50%) and IEOC, the affiliate of ENI in Egypt (50%).
- Sociedade Nacional de Combustíveis de Angola - Sonangol E.P., has authorised BP and its co-venturers to develop a series of deepwater oil discoveries in offshore Angola's Block 31. The Block 31 developments programme is based on a standardised development concept, which is intended to reduce cycle time, optimize capital and maximise operating efficiency through standardised design, fabrication and commissioning. The first project in the programme will comprise the Plutão, Saturno, Vênus and Marte (PSVM) fields which lie in the north east sector of Block 31, in a water depth of approximately 2000m, some 400 kilometres north west of Luanda. Construction work is expected to start during 2008 with first oil planned in 2011 and building to a plateau of about 150,000 barrels per day by 2012. The operator (BP) and its co-venturers have announced fifteen discoveries in Block 31 to date. Full development will comprise multiple hubs similar to the first development (PSVM). The second development will be in the SE area of Block 31 and is in the planning phase.
- British energy giant BP has started drilling the world’s longest wells to a hard-to-reach offshore reservoir in the Beaufort Sea, the company said. Buried beneath thousands of feet of rock on the outer continental shelf, the Liberty project has required major refinements in drilling technology, including well bores that pierce up to eight miles of shales and silt stone, BP executives said. Liberty may portend a future of tougher oil extraction in Alaska, where production from Prudhoe Bay, America’s largest oil field, and its satellite reservoirs has been falling for two decades. “All the easy development is done,” BP Alaska president Doug Suttles said. “Cutting-edge technology is going to define the future of the industry in Arctic oil field engineering and development,” he said. The reservoir, six miles off Alaska’s northern coast, is expected to yield about 100 million barrels of oil starting in 2011, BP executives say. The $1.5 billion in development costs will include a specialized Arctic drilling rig and several spider-like well bores centered on a man-made concrete island. Despite the opening of many small fields, such as Liberty, the amount of oil flowing through the trans-Alaska pipeline has fallen from a high of more than 2 million barrels a day in 1988 to 740,000 barrels a day last year, according to Alyeska Pipeline Service Co.
• Downstream news:
- BP Alternative Energy announced that it has acquired the Whiting Clean Energy facility, a 525 megawatt (MW) natural-gas fired combined-cycle cogeneration power plant located in Whiting, Indiana, USA. The plant was acquired for $210 million from NiSource Inc., a Fortune 500 company engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. The Whiting Clean Energy facility provides an efficient and consistent source of steam for BP's Whiting refinery. The acquisition also offers BP the opportunity to sell lower-carbon power into the local power market.
- Progress on the BP Whiting Refinery modernization project will accelerate during the last half of 2008 with the award of key contracts, the ordering of long lead time items and a major overhaul of a low pressure hydrotreater during a scheduled turnaround later in 2008. When complete in 2011, the project will increase Whiting gasoline production by 1.7 million gallons a day and equip the refinery to process increased amounts of secure Canadian crude oil.
• Business/Finance news:
- BP is the latest Tier One Partner of the London 2012 Olympic and Paralympic Games. As the official Oil and Gas Partner and London 2012’s third Sustainability Partner, BP will be responsible for providing fuelling facilities for the vehicles required to keep the Games moving. In addition, BP will provide Liquefied Petroleum Gas (LPG) for catering, vehicle washing facilities and technical support services, including a system for tracking and reporting carbon emissions.
- BP expressed its displeasure that public statements are being made by officials at the Federal Migration Service (FMS) suggesting that TNK-BP CEO Robert Dudley’s visa may not be renewed. Mr Dudley has a legally valid employment contract and a work permit in place. His positions as CEO of TNK-BP and Chairman of the Management Board of TNK-BP Management remain in force.
- BP welcomes the temporary extension of TNK-BP Chief Executive Bob Dudley’s current work visa, following a constructive meeting at the Federal Migration Service. Leading Russian law firm Egorov, Puginsky, Afanasiev & Partners, which BP has retained to advise on matters related to the current TNK-BP shareholder dispute, including the associated issues impacting the TNK-BP joint venture, has issued an opinion which fully supports the view that Mr. Dudley’s employment contract is valid, and that he is therefore entitled by law to receive a new work visa. It confirms that under Russian law fixed-term employment contracts automatically become open-ended upon expiry of the original terms, unless there is a specific order to terminate. Since there has been no specific decision by Mr Dudley’s employer to terminate his contract, and he continues to perform his duties, his employment contract remains valid.
- BP announced that it was withdrawing 60 remaining technical specialists, formerly assigned to TNK-BP, from Russia. All 148 technical experts, who have been instrumental in making TNK-BP one of Russia's best performing companies, have now been withdrawn to be redeployed in BP's businesses globally. The decision to redeploy the staff is a business decision - there is a global shortage of skilled people in the industry and BP has numerous other ventures, for example, in Azerbaijan, the Middle East and the Gulf of Mexico, where their skills are needed and valued. The staff have been unable to provide their services to TNK-BP since work visa complications prevented them from doing so in March. Once this problem had been dealt with they were prevented from returning to their duties by security staff in TNK-BP and subsequently by a court injunction. Even though the Omsk court recently lifted an injunction brought by a company called Tetlis, the litigation in the Tyumen court continues and has made little progress with no indication that this or other attempts to interfere with BP's ability to deliver technical support will be resolved in the immediate future.
- Robert Dudley, Chief Executive Officer of TNK-BP, announced that he is to leave Russia temporarily. BP is deeply disappointed that Mr Dudley has reached the conclusion that the interests of TNK-BP would be best served if he performed his duties outside Russia. Mr Dudley has the full backing of BP in its role as 50 per cent shareholder in the company. BP said it sympathized with Mr Dudley's view that the continuing harrassment orchestrated by the Alfa, Access and Renova (AAR) shareholders is preventing him from fulfilling his duties as CEO of TNK-BP and Chairman of its Management Board in Russia. Mr Dudley will continue as CEO outside Russia and has all requisite powers to do so. Since TNK-BP was formed in August 2003 it has been the most successful Russian oil company on most measures used by investors. In that time it has recorded the highest organic production growth, the highest organic reserves replacement, the lowest cost of adding new reserves, the highest capital efficiency and the highest return on capital employed. The company has generated more than $70 billion in tax revenues and duties for the Russian government and has paid out more than $20 billion to its shareholders in dividends.
- Second quarter 2008 results released.
- In another sign of Russia’s souring relationship with Western oil companies, foreign staff members of BP’s joint venture in Russia, including the chief executive, will be required to leave the country later this month, some of them permanently, because their work permits were not renewed. BP is struggling to maintain control over the lucrative venture, TNK-BP. TNK-BP accounts for about a quarter of BP’s global oil output but is unraveling under pressure from its Russian partners and the Russian government. In a statement, BP cautioned that the management turmoil might harm operations and perhaps oil output. Still, it was unclear how seriously this latest regulatory assault on TNK-BP could shake the company, or what would happen to it during a pause of perhaps weeks while foreign executives are outside Russia’s borders. The departure of top BP officials from the venture would leave operations in the hands of the Russian partners, who have been struggling for greater control. BP’s partners, a consortium of Russian billionaires, issued a statement welcoming reductions in the foreign work force and saying the venture should move toward greater reliance on Russian engineers and managers. The consortium denied, however, that the work permit troubles were a ploy to gain control. The TKN-BP chief executive, Robert Dudley, and about 50 others will depart temporarily while work permits are processed, BP said. Another 50 foreign employees will be barred from returning after their current visas expire because Russian authorities reduced the quota for foreign workers at the joint venture. TNK-BP has asked for a review of these decisions, a company spokeswoman said. BP owns 50 percent of the venture, with the remainder held by four Russian billionaires. It is the only major oil company in Russia partly controlled by foreigners. TNK-BP has been extremely profitable, reporting annual revenue for 2007 of $24.9 billion and net profit of $5.7 billion. TNK-BP was formed in August 2003 from the assets of TNK, Onako, Sidanco and most of BP’s Russian assets. At the time, the Russian government was taking a less nationalistic stance to its petroleum industry. BP has since come under pressure from both the state and its private sector partners to reduce its equity stake to a minority position. In examples of pressure faced by TNK-BP this year, the FSB, the successor agency to the KGB, arrested a Russian national employee and accused him of industrial espionage. FSB agents have raided the company’s headquarters, and environmental authorities questioned operations at a large Siberian field. And labor officials reduced the foreign staff once this year by banning 148 foreign employees of BP from working at the TNK-BP venture, saying their work permits were for BP only. The Russian partners also are suing in a Siberian court to declare the BP-controlled board of an important subsidiary illegitimate. If successful, this suit would restrict BP’s ability to manage about 80 percent of TNK-BP’s pumping and refining assets, which belong to this subsidiary. The work permit woes date to this spring. In May, one of the Russian equity partners, German Khan, who is also a deputy director, submitted a request to the Moscow City Employment Service for work permits for foreign employees. His request was far below the actual number of foreigners working at the company. A month later, Mr. Dudley, the chief executive, submitted a longer list and said Mr. Khan was not authorized to sign the paperwork on the previous request, according to Andrey S. Grinberg, a spokesman for the Moscow City Employment Service. Mr. Grinberg said Mr. Khan’s request arrived first and was never formally withdrawn, and for those reasons it was processed in place of the request from the chief executive. “It’s all clear from our side,” he said. He said employees would be required to leave the country as their visas expired; the company had traditionally renewed visas in July.
- The British energy giant BP moved closer to losing control of its joint venture in Russia after the operation’s chief executive was forced to leave the country because he could not get a work visa. The development is the latest twist in a rising nationalism that is shutting Western oil companies out of energy-rich regions and has wide implications for BP, which pumps about a quarter of its worldwide oil output in Russia. While BP retains ownership of 50 percent of the TNK-BP venture, the departure of the executive, Robert Dudley, an American, will probably lead to the passing of greater operational control to the Russian partners. The TNK-BP venture in Russia’s western Siberian oil basin had accounted for nearly all of BP’s reserve growth in recent years, as supplies from Alaska and the North Sea dwindled. In a statement issued after European markets closed, Mr. Dudley said he would not resign and would run the company from outside Russia, though the Russian shareholders said that would probably not work. Mr. Dudley called his departure “temporary,” but it was unclear when he might return, or how he would manage the company, which has more than 60,000 employees and nearly 100 subsidiaries, from outside the country. About 50 expatriate staff members remain at TNK-BP, though not all have received work visas. BP executives criticized their Russian partners and the Russian government. The British company’s chief executive, Anthony B. Hayward, and chairman, Peter Sutherland, condemned what amounted to Mr. Dudley’s expulsion from Russia, calling it a low point in BP’s 100-year history of working in “every corner of the globe.” BP withdrew from Russia all of its geologists and engineers involved in the TNK-BP venture. Mr. Sutherland, in a statement, said BP was fighting a corporate takeover by its Russian partners that appeared to be backed by the Russian authorities. The government, however, maintains that it is a private shareholder dispute. Mr. Hayward suggested that BP would turn to international arbitration to recover losses from the Russian partners, a consortium of billionaires known as AAR. They include Viktor Vekselberg, Mikhail Fridman, German Khan and Leonid Blavatnik. Mr. Blavatnik is of Russian descent but lives in New York and is an American citizen. The Russian partners have called for Mr. Dudley’s ouster, citing poor performance — which BP disputes. The Russian shareholders also say his employment contract expired last year. Russia is the world’s second largest oil exporting nation, after Saudi Arabia. Since oil prices started to spiral upward in 2003, the Russian authorities have orchestrated the sale of assets or the renegotiation of deals between foreign oil giants and several Russian companies. The implications for BP’s future oil supply from Russia were unclear. Many industry analysts predict that a company controlled by the Russian government, like Gazprom or Rosneft, will eventually assume control of the joint venture, while BP may remain as a minority partner. Mr. Dudley, for the first time, directly accused the Russian authorities of involvement in the dispute. “The company and I have faced unprecedented investigations, proceedings, inquiries and other burdens,” he said.
- In another sign of its deepening troubles in Russia, the British oil giant BP has reassigned engineers working at its TNK-BP joint venture to projects outside of Russia. Most had already left, after police raids, labor inspections and visa complications. But the formal announcement represented another low for BP. The company is fending off a corporate raid by its Russian partners that is backed by Russian regulatory authorities; part of the strategy has been to expel expatriate staff members from the joint venture. It is becoming increasingly clear that the joint venture is not wanted in its present format, and that BP will have to renegotiate its dealings in Russia. While the development was far from the final blow for BP, the withdrawal of BP’s technical staff undermined the original rationale for the partnership. TNK-BP was formed to bring British expertise to the Siberian oil industry, which was suffering from declining production at older fields. BP’s decision applied only to direct employees of BP who were assigned to work at TNK-BP. TNK-BP separately hires foreign staff members, but those employees are also in a tenuous position because of visa and work permit troubles. In March, when the pressure on BP began, 148 BP employees were assigned to TNK-BP. Since then, all have been barred from working, initially by a work permit problem, then by security guards at TNK-BP buildings and finally by a court order. As of July, 60 remained in Russia. Most stayed home and were idle, although BP continued to pay their salaries. “There is a global shortage of skilled people in the industry,” BP said in a statement. “BP has numerous other ventures, for example, in Azerbaijan, the Middle East and the Gulf of Mexico, where their skills are needed and valued.” The chief executive, Robert Dudley, is also on the verge of being expelled. He is in Russia on a 10-day transit visa and is expected to leave on Sunday, possibly for good, if authorities do not reverse a decision that his employment contract is invalid. When TNK-BP agreed during a state visit to Russia by President Hugo Chávez of Venezuela, to explore for oil in that South American country, German Khan, one of the billionaire partners feuding with BP, represented the company at the signing ceremony, not Mr. Dudley. Mr. Dudley would remain chief even if he were expelled, BP maintains, though it was unclear how he could manage the company from abroad. An earlier effort by the Yukos oil company to manage its Siberian oil fields from London was unsuccessful because managers in Russia sold crude oil on the side without paying the headquarters. TNK-BP pumps 1.4 million barrels of oil a day, is Russia’s third-largest oil company and accounts for about a quarter of BP’s worldwide oil production.
- BP’s billionaire Russian oil partners have characterized their dispute with the British oil giant as a shareholder revolt — in the spirit of Kirk Kerkorian’s hounding General Motors or Carl C. Icahn holding Yahoo’s feet to the fire. Shareholder activism is an improbable role for the Russian oligarchic partners. Even more improbable, critics say, is their ally: the Russian government. Industry analysts say the dispute will likely be resolved with a state company taking control of the venture, TNK-BP — the third-largest energy company in Russia — by buying out either BP or its partners. “It’s a game of chicken, and they think BP will blink first,” Alex Turkeltaub, a managing partner at Frontier Strategy Group, a risk advisory company, said in a telephone interview from the United States. The Kremlin has been methodically reasserting control over the oil industry since effectively renationalizing the Yukos oil company from private owners just as oil prices began to spike in 2004. Subsequently, the Anglo-Dutch company Shell, the Russian company Russneft and TNK-BP have all been compelled to sell assets or renegotiate deals. But unlike other proponents of resource nationalism — like Hugo Chávez of Venezuela or Evo Morales of Bolivia, who sent his army to seize natural gas fields in that country — the Kremlin uses more sophisticated methods to regain control. Claiming poor performance, the Russian shareholders want BP to fire Robert Dudley, the chief executive of TNK-BP. They also want to expel other foreign managers from the company and the country. Mr. Dudley had a suitcase packed and said he was prepared to leave the next day if the Russian authorities did not extend his visa, which was set to expire on Saturday. But the immigration authorities granted a 10-day extension, saying they would study whether Mr. Dudley had a valid employment contract, demonstrating the Moscow authorities’ ability to play endless mind games with British executives. Mr. Dudley, in an interview, said he put little credence in the Russian partners’ complaints about TNK-BP’s performance. But he declined to elaborate on what was truly behind the dispute and stopped short of accusing the Russian government of orchestrating the campaign of regulatory pressure. “I hear these arguments about performance and they ring hollow to me,” Mr. Dudley said, noting the high dividends that TNK-BP has paid since its creation in 2003. The company has delivered a total shareholder return of $36 billion since its founding, helping BP’s bottom line and propelling the Russian partners higher up the Forbes list of the world’s wealthiest people. Leonard Blavatnik, a New York financier of Russian descent, has earned $4.5 billion on his 12.5 percent share of TNK-BP, accounting for more than his net gain in wealth from 2003 to 2008, according to the magazine’s ranking. Stan Polovets, the representative of the consortium of Russian partners, denied that the government had any hand in the dispute. “Look at any private equity firm, Blackstone or TPG,” he said. “They would all ask the management to step down if they are not happy with how the company is performing.” Nonetheless, BP seems to be edging ever closer to losing control. The joint venture was hailed at its creation as a triumph of Russian business and globalization. But the authorities here quickly soured on it as oil prices rose and the price of entry paid by the British began to seem paltry compared to the profits BP was making. Seeking to renegotiate the deal, oil analysts say, Russia is now using shareholder activism to weaken BP’s negotiating positions. It used the tax code to weaken Yukos, once Russia’s largest private oil company, and environmental regulations to weaken Shell, once the largest foreign investor in the country through its Sakhalin I oil and gas project. The Russian partners stepped up their shareholder activism in March. Since then, BP has recorded 14 government actions against it. The F.S.B., a successor agency to the K.G.B., raided the venture’s office. Labor officials barred BP geologists from working. Prosecutors summoned Mr. Dudley on a tax matter. Immigration officials denied visas to foreign workers, including Mr. Dudley. And lawsuits challenging BP’s appointees to the boards of subsidiary companies are being heard in Russian courts. The turmoil has wide implications for oil output in Russia, the world’s second-largest producer after Saudi Arabia. TNK-BP pumps 1.4 million barrels of oil a day. Initially, BP had opened talks for a partnership agreement with Gazprom, hoping to remain in the venture as a minority shareholder in a state-controlled company, as Shell had done. Rosneft, the state oil company, is also seen as a potential buyer. BP’s chief executive, Tony Hayward, has met with Aleksei Miller, the chief executive of Gazprom, and Igor Sechin, a deputy prime minister and chairman of Rosneft. Fueling speculation that BP may be close to a deal with Rosneft, Mr. Sechin had positive words for the company. “Over all, we support the work of BP in Russia,” he said after his meeting with Mr. Hayward. “They have introduced new corporate government principles, technology, personnel training and transparency, which makes us very happy.” But as these meetings with state and state-controlled company officials went forward, the Russian partners have maintained that the dispute is purely commercial. “It is a traditional, commercial dispute about different ambitions for the strategic development of the business,” Mikhail Fridman, one of the shareholders, wrote in an opinion article in The Financial Times this month. “We are frustrated by BP’s narrow view of its capabilities. “It is not in the interest of the company or all its shareholders, including minorities.”
- The oil company BP reported a 28 percent rise in second-quarter profit. BP posted net profits of $9.47 billion, up from $7.38 billion in the period a year ago. Sales jumped 49 percent, to $110.98 billion, as the price for a barrel of oil rose by roughly 35 percent in the quarter.
• Upstream news:
- The south Caucasus has always been a crossroads — of lucrative trade, diverse cultures, and centuries-old conflict. And it is a strategically crucial region for the development and transport of oil. Edward Chow, a senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies, looks at what the current crisis in the region might mean for the international oil market. The current fighting in Georgia brings out many ghosts of the past. Gori, an obscure town on the major east-west highway across Georgia which came under Russian attack, was previously known mostly as the birthplace of one Joseph Stalin. And it is Stalin’s deliberately complex borders for the republics of the Soviet Union that is the putative cause of this conflict. A little-known fact is that Stalin started his political career by organizing the oil workers of Baku in Azerbaijan on the Caspian, which supplied half of the world’s oil at the turn of the 20th century, and in the Georgian Black Sea oil port of Batumi, through which this oil transited to Europe. This history, however, was not lost on two wily veterans of Soviet politics: the Georgian Eduard Shevardnadze, a former foreign minister of the U.S.S.R., and the Azerbaijan leader, Heydar Aliyev, a Soviet-era deputy prime minister and Politburo member. When their native lands had independence thrust upon them with the collapse of the Soviet Union, they ended up as presidents of newly independent Georgia and Azerbaijan after rather circuitous routes. Oil was the one means by which these two countries can hope to establish and maintain their political and economic independence. The Soviets woefully mismanaged and exhausted Azerbaijan’s oil resources. When world-class offshore oilfields were discovered, they were left unexploited because the Soviets lacked technical expertise and capital. Western oil companies were eager to develop these fields for production. But Azerbaijan is landlocked on an inland sea and all existing pipelines pointed north to Russia. This is where Georgia, Azerbaijan’s Caucasus neighbor, came in. In order for the Caspian region to become again a source of oil supply to world markets, Georgia has to resume its traditional role as a transit corridor. Aliyev and Shevardnadze – joined by the Turkish president, Suleyman Demirel – called their project the “new Silk Road,” which was launched in earnest in the mid-1990s and which reached an important milestone with the signing of an inter-governmental agreement for building the Baku-Tbilisi Ceyhan (BTC) pipeline from Azerbaijan through Georgia to eastern Turkey and the Mediterranean. Their efforts were actively supported by Western governments, particularly Washington, as a way to solidify the independence of the new republics and to deliver major new oil supplies from the Caspian to market without depending on Russian pipelines. The BTC signing took place on the sideline of the Organization for Security and Cooperation in Europe summit in Istanbul in November 1999. A month later, Vladimir Putin replaced Boris Yeltsin as president of Russia. The fighting in Georgia, which started on Aug. 7, and the coincidental Aug. 4 blast on the Turkish segment of the Baku-Tbilisi-Ceyhan pipeline (which Kurdish separatist group PKK claims it attacked) showed that pipelines can be reached and breached without much difficulty. In addition, Russian forces entered the main Georgian container port of Poti, and its Black Sea fleet demonstrated its ability to blockade all Georgian ports. The transit route through Georgia previously thought to be relatively secure and reliable is now seen as vulnerable and threatened by regional hostilities. Georgian routes have been moving over one million barrels of oil per day. More important, expansion of various facilities is projected to increase oil volume to around two million barrels per day and to transport new natural gas supply, from additional oil and gas developments in Azerbaijan and across the Caspian in Kazakhstan and Turkmenistan. At current world oil demand of 85 million barrels per day, with forecasted demand growth and tight supply, these additional volumes out of the Caspian through Georgia are to make an important contribution to global supply balance. Geologic potential exists to increase oil production along the Caspian in Azerbaijan, Kazakhstan and Turkmenistan from currently around two million barrels to three to five million barrels per day — as high as major OPEC producers except for Saudi Arabia. Some of this flow will continue to be carried on existing routes via Russia or the south Caucasus, but where will incremental volumes be directed? Diversity of supply routes has become even more important, but it comes at a premium. Each major pipeline project costs multiple billion dollars, in addition to large field development costing tens of billions. How will investors, lenders and insurers evaluate numerous options? What role should government policy play in facilitating these mega-investments going forward? Chinese companies are building long-haul oil and gas pipelines from Central Asia to China with the financial support of their government. Once completed, should Western oil companies be encouraged to use them as export routes that are not controlled or threatened by Russia, because this route will benefit the economic autonomy of the region and contribute to overall global supply even though these supplies will not reach Western markets? Should a route from the Caspian south via Iran be reconsidered, assuming current political and security concerns will pass over time? These are critical questions that oil executives and governments will be re-evaluating in light of recent events and calibrating their future strategies accordingly. Expecting status quo ante to return is probably not prudent for business or government. It may well be wise to remember that the original Silk Road from China to Europe was not one road at all, but a series of separate routes whose use depended on shifting regional alliances, rivalries and hostilities, and Georgia was but one stop on one of those routes. Here is a list of 10 Caspian oil and gas projects and related facilities, including those in Georgia. Azerbaijan International Operating Company (AIOC) is the consortium of companies that operates the major offshore fields in Azerbaijan. Partners are BP, Chevron, the state oil company of Azerbaijan SOCAR, StatoilHydro, ExxonMobil, the Turkish state oil company TPAO, the Japanese companies Inpex and Itochu, Devon and Hess. Azeri-Chirag-Gunashli (ACG) is the main complex of offshore fields in Azerbaijan operated by AIOC. It is estimated to contain recoverable reserves of more than 5.4 billion barrels and production is expected to reach one million barrels per day after planned expansion. Baku-Supsa pipeline started operating in 1998 to transport early production from offshore Azerbaijan to a new Georgian Black Sea oil terminal at Supsa for export. After the startup of BTC, this pipeline was shut down for an overhaul that has been completed and was in the midst of restarting until the current combat in Georgia. It has a capacity of 150,000 barrels per day and is owned by the Azerbaijan International Operating Company (AIOC). Baku-Tbilisi-Ceyhan (BTC) is a 1,100-mile long pipeline which has a nameplate operating capacity of one million barrels per day carrying crude oil from the main fields offshore Azerbaijan through Georgia to a terminal on the Mediterranean in eastern Turkey. Commercial operations started in 2006 and have reached a level of 850,000 barrels per day or 1 percent of total world oil demand. Operation was temporarily halted after the Aug. 4 fire on the Turkish segment. Repair is estimated to take another two weeks or so. Plans were being pursued to increase capacity by 50 percent in order to accommodate additional flows from new field development in Kazakhstan that will initially be shipped by tankers across the Caspian. BTC owners are BP, the Azerbaijan government, Chevron, StatoilHydro, TPAO, ENI, Total, Itochu, Inpex, ConocoPhillips and Hess. Batumi, the old Georgian oil port on the Black Sea, has been back in operation exporting crude oil and products from the Caspian region delivered by rail. Export levels in recent years have averaged around 200,000 barrels per day and the terminal is supposed to have capacity of 300,000 barrels per day. Ownership was taken over completely this year by the Kazakhstan state oil company KazMunaiGas. Kulevi is a newly inaugurated oil terminal, owned by SOCAR, on the Georgian Black Sea coast, which is supposed to have a capacity to handle 200,000 barrels per day of mainly petroleum products and some crude oil, all delivered by rail. It may be particularly vulnerable because of its proximity to the Russian-supported, separatist territory of Abkhazia. Shah-Deniz is a large field offshore Azerbaijan that is estimated to contain 22 trillion cubic feet of gas and 750 million barrels of condensate. Its owners are BP, SOCAR, StatoilHydro, LUKoil, Total, TPAO and an Iranian company. South Caucasus Gas Pipeline parallels the BTC oil pipeline and was built to move natural gas from Shah Deniz to markets in Georgia and Turkey. It has an ultimate annual capacity of 16 billion cubic meters, a volume that would allow gas to reach European markets in Greece and beyond. It is currently operating at around half that capacity and was shut down temporarily after damage to BTC and fighting in Georgia. It is owned by the Shah Deniz partners. Tengiz is a super-giant onshore oilfield in Kazakhstan, operated by Chevron, that is estimated to contain six to nine billion barrels of recoverable oil. Current production is around 540,000 barrels per day, but exports are stymied by Russian obstacles to expanding its main export route through the Caspian Pipeline Consortium (CPC) to the Russian Black Sea coast. Chevron has been using rail transport to ports including those in Georgia and actively exploring feeding into BTC in order to reach Tengiz’s ultimate production potential around a million barrels per day. Kashagan, offshore Caspian in Kazakhstan, is the largest oil discovery in the world in the past 40 years. It is estimated to contain 13 billion barrels of recoverable oil. The complex and expensive field development has been much delayed, and one of its many challenges is how to move its export level above 1.5 million barrels per day to market. The south Caucasus route, including via Georgia, is one route actively examined.
• Downstream news:
- BP and Verenium Corporation (Nasdaq: VRNM), announced the creation of a strategic partnership to accelerate the development and commercialization of cellulosic ethanol. The partnership combines a broad technology platform and operational capabilities in an effort to advance the development of a portfolio of low-cost, environmentally-sound cellulosic ethanol production facilities in the United States, and potentially throughout the world. Under the initial phase of the strategic alliance, Verenium is to receive $90 million in total funding from BP over the next 18 months for rights to current and future technology held within the partnership.
- Enbridge Inc. (TSX:ENB) (NYSE:ENB) and BP Pipelines (North America) Inc. announced they have entered into an agreement to develop a new delivery system to transport Canadian heavy crude oil from Flanagan, Illinois, to Houston and Texas City, Texas, using a combination of existing facilities and new pipeline construction where required. The new delivery system is expected to be in service by late 2012 with an initial total system capacity of 250,000 barrels per day (bpd) into the Gulf Coast. Enbridge and BP intend to use the BP #1 System and other existing pipelines north of the Cushing, Oklahoma, crude oil hub with some new pipeline construction south of Cushing, to connect to markets in Houston and possibly Nederland, Texas. Initial receipts at Flanagan, where the system would interconnect with Enbridge Energy Partners' Southern Access pipeline, would be approximately 140,000 bpd with deliveries to Gulf Coast markets. The remaining 110,000 bpd would originate from interconnecting pipelines at Cushing.
• Business/Finance news:
- Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand. Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies. And much of their production is in mature regions that are declining, like the North Sea. The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies. “This is an industry in crisis,” said Amy Myers Jaffe, the associate director of Rice University’s energy program in Houston. “It’s a crisis of leadership, a crisis of strategy and a crisis of what the future looks like for the supermajors,” a term often applied to the biggest oil companies. “They are like a deer caught in headlights. They know they have to move, but they can’t decide where to go.” The sharp retreat in all of the commodities’ prices over the last month, about 20 percent, reflects slowing global growth and with it reduced demand for more oil in the short term. But over the next decade, the world will need more oil to satisfy developing Asian economies like China. The oil companies’ difficulties suggest that these much-needed future supplies may be hard to come by. Oil production has failed to catch up with surging consumption in recent years, a disparity that propelled oil prices to records this year. Despite the recent decline, oil remains above $100 a barrel, unimaginable a few years ago, causing pain throughout the economy, like higher prices at the gas pump and automakers posting sizable losses. The scope of the supply problem became more clear in the latest quarter when the five biggest publicly traded oil companies, including Exxon Mobil, said their oil output had declined by a total of 614,000 barrels a day, even as they posted $44 billion in profits. It was the steepest of five consecutive quarters of declines. While that drop might not sound like much in a world that consumes 86 million barrels of oil each day, today’s markets are so tight that the slightest shortfalls can push up prices. Along with mature fields, the companies have contracts with producing countries whose governments allocate fewer barrels to oil companies as prices rise. “It has become really, really difficult to grow production,” said Paul Horsnell, an analyst at Barclays Capital. “International companies have a portfolio of assets in areas of significant decline and no frontier discoveries to make up for that.” As a result of the industry’s troubles, energy experts do not expect oil supplies to grow this year in countries outside the Organization of the Petroleum Exporting Countries. Global demand for oil is expected to expand by 800,000 barrels a day, mostly because of rising demand in China and the Middle East, despite lower consumption in developing countries. This imbalance between supplies and demand will be one thing that OPEC ministers will consider when they meet next month to decide whether or not to increase their production. OPEC has about 2 million barrels a day in untapped capacity that its members control. The new oil order has been emerging for a few decades. As late as the 1970s, Western corporations controlled well over half of the world’s oil production. These companies — Exxon Mobil, BP, Royal Dutch Shell, Chevron, ConocoPhillips, Total of France and Eni of Italy — now produce just 13 percent. Today’s 10 largest holders of petroleum reserves are state-owned companies, like Russia’s Gazprom and Iran’s national oil company. Sluggish supplies have prompted a cottage industry of doomsday predictions that the world’s oil production has reached a peak. But many energy experts say these “peak oil” theories are misplaced. They say the world is not running out of oil — rather, the companies that know the most about how to produce oil are running out of places to drill. “There is still a lot of oil to develop out there, which is why we don’t call this geological peak oil, especially in places like Venezuela, Russia, Iran and Iraq,” said Arjun Murti, an energy analyst at Goldman Sachs. “What we have now is geopolitical peak oil.” Western companies are far better than most national oil companies at finding and extracting petroleum, experts say. They have developed advanced exploration technologies and can muster significant financing to develop new fields. Many of the world’s exporting states, however, have spurned their expertise. Oil company executives see a straightforward explanation: a trend known as resource nationalism. They contend that they have been shut out of promising regions by a rising assertiveness in the Middle East, in Russia, in South America and elsewhere by governments determined to keep full control of their oil.
• Upstream news:
- Chesapeake Energy Corporation (NYSE:CHK) and BP America (NYSE:BP) announced the execution of a Letter of Intent for a joint venture whereby BP will acquire a 25% interest in Chesapeake's Fayetteville Shale assets in Arkansas for $1.9 billion. The assets have current daily net production of approximately 180 million cubic feet of natural gas equivalent and include approximately 540,000 net acres of leasehold which the companies believe could support the drilling of up to 6,700 future horizontal wells. As a result of the transaction, BP will own approximately 135,000 net acres of this leasehold and Chesapeake will own approximately 405,000 net acres. BP will pay $1.1 billion in cash at closing and will pay a further $800 million during the remainder of 2008 and in 2009 by funding 100% of Chesapeake's 75% share of drilling and completion expenditures until the $800 million obligation has been funded. Chesapeake plans to continue acquiring leasehold in the Fayetteville Shale play and BP will have the right to a 25% participation in any such additional leasehold. The transaction is subject to the execution of mutually acceptable definitive documentation that the companies anticipate executing within the next week and closing is anticipated to occur later this month.
• Downstream news:
- FedEx Corp. (NYSE: FDX) and BP Solar announced the completion and activation of a second project together-a solar system for a FedEx Freight distribution center in Fontana, Calif. The 269 kW (kilowatt) rooftop solar array utilizes BP Solar modules. The first joint system was inaugurated on Earth Day 2008 at FedEx Freight's facility in Whittier, Calif. The 1,377 solar modules cover 20,834 sq. ft. on the Fontana facility's roof and can generate 370,551 kilowatt hours (kWh), or approximately 54 percent of facility needs. The 282kW system in Whittier is capable of producing more than 414,000 kWh of electricity each year, providing almost 40 percent of the facility's annual energy needs and significantly reducing the service center's dependence on the electric grid. The two projects are expected to eliminate the release of more than 610 metric tons of greenhouse gas causing emissions.
• Business/Finance news:
- An overhaul of the governance structure of Russia's third largest oil company, TNK-BP, has been agreed in principle by the two main owners, BP and Alfa Access-Renova (AAR). The aim is to better align their respective interests and improve the transparency of TNK-BP's equity. A memorandum of understanding (MOU) due to be finalised in detail over the coming months, envisages the re-structuring of the TNK-BP board through the appointment of three new directors independent of either side. The MOU also includes an option to sell up to 20 per cent of a subsidiary of TNK-BP through an initial public offering (IPO) on the international financial markets at an appropriate future point, subject to the consent of the Russian authorities. BP chairman Peter Sutherland said that an agreement would align the two sides around a shared agenda for value growth and allow BP and AAR to move forward, relieving recent tensions.
- After months of wrangling, BP reached a deal on its joint venture in Russia, agreeing to dismiss the chief executive it appointed and to give greater control to its Russian partners in return for retaining access to the large oilfields in Siberia that are one of the company’s most valuable assets. Though BP, the British oil giant with interests around the world, was impelled to make concessions, senior Russian officials were quick to cast the deal as a positive signal to Western investors in the wake of the war in Georgia. The timing suggested a deft maneuver to counter the slide in the Russian stock market and in investor confidence. For a time it looked as if BP’s assets here might be nationalized in whole or in part through a forced sale to a state company, as was the case with both the major Russian oil ventures Yukos and Royal Dutch Shell’s Sakhalin Island development. But that prospect now appears less likely. “This is a win-win situation,” Caius Rapanu, chief analyst at Kit Finance, a Moscow brokerage firm, said. BP, he said, might have lost some corporate control but it could have been a lot worse. “Just like when somebody comes and puts a gun to your back and says, ‘Your wallet or your life,’ and you are glad you got out with your life.” BP lost its struggle to retain the American chief executive, Robert Dudley, who will resign before the end of the year. He will be succeeded by an independent director under the terms of a memorandum that BP signed with the consortium of billionaires in Russia who own 50 percent of the joint venture, known as TNK-BP. The joint venture is a leading Russian oil producer and accounts for about a quarter of BP’s worldwide oil output. The value to BP of retaining the licenses on the fields controlled by the venture could hardly be overestimated at a time when major global oil companies are struggling to find new reserves. Under the terms of the memorandum, which BP and the Russian partners said would eventually be written into a new corporate charter, BP also agreed to accept the creation of three independent seats on the board. That will weaken its control over the venture but at least break the deadlock of an equal number of board seats held by both sides. The Russian authorities underscored the importance of the deal to Moscow by using it to signal to investors that Russia still welcomed their business despite deteriorating political and diplomatic relations with the West. The official charged with doing so was the deputy prime minister, Igor Sechin, believed by most analysts to be among the Kremlin leadership’s hard-liners. “We are pleased that the situation normalized, and the participants in the talks arrived at an agreement on the level of shareholders, without the involvement of third parties including the government,” Mr. Sechin said in a statement released by the Russian partners. “This is the right signal to the whole market.” The statement also quoted Arkady Dvorkovich, President Dmitri Medvedev’s economic adviser, praising the deal “as a positive signal to foreign companies investing in the economy of Russia.” While Russia’s accounts bulge with oil revenue, the country is consuming imports at a furious rate and faces a future where it may have to worry more about its ability to attract foreign investment. And in the meantime, it stands to gain from Western investment in its oilfields. BP’s chairman, Peter Sutherland, noted that for Russia “strong capital investment and continued technical innovation to boost declining oil output are so important.” Shares in TNK-BP’s main subsidiary, TNK-BP Holding, rose 8.1 percent Thursday in light trading. BP’s shares rose as much as 4.9 percent Thursday, but ended the day down 0.1 percent. n announcing the deal, the company also suggested that it might go ahead with a global public offering that would make available as much as 20 percent of the shares to investors. Many big investors were skeptical, however. “It’s a neat compromise but the proof of the pudding will be in the eating,” said Alan Beaney, a senior fund manager at Principal Investment Management in Sevenoaks, Britain. “Whether the new C.E.O. will satisfy both sides is a big question and who will want to buy into the I.P.O.? In essence it’s a good company but do you want to be caught in between those two sides? I don’t think we’ve seen the end of it yet.” Under TNK-BP’s founding charter, BP had the right to nominate the chief executive, who was subject to board approval. The new agreement again allows BP to nominate a candidate but requires the new chief to speak fluent Russian and have experience in Russia’s oil and natural gas sector. It was unclear whether this would be interpreted as meaning he must be a Russian. The deal also specified that TNK-BP would invest internationally, a point of particular importance to the Russian partners, who claimed that BP had blocked efforts to expand outside Russia for fear of competing with BP’s existing or potential business elsewhere. In one example often cited here, BP had discouraged TNK-BP investment in Iraq’s Kurdistan region as BP was seeking business in southern Iraq. Companies that do business in Kurdistan are blacklisted by the Baghdad government. The new agreement suggested such conflicts could now be settled in favor of TNK-BP. Stan Polovets, the representative of the consortium of Russian partners, said the agreement broadly met the goals of making TNK-BP a more independent company. The agreement, he said, also deflated criticism that the Russian partners were acting on behalf of a state company that might ultimately take control of the venture. “We always said it’s about corporate governance and strategy and performance, not about selling” to the state, he said. Mr. Polovets said the timing of the resolution was unrelated to the war in Georgia. The TNK-BP joint venture was greeted at its creation as a Russian business and globalization success but Russian authorities quickly soured on the deal as oil prices rose and the price BP paid for entry began to seem paltry compared to the profits it was making. The FSB, a successor agency to the KGB, raided the venture’s office and accused an employee of industrial espionage. Immigration officials also denied visas to foreign workers, including Dudley.
- As sources of oil become harder to exploit, oil majors like BP and Shell could become increasingly reliant on squeezing oil from tar sands in Canada for their supplies. Tar sands also are a way for major oil guzzlers like the United States and Europe to reduce their reliance on unstable parts of the world for sufficient amounts of fuel to power their economies. Venezuela, too, is the other country that is home to major tar sands (but whether U.S. firms could work there is questionable). Environmentalists say that the biggest problem with tar sands is that they are one of the worst ways imaginable to curb climate change and conserve the planet’s resources. Large amounts of energy are needed to convert tar. Extracting bitumen from sands and upgrading it to synthetic crude oil may be up to five times more greenhouse gas intensive than conventional crude oil extraction — in the absence of ways to capture those gases and store them underground. Another worry is the damage caused to local ecosystems by such activity. This week environmentalists and investors said there are sound financial reasons to back away from the exploitation of Canadian tar sands too. “There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector,” warned Mark Hoskin, a senior partner at investment firm Holden & Partners, in a press release issued on Tuesday by Greenpeace. “Investment in tar sands brings into tension the many elements of the sustainability agenda,” said Matt Crossman of Rathbone Greenbank in the Greenpeace statement. “The scale of the associated environmental impacts and the level of regulatory risks make the issue of material concern for investors,” Crossman said. Greenpeace, which issued a new report on tar sands, said Barack Obama, the Democrat candidate for U.S. president, is considering closing parts of the American market to products derived from tar, potentially dealing a serious blow to the industry. Meanwhile in Canada, Greenpeace said, the creation of a carbon tax in the future could make exploiting tar vastly more expensive than foreseen. Another factor that could hurt oil companies increasing their reliance on tar sands is a falling oil price. Expensive projects to develop alternative fuels looked more viable when oil was at record levels near $150 a barrel earlier this year. Oil currently is hovering at around $100 a barrel. Do you think tar sands really may be as much of a hazard for investors as for the climate? Or do you think that groups like Greenpeace and financiers who promote green investments may be taking advantage of fears among investors to discredit tar sands at a time when stock markets, along with the value of their portfolios, are plummeting?
- Days after she was sworn in as governor, Sarah Palin began to clean house at the department of natural resources, firing and demoting several top officials and eventually appointing a new director at the agency that oversees the energy companies that provide the state with 85% of its revenue. The shake-up was an early sign that this newly elected Republican governor was not like any of her predecessors -- she was determined not to cave in to the energy industry, the state's lifeblood. "The governor is not a negotiator. She is a non-negotiator. She draws lines in the sand," said Tim Bradner, an oil industry analyst for Platts Oilgram and the Alaska Journal of Commerce. Palin, in her inaugural speech, had another way of putting it: "I will unambiguously, steadfastly and doggedly guard the interests of this great state as a mother naturally guards her own," she said. Palin's willingness to take on powerful interests in her state drew the attention of Sen. John McCain, who has praised his running mate as a reformer. Since becoming governor in December 2006, Palin has tripled production taxes on oil and seized control of a proposed $30-billion natural gas pipeline from the traditional oil giants. The Palin administration now stands in a nerve-racking faceoff with the multibillion-dollar oil industry interests that have for 40 years been the bedrock of the state's politics and economy. Who blinks first -- Palin, or companies like BP Alaska, ConocoPhillips and ExxonMobil -- will determine who controls transport of Alaska's massive untapped gas resources and future tax revenues for a state dependent on petroleum revenues for 85% of its budget. Most analysts are predicting that it won't be Palin who yields. "She has been more adversarial with the producers than any previous governor," said Democratic state Rep. Mike Doogan, whom Palin courted -- with cupcakes -- to power her oil program through the Legislature this year. Palin's showdown with the oil companies has earned her enormous public acclaim but alienated her from all but a handful of Republican legislators and forced her to develop working alliances with Democrats. She has taken on the leadership of the state Republican Party at a time when a growing number of Alaskan politicians are being indicted on corruption charges because of their ties to the oil industry. "I'm a Democrat. She's a Republican. But she and I have a larger alliance with each other than we do with our own parties," said Ray Metcalfe, a former state legislator who has long complained about corruption. "We have a Republican governor who is not part of the system, and she has set out to reform the party." Palin's independent approach to politics recalls the kind of Republicanism championed, at least rhetorically, by another maverick: McCain. "She came into office with a single focus, and that was to undo everything the previous governor had done, and to do as much as she could to prevent Alaska's oil producers from having any participation in any development of an Alaska natural gas line," said Republican state Rep. Mike Hawker, who chairs the state House budget committee. At least 40 Republicans were opposed to the enormous oil production tax increase crafted in the Legislature, he said, but Palin "cut a deal with the Democratic caucus." "She rode the tide of vindictive populism against the oil and gas industry in this state," he said. The connections between oil and power go back to the earliest days of Alaskan statehood. Four of the 10 largest oil fields in North America are on the North Slope, contributing an estimated $5 billion to the state's economy, according to the Alaska Oil and Gas Assn. Palin is a strong supporter of expanding drilling across the North Slope and in some other environmentally sensitive regions. Unlike McCain, she favors opening the Arctic National Wildlife Refuge to oil production. But her hard line on expanding state control has flummoxed oil executives. They have warned that the higher taxes will discourage investment in oil production at a time when Alaska must compete with other fields around the world for oil capital. "The governor pushed for an increase in taxes and the Legislature went along. That was totally their right to do so, but we were pretty clear going in what the long-term consequences would be," said Steve Rinehart, spokesman for BP Exploration. He said the company has decided to place one of its North Slope projects on hold as a result of the tax increase. "It was a bread-and-butter oil field development, and a billion dollars' worth of work. We decided it doesn't make sense in the current tax environment," Rinehart said. The showdown comes at a crucial time, when oil flows from the North Slope down the Trans-Alaskan Pipeline are barely half what they were at their peak in 1988. Palin not only wants a greater share of what's left for state coffers, but has also told oil companies they must develop the leases they have or give them up -- a challenge to producers who may have been waiting for marginal oil and gas fields to become economical before investing millions more in them. Last month, the Palin administration revoked 13 ExxonMobil leases on the North Slope project known as Point Thomson, a field believed to hold up to 7 trillion cubic feet of gas, or about a quarter of the North Slope's known reserves. Palin's administration has also squared into an epic standoff with North Slope producers over a proposed $30-billion, 1,700-mile pipeline that would for the first time allow gas to be transported to markets in the Lower 48. ExxonMobil, BP and ConocoPhillips own rights to most of the gas on the North Slope, and have sought long-term tax guarantees before signing on to build the transit facility, which would be the largest private enterprise project in North American history. Palin's negotiators have offered only medium-term tax promises and do not want the gas producers holding monopoly control over the facility. The dispute came to a showdown in the Legislature last month, when Palin succeeded in offering the license -- accompanied by a state subsidy of $500 million -- to Canada-based Trans-Canada Corp. She cut the North Slope producers out of the loop. But in a stunning war of nerves, ConocoPhillips and BP have launched a private pipeline project of their own, announcing they will spend $600 million to begin construction within five years. "We're trying to break this logjam and move the project forward," said Bud Fackrell, president of Denali, the company formed to build the pipeline. The Republican governor's hard line on the oil companies has stirred concern among energy executives across the country. In Washington, energy lobbyists have prepared reports on Palin's record. Her pro-drilling stance "reminds me a lot of Dick Cheney," said Scott Segal, a prominent D.C. energy lobbyist. But her policy of taxing windfall energy profits is disconcerting, he said. "That approach is anathema to oilmen."
- I was water-skiing with my children in a light drizzle off Hyannis, Mass., last month when a sudden, fierce storm plunged us into a melee of towering waves, raking rain, painful hail and midday darkness broken by blinding flashes of lightning. As I hurried to get my children out of the water and back to the dock, I shouted over the roaring wind, "This is some kind of tornado." The fog consolidated and a waterspout hundreds of feet high rose from the white ocean and darted across its surface, landing for a moment on a moored outboard to spin it like a top, moving toward a distant shore where it briefly became a sand funnel, and then diffusing into the atmosphere as it rained down bits of beach on the harbor. For 24 hours, a light show of violent storms illuminated the coastline, accompanied by booming thunder. My dog was so undone by the display that she kept us all awake with her terrified whining. That same day, two waterspouts appeared on Long Island Sound. Those odd climatological phenomena led me to reflect on the rapidly changing weather patterns that are altering the way we live. Lightning storms and strikes have tripled just since the beginning of the decade on Cape Cod. In the 1960s, we rarely saw lightning or heard thunder on the Massachusetts coast. I associate electrical storms with McLean, Va., where I spent the school year when I was growing up. In Virginia, the weather also has changed dramatically. Recently arrived residents in the northern suburbs, accustomed to today's anemic winters, might find it astonishing to learn that there were once ski runs on Ballantrae Hill in McLean, with a rope tow and local ski club. Snow is so scarce today that most Virginia children probably don't own a sled. But neighbors came to our home at Hickory Hill nearly every winter weekend to ride saucers and Flexible Flyers. In those days, I recall my uncle, President Kennedy, standing erect as he rode a toboggan in his top coat, never faltering until he slid into the boxwood at the bottom of the hill. Once, my father, Atty. Gen. Robert Kennedy, brought a delegation of visiting Eskimos home from the Justice Department for lunch at our house. They spent the afternoon building a great igloo in the deep snow in our backyard. My brothers and sisters played in the structure for several weeks before it began to melt. On weekend afternoons, we commonly joined hundreds of Georgetown residents for ice skating on Washington's C&O Canal, which these days rarely freezes enough to safely skate. Meanwhile, Exxon Mobil and its carbon cronies continue to pour money into think tanks whose purpose is to deceive the American public into believing that global warming is a fantasy. In 1998, these companies plotted to deceive American citizens about climate science. Their goal, according to a meeting memo, was to orchestrate information so that "recognition of uncertainties become part of the conventional wisdom" and that "those promoting the Kyoto treaty ... appear to be out of touch with reality." Since that meeting, Exxon has funneled $23 million into the climate-denial industry, according to Greenpeace, which combs the company's annual report each year. Since 2006, Exxon has cut off some of the worst offenders, but 28 climate-denial groups will still get funding this year. Corporate America's media toadies continue to amplify Exxon's deceptive message. The company can count on its hand puppets -- Rush Limbaugh, Sean Hannity, John Stossel and Glenn Beck -- to shamelessly mouth skepticism about man-made climate change and give political cover to the oil industry's indentured servants on Capitol Hill. Oklahoma's Republican Sen. Jim Inhofe calls global warming "the greatest hoax ever perpetrated on the American public." Now John McCain has chosen as his running mate Alaska Gov. Sarah Palin, a diligent student of Big Oil's crib sheets. She's something of a flat-earther who shares the current administration's contempt for science. Palin has expressed skepticism about evolution (which is like not believing in gravity), putting it on par with "creationism," which posits that the Earth was created 6,000 years ago. She used to insist that human activities have nothing to do with climate change. "I'm not one ... who would attribute it to being man-made," she said in August. After she joined the GOP ticket, she magically reversed herself, to a point. "Man's activities certainly can be contributing to the issue of global warming," she told Charles Gibson two weeks ago. Meanwhile, Alaska is melting before our eyes; entire villages erode as sea ice vanishes, glaciers are disappearing at a frightening clip, and "dancing forests" caused by disappearing permafrost astonish residents and tourists. Palin had to keep her head buried particularly deep in an oil well to ever have denied that humans are causing climate change. But, as Upton Sinclair pointed out, "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Palin's enthusiastic embrace of Big Oil's agenda (if not always Big Oil itself) has been the platform of her hasty rise in Alaskan politics. In that sense she is as much a product of the oil industry as the current president and his vice president. Palin, whose husband is a production operator for BP on Alaska's North Slope, has sued the federal government over its listing of the polar bear as an endangered species threatened by global warming, and she has fought to open the Arctic National Wildlife Refuge and Alaska's coast to oil drilling. When oil profits are at stake, her fantasy world appears to have no boundaries. About American's deadly oil dependence, she mused recently, "I beg to disagree with any candidate who would say we can't drill our way out of our problem." I guess the only difference between Sarah Palin and Dick Cheney is ... lipstick. Robert F. Kennedy Jr. is an environmental lawyer and a professor at Pace University Law School.
- In response to the devastating effects of Hurricanes Ike and Gustav on impacted communities in Texas and Louisiana, BP announced that the BP Foundation will donate $8 million to community organizations and will also match the contributions of BP employees to the disaster relief effort.
• Upstream news:
- BP America Inc. announced an oil discovery at its Freedom Prospect in the deepwater Gulf of Mexico. The well, located in Mississippi Canyon Block 948, approximately 70 miles southeast of the Louisiana Coast, is in about 6,100 feet (1,860 metres) of water. The Freedom well was drilled to a total depth of approximately 29,280 feet (8,927m) and encountered greater than 550 net feet of hydrocarbon-bearing sands in Middle and Lower Miocene reservoirs. Appraisal will be required to determine the size and commerciality of the discovery. The well is operated by BP Exploration & Production Inc., a wholly-owned subsidiary of BP America Inc., with a 25 per cent working interest, and includes co-owners Noble Energy, Inc. (37.5 per cent), Samson Offshore Company (25 per cent) and Marathon Oil Company (12.5 per cent). The lease was acquired by Noble Energy and Samson Offshore at federal OCS Lease Sale 198 in March, 2006. Mississippi Canyon Block 992 is operated by BHP (32.25 per cent) with BP as co-owner (67.75 per cent).
- Sociedade Nacional de Combustíveis de Angola (Sonangol) and BP Exploration (Angola) Limited announced the Dione oil discovery in ultra-deepwater Block 31, offshore Angola. This is the sixteenth discovery made by BP in Block 31 and is located in the southern portion of the block, about 9 kilometres to the south-west of the Juno-1 discovery. Dione was drilled in a water depth of 1696 metres, some 390 kilometres northwest of Luanda and reached a total depth of 3272 metres below sea level. The well test results confirmed the capacity of the reservoir to flow in excess of 5,000 barrels a day under production conditions.
• Downstream news:
• Business/Finance news:
- BP has committed to a five-year renewal of a joint research partnership with Princeton University that identifies ways of tackling the world's climate problem. It will support Princeton to at least its current level of funding for the years 2011 to 2015. The grant reflects the success of the Carbon Mitigation Initiative (CMI), which has had a significant impact on the climate change debate, according to Princeton faculty and company officials. Launched in 2000, the project has produced new practical approaches to managing the carbon dioxide emissions that contribute to global warming. BP's original 10-year-commitment initially funded the program at $1.5 million a year and later increased it to more than $2 million a year. CMI is aimed at supporting fundamental scientific, technological and environmental research that would lead to safe, effective and affordable solutions to climate change.
- Third Quarter 2008 results were released. A webcast presentation was hosted by Byron Grote, Chief Financial Officer and Fergus MacLeod, Head of Investor Relations.
- BP is making good progress in its drive to improve performance, chief executive Tony Hayward said as the company announced underlying profits for the third quarter of 2008 of $8.9 billion, excluding non-operating items and fair value accounting effects. Despite some operational upsets, including hurricane damage in the Gulf of Mexico and interruptions to output from its Caspian fields, BP’s oil and gas production was slightly up on the same period of last year and the underlying result for the refining and marketing business rose by 70 per cent.
- The energy giant BP said that it expected to cope reasonably well with the volatility in oil prices as it reported a third consecutive quarter of earnings that beat analysts’ estimates. BP said profit rose 83 percent, to $8.05 billion, or 42.56 cents a share, from $4.41 billion, or 23.07 cents a share, in the third quarter a year ago. Shares rose 5.4 percent in London on Tuesday after the chief executive, Anthony B. Hayward, reiterated plans to increase the dividend and dismissed concerns that a drop in crude oil prices would reverse BP’s profit growth. When energy companies were profiting from record oil prices, BP, Shell, Chevron and Exxon Mobil continuously trumpeted their earnings growth. But oil prices have fallen 57 percent since the peak in July and could drop more as a slowing economy damps demand. Investor concern about the sustainability of oil companies’ profits meant that their shares started to decline alongside the oil price. BP’s stock dropped 20 percent and Chevron’s 17 percent in the third quarter. Mr. Hayward acknowledged that oil prices could drop further, but he said that the current market turmoil “may in fact create opportunities for us and we will look at those very closely.” BP already agreed to buy $1.9 billion of natural gas assets in Arkansas last month and spent $1.75 billion on part of Oklahoma’s Woodford Shale formation in July. BP expects that the recovery of its refining business will create a cushion against a downturn. Profit in refining and marketing rose to $1.97 billion, from $371 million, while operating profit from exploration and production doubled to $12.7 billion. r. Hayward pledged to continue to reduce costs, streamline the business and increase production through existing projects as well as exploration. Oil ministers at the Oil and Money conference in London on Tuesday were less optimistic. Abdullah bin Hamad al-Attiyah, the Qatari oil minister, warned that the shortage of financing for new projects could threaten the ability to meet future demand. An oil price of $70 to $80 a barrel would be “fair” to assure investments in production projects, Mr. Attiyah said. Mohammed bin Dhaen al-Hamli, energy minister of the United Arab Emirates, said the recent decline in oil price meant that companies would have to rethink some projects, including Canadian tar sands, that were economically viable when prices were above $100 a barrel. But not everyone agreed that the oil industry needed to focus on the immediate problem of how to cope with a lower oil price. Nobuo Tanaka, executive director of the International Energy Agency, said the biggest challenge was the uncertainty and the volatility of the market. Christof Rühl, BP’s chief economist, agreed that even though demand from China and other developing economies might slow in the short term, it would continue to be strong in the long term.
- African children smile for the camera, a youngster sips pink medicine from a spoon and a doctor explains his part in a venture to fight malaria, the No. 1 killer on the continent. It’s an effort, he says, that will help save hundreds of thousands of lives. The images look like something out of a health documentary, but it’s a commercial for oil giant Exxon Mobil Corp., for which the doctor is medical projects director. Exxon’s other new ads talk about efforts such as its breakthrough technology for hybrid-electric car batteries. Chevron Corp. is showcasing its geothermal operations. Of the energy challenge, one ad says, “This isn’t just about oil companies. This is about you and me.” The world’s best-known oil companies are pouring on the charm as they get ready this week to parade another round of fat profits before a public that is feeling suddenly poorer. The spotlight will shine on Exxon and Chevron. Such advertising makes sense after a summer with oil at nearly $150 a barrel and a fall likely to bring renewed scrutiny of their investments and tax breaks. But when oil companies spend their money, it’s less about you and me than about their shareholders. In many respects, industry experts note, what’s good for Big Oil’s bottom line isn’t necessarily good for Joe Q. Jetta. “That’s a game that oil companies have been playing for a while, but they’ve been pumping more money into it lately,” said Sheldon Rampton, research director at the Center for Media and Democracy. “They’re hoping to mitigate their bad reputation rather than become beloved.” A few examples in which shareholders have trumped consumers: with world oil production falling behind demand, major oil firms are spending a larger share of their record profits on stock buybacks and dividends rather than increasing supply-boosting exploration; in July, when refiners saw profits squeezed by high oil prices and lower fuel demand, they throttled back production. When hurricanes hit the Gulf Coast, as much as 14% of the nation’s refining capacity was off-line and gasoline inventories were unusually low. Drivers quickly felt the effects; as high diesel prices help put truckers on the road to bankruptcy, refiners have been sending diesel to Europe to fetch a better price. In nearly every industry, shareholder returns regularly win out over the needs of consumers – who may also be shareholders. Energy companies are unusual, though, because the planet hasn’t yet figured out how to get by without their products. And unlike regulated utilities such as Southern California Edison Co. and Pacific Gas & Electric Co., which have a legal duty to consider the needs of ratepayers, oil companies today have little direct connection to the customers who frequent their branded gas stations. Most Shells, Chevrons and the like long ago were sold off to dealers and wholesalers. “It’s a tough, tough business, and that’s why they’ve decided to get out of it,” said John Felmy, chief economist at the American Petroleum Institute, the industry’s lobbying group. But, he said, “we do care about consumers. If you don’t care about consumers, you’re not going to stay in business.” That allegiance to consumers is sure to be tested in the next year, as Congress and the public weigh major energy proposals, said Amy Myers Jaffe, energy fellow at Rice University’s James A. Baker III Institute for Public Policy. “The question is, would consumers be better off if they spent more money on exploration and less money buying back stock? In my opinion, the answer to that question is yes,” Jaffe said. In 1993, the five biggest publicly traded oil companies – Exxon Mobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips – spent 39% of their operating cash flow on development projects, 14% on exploration and only 1% on buying back their own stock. In 2007, they spent 34% on development, 6% on exploration and 34% on stock buybacks, according to a study co-written by Jaffe. In a capitalist market, though, “you could say that it’s not their job to be doing things in the public’s best interest,” Jaffe said. Domestic oil exploration illustrates the point. Congress recently voted to ease long-standing bans on new offshore oil drilling in certain regions. Whether the energy companies pursue any new drilling will depend not on the needs of consumers but on profit considerations such as the price of oil, the cost of the project and estimates of future demand. When oil pushed toward $150 a barrel and natural gas fetched $13 per thousand cubic feet, it was hard to imagine any company having second thoughts about new drilling. But oil prices have slumped below $70 a barrel. Natural gas prices have fallen by nearly half. And the economies of the U.S. and elsewhere are flagging, cutting energy demand. Natural gas producer Chesapeake Energy Corp., whose ads assert that the answer to the nation’s energy crisis is “right under our feet,” isn’t as enthusiastic now. Last month, the company told investors that production was “uneconomic” at today’s prices. So Oklahoma City-based Chesapeake, one of the largest suppliers of U.S. natural gas, cut production by 4% and investment spending by 17% through 2010. The company also is eyeing exports, calling the opportunity for overseas sales “very compelling” for U.S. natural gas companies. This summer’s soaring gasoline and diesel prices and post-hurricane shortages underscored the fragility of the nation’s fuel supplies. Even though the nation’s fuel production runs chronically short of demand, the combination of rising construction costs, sinking demand, greater use of renewable fuels and worsening credit markets have tempered enthusiasm for investments that would pump up output. Last week, Canada’s Connacher Oil & Gas Ltd. shelved plans to more than triple production at its Montana refinery. The project “would have increased diesel supplies in the Northern Rockies and in some Western provinces that at times have been chronically short of diesel,” the Oil Price Information Service said in a subscriber note. Valero Energy Corp., the largest U.S. fuel maker, is one of the few refiners planning big investments. But like its rivals, the company keeps its focus on the bottom line. The company noted that high gasoline stocks in the spring cut into profit, but the returns on diesel have been “terrific all year,” Chief Executive Bill Klesse told analysts last month. Felmy, the oil industry economist, said some of what refiners are exporting isn’t usable in the U.S. because of clean-air requirements. Profits on gasoline picked up after the hurricanes, in part because several refiners had cut output to reduce inventories and revive profit margins. That decision left the Gulf Coast region with inventories too low to make up for the lost production when hurricanes Gustav and Ike shut refineries. In mid-August – before the first hurricane hit – U.S. refineries operated at nearly 86% of capacity, and gasoline inventories dropped below a 21-day supply – a very small cushion, said Tom Kloza, chief oil analyst for the Oil Price Information Service. After the hurricanes, refiners’ profits perked up as prices leaped and shortages developed. “Even though prices have leveled off and come down, I think people are still leery of the oil companies,” said Tyson Slocum, director of the energy program for Public Citizen, a Washington-based consumer group. “As soon as prices go back up again or we see more record profits, steam will be coming out of people’s ears.”
- The oil-profit gusher continued with Westwood-based Occidental Petroleum posting a 72% boost in earnings for the third quarter on higher production and oil prices that nearly touched $150 a barrel. Oil giant BP reported an 83% jump in net income. In spite of the earnings that one oil critic referred to as “outlandish,” the challenge for Occidental and BP is maintaining momentum in a market that has changed so much that the quarter “feels like distant history,” as Byron Grote, BP’s chief financial officer, put it. Still, both companies said they expected to do well despite sharply lower energy prices. Crude oil for December delivery fell 49 cents to $62.73 a barrel Tuesday on the New York Mercantile Exchange, unable to rally even though the Dow Jones industrial average soared almost 900 points. Oil futures have fallen more than 50% from July’s peak. “It was a great quarter for Occidental and BP thanks to high energy prices, but that is over in terms of earnings going forward. It’s a new game now,” said Fadel Gheit, senior energy analyst at Oppenheimer & Co. Gheit said Occidental and BP should benefit from their conservative outlooks at the expense of more aggressive rivals that based their long-term plans on oil staying at least in the $80- to $100-a-barrel range. “Both have relatively low cost structures and low production costs,” Gheit said. Analyst Phil Weiss of Argus Research said that better-managed oil companies such as Occidental and BP tend to crunch their numbers based on exceedingly conservative estimates of how the oil market was going to perform. He said that didn’t change even if oil surged to record levels. Occidental uses a price below $60 a barrel and BP does projections on oil as low as $40 a barrel. Occidental Chief Executive Ray Irani said as much during the earnings conference call with analysts: “We feel quite comfortable that at $57 a barrel we’ll still have free cash flow.” Another round of record oil company profits has inflamed critics. Speaking specifically about BP, Santa Monica-based Consumer Watchdog said the British company “rode the wave of the crude oil price spike to a staggering profit jump in the third quarter of 2008. It is a stark reminder of the damage inflicted by energy costs on a world economy that was heading into recession.” Last week, ConocoPhillips said third-quarter earnings rose 41% to $5.2 billion. Hefty profits are expected Thursday from Exxon Mobil Corp. and Friday from Chevron Corp. Occidental’s net income for the three months ended Sept. 30 climbed to $2.3 billion, or $2.78 a share, from $1.3 billion, or $1.58, a year earlier, easily beating the average $2.71 a share estimated by analysts polled by Thomson Reuters. Sales rose 46% to $7.1 billion. Its oil and natural gas output rose 3.2% to the equivalent of 588,000 barrels of crude a day, lead by improvements in Qatar, Oman and the U.S. BP’s net profit advanced to just under $8.1 billion, or 43 cents a share, from $4.41 billion, or 23 cents, a year earlier. Revenue rose 45% to $103.2 billion. Occidental shares gained $7.62, or 18%, to $49.70, while BP rose $6.37, or 16%, to $46.52.
• Upstream news:
• Downstream news:
• Business/Finance news:
- BP and the Chinese Academy of Sciences (CAS) agreed to establish the Clean Energy Commercialisation Centre (CECC) joint venture in Shanghai, jointly investing some RMB500 million ($73million) to commercialise Chinese clean energy technologies. Dr. Tony Hayward, BP group chief executive, and Mr. Li Jinghai, Vice President of CAS, witnessed the signing of the CECC joint venture agreement at a ceremony in Beijing today. Subject to final government approvals, the CECC joint venture is expected to be established in early 2009. The Centre will draw on the expertise and experience of both partners to integrate individual energy-related technologies - such as coal gasification and conversion, carbon capture and storage, coal bed methane and underground gasification - developed by CAS institutes and other organizations both within and outside China, into competitive integrated manufacturing systems and solutions.
• Upstream news:
- BP and BG Group have agreed to exchange a package of North Sea assets which is intended to strengthen BP's position as a major operator in the Southern North Sea and facilitate development activity and investment in the UKCS. BP has agreed to acquire BG Group's interests in a number of Southern North Sea fields - the BP-operated Amethyst, Whittle and Wollaston fields and all of BG Group's interests in the Easington Catchment Area (ECA) fields including Mercury, Neptune, Minerva, Apollo and Artemis. BG Group has agreed to acquire BP's interests in three Central North Sea fields - the BP-operated Everest and Lomond fields, and the BG-operated Armada field. BG Group has also agreed to acquire 32% of the Chevron-operated Erskine field from BP. The respective equity interests have been agreed to be exchanged without any cash payment. Upon completion of the deal, around 90 BP offshore staff currently working on the Everest and Lomond installations will transfer to BG under TUPE regulations (Transfer of Undertakings - Protection of Employment). There are no offshore staff involved in the assets transferring from BG Group to BP as BP already operates the assets involved. A small number of onshore positions in BP are impacted by the asset transfer, but BP has agreed to redeploy locally within BP all of the individuals involved.
• Downstream news:
• Business/Finance news:
Go to Oil Company News