Shell News – 2008
News summaries from company 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.
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• Upstream news:
- Shell announced that Final Investment Decision has been taken to jointly develop the Gumusut-Kakap field, located in deepwater, offshore Sabah, Malaysia. Sabah Shell Petroleum Company will be operator of the development, which will employ the region’s first deepwater Floating Production System (FPS), with a processing capacity of 150,000 barrels of oil per day. The field, which is in waters up to 1,200 metres deep in blocks J and K, will be developed using 19 subsea wells with oil exported via a pipeline to a new oil and gas terminal, which will be built in Kimanis, Sabah. The Gumusut and Kakap fields were combined into a single development under a Unitisation and Unit Operating Agreement signed by the co-venturers in 2006. Shell and ConocoPhillips Sabah Ltd each hold 33% interests in the development, PETRONAS Carigali has 20% and Murphy 14%.
• Downstream news:
- As part of the ongoing co-operation between Audi and Shell, global leaders from the worlds of politics, economics and non profit organisations at the World Economic Forum in Davos, from January 23rd to 27th 2008, will be chauffeured to the event in Audi TDI cars fuelled by Shell GTL Fuel (Gas to Liquids). The combination of the synthetic diesel-type fuel and the latest diesel technology can significantly contribute to cleaner tailpipe emissions. Shell will be providing 100% GTL Fuel for 81 unmodified Audi TDI cars. The GTL Fuel will be stored and dispensed at the Shell stations at “Davos Platz” and the Glatt Centre in Zurich. GTL Fuel is a synthetic fuel produced from natural gas. It is colourless and virtually free of sulphur and aromatics, and has shown significant reductions in emissions of NOx, particulates and other local emissions. With more than 50% of the world’s population living in urban areas, there is evidence that local vehicle exhaust emissions are a major challenge to air quality. Synthetic fuels have been shown to contribute to improved air quality in major cities such as Shanghai, and have immediate impacts on emissions across public vehicle fleets. Shell is currently producing this GTL (or Gas to Liquids) Fuel at its Bintulu plant in Malaysia. Based on more than a decade of operating experience, in partnership with Qatar Petroleum, Shell is constructing a 140,000 bbl/d worldscale GTL plant in Qatar, ten times the size of its Malaysian production facility.
• Business/Finance news:
- At 07:00 BST (08:00 CET and 02:00 EST) on Thursday January 31, 2008 Royal Dutch Shell plc will release its its 4th quarter and full year results and 4th quarter interim dividend announcement for 2007. All related materials will be posted on www.shell.com/investor on 31 January 2008.
- Royal Dutch Shell plc released its4th quarter and full year unaudited results and 4th quarter interim dividend announcement for 2007 at07:00 BST (08:00 CET and 02:00 EST) on Thursday January 31, 2008.
• Upstream news:
- Royal Dutch Shell plc is pleased to be the apparent high bidder on 275 lease blocks in the February 6th, 2008 US Outer Continental Shelf Lease Sale 193 in the Chukchi Sea, offshore northwest Alaska. Shells high bids totaled $2.1 billion USD.
• Downstream news:
• Business/Finance news:
- Shell launched the latest dramatized film in its global brand campaign, focusing on the contribution that Shell's gas to liquids (GTL) Fuel can make towards cleaner air in cities where air pollution from traffic is a chronic problem. The new film, “Clearing the Air”, dramatizes the true story of the development of GTL technology from a laboratory technique to a global scale innovation, compressing about 30 years into a seven minute film. Shell was one of the first companies to produce ‘zero-sulphur’ diesel on a commercial scale, phase out lead from road transport fuel in refineries, develop additives to help engines work more efficiently and has consistently been an industry leader in developing and commercializing a new generation of fossil fuels.
• Upstream news:
- Shell is rejuvenating its portfolio for a world of higher and more volatile commodity prices, increased competition, and higher costs. As part of the annual review of strategy, Shell said it is building over 50 large projects, that will underpin new cash flows for decades to come. Upstream, Shell has over 10 billion barrels of oil equivalent (boe) resources under construction, which will add ~1 million boe/d of production. Shells industry-leading fuels and lubricants portfolio is being positioned into growth markets. The company is also building significant new petrochemicals facilities, and new refining and downstream gas-to-liquids (GTL) capacity totaling ~300,000 b/d for Shell.
• Downstream news:
- ExxonMobil Chemical, a division of ExxonMobil Corporation and Shell Chemicals Limited, an affiliate of Royal Dutch Shell plc announced that, as part of the study to review strategic options for the Infineum additives joint venture, they have agreed to evaluate market interest and will be discussing Infineum with several potential buyers. This study is part of an ongoing strategic assessment of the business and opportunities for growth, restructuring, or divestment depending upon fit with overall strategic business objectives. JP Morgan has been retained to assist with the strategic study. No divestment decision has been made and there is no specific timetable related to the strategic study. During the review process, the shareholders remain committed to supporting Infineum’s strategic and operational goals and its ongoing financial progress.
- Shell and Virent Energy Systems, Inc., (Virent (TM)) of Madison, Wisconsin USA, announced a joint research and development effort to convert plant sugars directly into gasoline and gasoline blend components, rather than ethanol. The collaboration could herald the availability of new biofuels that can be used at high blend rates in standard gasoline engines. This could potentially eliminate the need for specialized infrastructure, new engine designs and blending equipment. Virent's BioForming(TM) platform technology uses catalysts to convert plant sugars into hydrocarbon molecules like those produced at a petroleum refinery. Traditionally, sugars have been fermented into ethanol and distilled. These new ‘biogasoline’ molecules have higher energy content than ethanol (or butanol) and deliver better fuel efficiency. They can be blended seamlessly to make conventional gasoline or combined with gasoline containing ethanol. The sugars can be sourced from non-food sources like corn stover, switch grass, wheat straw and sugarcane pulp, in addition to conventional biofuel feedstock like wheat, corn and sugarcane. The companies have so far collaborated for one year on the research. The BioForming(TM) technology has advanced rapidly, exceeding milestones for yield, product composition, and cost. Future efforts will focus on further improving the technology and scaling it up for larger volume commercial production.
• Business/Finance news:
- Royal Dutch Shell plc announced that an agreement in principle was concluded to settle the pending United States class action arising from Shell's* recategorization of its proved oil and gas reserves in 2004. The class is represented by the Pennsylvania State Employees' Retirement System and the Pennsylvania Public School Employees Retirement System. The agreement in principle is subject to specified conditions, including the execution of a definitive settlement agreement, the approvals of Shell’s Boards of Directors and of the relevant governmental authorities of the State of Pennsylvania, and the approval of the United States District Court for the District of New Jersey. The proposed settlement complements a previously announced proposed settlement reached on behalf of non-U.S. persons and entities who purchased Shell shares on non-U.S. exchanges between April 8, 1999 and March 18, 2004 (the “Class Period”). That earlier proposed settlement is pending in the Netherlands, before the Amsterdam Court of Appeals, which has been asked to declare the proposed settlement binding. The new proposed settlement covers all persons and entities who purchased Shell shares on U.S. markets during the Class Period, as well as all U.S. persons and entities who purchased Shell shares on non-U.S. markets during the Class Period. All participants in the proposed Dutch and U.S. settlements would receive equal settlement relief. The proposed U.S. and Dutch settlements, if approved by the courts, would put an end to all pending litigation arising out of the 2004 reserves recategorization.
- The Iraqi government is negotiating with American and European oil companies to manage the development of five new fields in northern and southern Iraq, an Oil Ministry official said. Iraq hopes to reach agreements that will help it reach its goal of increasing crude oil production — now 2.3 million barrels a day — by 500,000 barrels a day, said Asim Jihad, a spokesman for the Oil Ministry. The oil minister, Hussain al-Sharistani, is in Vienna for a meeting of the Organization of the Petroleum Exporting Countries and did not respond to requests for an interview. Iraq once had one of the region’s strongest agricultural and industrial economies. But United Nations sanctions and years of war with Iran destroyed much of its economic base, leaving the nation heavily dependent on petrodollars. Hobbled by armed conflict, mismanagement and neglect, Iraq produces less oil than Saudi Arabia (more than nine million barrels a day) or Iran (nearly four million barrels a day), and far less than its potential capacity. Mr. Jihad said Iraq hoped to produce six million barrels of crude a day by 2015. He declined to identify the companies invited to bid on the technical service contracts because the deals have not been completed. But in previous interviews Iraqi officials have described meetings in February with executives from Chevron, Exxon Mobil, Royal Dutch Shell and Total SA. Mr. Jihad said Iraqi officials selected specific companies for their knowledge of Iraq’s oil fields and their expertise in managing large development projects. The negotiations are in their second round, he said, and would probably be completed by the end of this month.
- On Monday, 17 March 2008 Royal Dutch Shell plc will give an update on RDS Group Strategy. All related materials will be posted on www.shell.com/investor on 17 March 2008.
- The Board of Royal Dutch Shell plc ("the Company") (NYSE: RDS.A, NYSE: RDS.B) announces its intention to propose to the 2008 Annual General Meeting that Dr. Josef Ackermann, Chairman of the Management Board and the Group Executive Committee of Deutsche Bank AG, be elected a non-executive director of the Company with effect from May 21st, 2008. Dr. Ackermann joined Deutsche Bank’s Management Board in 1996. Prior to that he was at Schweizerische Kreditanstalt (SKA), where he was appointed to the Executive Board in 1990 and became its President in 1993. He is currently also a member of the Supervisory Board of Siemens AG. It is intended that Dr. Ackermann will join the Remuneration Committee of the Company. Deutsche Bank provides a limited number of financial services to the Company. Dr. Ackermann has had no involvement in such services.
- Royal Dutch Shell plc filed its Annual Report and Form 20-F for the year ended December 31, 2007 with the U.S. Securities and Exchange Commission. The 2007 Annual Report and Form 20-F can be downloaded from www.shell.com/ir or www.sec.gov - opens in new window.
- The business case for conserving nature is strong and getting stronger, according to a new report published by IUCN (International Union for Conservation of Nature) and Shell International Limited. The report calls for policy reforms to increase the commercial rewards for conserving biodiversity, increased penalties for biodiversity loss and better information on the biodiversity performance of business. A key challenge facing all biodiversity businesses is the lack of accepted indicators to measure positive and negative contributions to biodiversity conservation.
As the world wakes up to the accelerating loss of biological diversity, businesses are increasingly viewing biodiversity conservation as a potential profit centre, says the report, Building Biodiversity Business.
- Royal Dutch Shell (Shell) announced that it has signed Master Service Agreements (MSAs) with three global IT and telecommunications suppliers to manage a significant part of its IT infrastructure and telecommunications services. The move is part of the company's initiative to achieve top quartile performance in its businesses and functions in support of its "More Upstream, Profitable Downstream" strategy. As well as significant improvements in efficiency and productivity, the initiative will deliver important financial benefits for Shell over the first five years. Over the same period, the total value of the Agreements to the three suppliers will be in excess of $4.0 billion. Under the MSAs, Shell will outsource the provision of its IT infrastructure and telecommunications services in 3 service bundles, starting 1st July 2008: AT&T for network and telecommunications, T-Systems for hosting and storage, and EDS for end user computing services and for operational integration of the infrastructure services.
• Upstream news:
• Downstream news:
- Shell Lubricants unveiled two new heavy-duty engine oils, Shell Rimula R6 LME and Shell Rimula R4 L. They are the latest development in Shell’s on-going work to help fleet operators minimise their costs and environmental impact by improving fuel economy and reducing exhaust emissions. Shell Lubricants today unveiled two new heavy-duty engine oils, Shell Rimula R6 LME and Shell Rimula R4 L. They are the latest development in Shell’s on-going work to help fleet operators minimise their costs and environmental impact by improving fuel economy and reducing exhaust emissions. The technology behind the new oils – Shell Rimula R6 LME and Shell Rimula R4 L – has been developed to help makers and operators of heavy-duty vehicles meet and beat new engine emissions regulations, such as Euro V and US 2007, with their challenging limits on particulate matter and oxides of nitrogen. The new products form part of a wider Shell strategy to contribute to ‘sustainable mobility’ by bringing to market advanced fuels and lubricants.
- Qatargas, Shell and PetroChina signed binding sales and purchase agreements that will lead to the long-term supply of liquefied natural gas (LNG) originating from The State of Qatar to the rapidly growing Chinese market. The agreements were signed in Beijing by His Excellency Abdullah bin Hamad Al-Attiyah, Deputy Prime Minister and Minister of Energy and Industry of Qatar, Mr. Jiang Jiemin, President of China National Petroleum Corporation and Chairman of PetroChina Company Ltd and Ms. Linda Cook, Executive Director of Royal Dutch Shell plc. The LNG will be provided from the Qatargas 4 project in Qatar and shipped to PetroChina’s LNG receiving terminals upon the start-up of commercial operations of these facilities. The agreements are for 3 million tonnes per annum of LNG for 25 years. Qatar, already the world’s largest LNG exporter, is set to expand production to 77 million tonnes per annum by 2010. Chinese companies have previously signed long-term LNG supply agreements with projects in Australia, Indonesia and Malaysia.
- German Chancellor Angela Merkel and more than 100 other guests marked the completion of the building phase of the world’s first commercial production plant to convert biomass into synthetic diesel fuel. The plant, built in Freiberg, Germany by CHOREN Industries GmbH, will produce a high performance fuel called BTL from non-food biomass, such as forest residues and waste wood. The use of these raw materials means that a litre of BTL will need less than a third of the land needed for a litre of rapeseed bio diesel. The fuel also promises to reduce CO2 production by up to 90% compared to conventional diesel and is compatible with standard diesel engines and supply infrastructure. The next important step will be starting production, which will be in 8-12 months. The plant is designed to produce 18 million litres of fuel per year. Guests in Freiberg saw the engineering behind the build of this highly complex, first-of-a-kind plant and heard how the operations team will now go through structured testing of the 113 subsystems. They also looked ahead to future industrial-scale production of next generation biofuels.
- A modified route for the onshore section of the Corrib gas pipeline has been announced . The route, proposed by RPS consultants, the company contracted by the Corrib Gas partners to identify an alternative route in the vicinity of Rossport, is twice as far away from occupied housing compared to the originally approved route. It has been identified following a 14-month route selection process including 11 months of public consultation. As well as modifying the route of the pipeline, the Corrib partners have agreed to limit the design pressure in the onshore section of the pipeline to 144 bar, less than half of the original design pressure. This recommendation was made by Advantica as part of their Independent Safety Review published in 2006. The Corrib Gas Partners accepted, and are implementing, all of the Advantica recommendations.Construction of the Corrib gas processing terminal, at Bellanaboy, Co. Mayo is well underway with over 650 people employed on what is now the biggest construction site in Ireland. The Corrib Gas project will provide up to 60% of Ireland's gas needs at peak supply, and will add €3billion to Ireland’s GDP over the life of the project*. Next month the Corrib partners will resume further drilling and subsea work at the Corrib gas field, 83km off the coast of County Mayo, using the Sedco 711 drilling rig. The Corrib partners plan to complete the work on the Corrib subsea wells during 2008, by which point five gas wells will be ready for production at a later date. Further offshore engineering activity will be required in 2009 to complete the installation of the offshore facilities.
• Business/Finance news:
- Royal Dutch Shell Plc chief executive Jeroen van der Veer will ask governments to act swiftly to adopt new policies and mechanisms that promote lower CO2 emissions as part of society's response to the threat of climate change. Speaking in Brussels at the European launch of the Shell Energy Scenarios, Mr. van der Veer will in particular call upon European policymakers to urgently put in place incentive measures to ensure the rapid development of techniques to store CO2 underground.
- Shell, Stichting Shell Reserves Compensation Foundation (the Foundation), VEB (the Dutch Shareholders Association), APG, All Pensions Group (on behalf of pension fund ABP) and PGGM (on behalf of Stichting Pensioenfonds Zorg en Welzijn) have announced that the Amsterdam Court of Appeals (the Court) has scheduled a hearing on 20 November 2008 with respect to their request for a binding declaration of their settlement agreement concerning reserve-related claims. This settlement agreement provides relief in the amount of US$352.6 million to qualifying non-U.S.-shareholders who bought Shell shares on any stock exchange outside the United States between April 8, 1999 and March 18, 2004 (the European settlement). The European settlement was originally reached and announced in April 2007. The parties opted to wait to file an amended petition until a U.S. court ruled on Shell’s position that the Court did not have jurisdiction to consider the claims of non-U.S. shareholders in the pending U.S. class action based upon the same reserves issues. On March 6, 2008 Shell announced the settlement in principle of reserve-related claims with U.S. investors providing, among other relief, a base settlement amount of US$82.85 million to resolve the securities class action pending in the U.S., from which the non-U.S. shareholders were excluded in January. The parties in the U.S. class action have not yet finalized this U.S. settlement, nor sought court approval. After finalization and court approval, the U.S. settlement would have an effect on the European settlement. The U.S. class and the participants in the European settlement collectively would receive an additional payment of US$ 35 million, to be divided in accordance with proportions determined in the two proposed settlements. In addition, Shell has agreed to pay interest on the European settlement amount effective April 1, 2008.
- At 07:30 CEST (06:30 BST and 01:30 EDT) on Tuesday, 29 April 2008 Royal Dutch Shell plc will release its first quarter results and its first quarter interim dividend announcement.
- At 07:30 CEST (06:30 BST and 01:30 EDT) on Tuesday, 29 April 2008 Royal Dutch Shell plc released its first quarter results and its first quarter interim dividend announcement.
- Higher oil and gas prices helped Royal Dutch Shell and BP report record first-quarter profits, beating analysts’ expectations and prompting a rise in stock prices across the industry. Europe’s two biggest oil companies more than offset declining refining margins as crude oil nears $120 a barrel. Investors seeking rescue from a declining dollar by investing in commodities and continued attacks by militants in Nigeria curbing output pushed crude to a record $119.93 on Monday in New York. Shell’s net income in the first three months of the year rose 25 percent to $9.08 billion and BP reported its profit increased 63 percent to $7.62 billion. Shares of Shell and BP trading in London rose more on Monday than they have in at least two years. At BP, oil and gas production was unchanged at 3.9 million barrels of oil equivalent a day, the company said. Shell’s output remained unchanged at 3.5 million barrels of oil equivalent a day, though several recent events had disrupted production. This month, five police guarding an oil and gas terminal in Nigeria were killed, and BP closed a pipeline system in Scotland after a strike over pension payments at a refinery cut power supplies. Some investors are particularly worried about supplies from Nigeria, which produces the higher quality crude needed in the United States to meet the demand that is expected to increase during the upcoming summer driving season. Both oil companies have also complained about fierce competition from government-run rivals, which they say have an advantage when negotiating energy projects. Tony Hayward, who succeeded John Browne as BP’s chief executive last year, has been reducing layers of management to improve efficiency and accountability following a number of fatal accidents at refineries. Hayward is also focusing on increasing output by restoring production capacity and finding new projects. BP began oil production at the Deep Water Gunashli field in the Caspian Sea earlier this month and expects its Thunder Horse production platform in the Gulf of Mexico, which cost more than $1 billion to build, to start production later this year following a three-year delay. The company also completed some repairs at its Whiting, Indiana, plant and the Texas City refinery, where an explosion killed 15 people in 2005. Exxon Mobil, the world’s largest oil company, is set to report figures on May 1, followed the next day by Chevron. ConocoPhillips said on April 24 that first-quarter profit rose 17 percent to $4.14 billion.
• Upstream news:
- The race is on to produce tomorrow's oil from new and more hostile frontier environments. The construction of the hull of one of the world's deepest oil production facilities is now complete and started to make its 8,200 mile journey from the shipyard in Pori, Finland, to Ingleside, Texas. The massive steel spar structure, which is nearly as tall as the Eiffel Tower, and weighs as much as 10,000 family cars, forms part of Shell's most ambitious deepwater offshore oil and gas development ever undertaken and will be the world’s deepest spar production facility. Operating in ultra-deep waters of the Gulf of Mexico, the Perdido spar will float on the surface in nearly 8,000 ft of water and is capable of producing as much as 130,000 barrels of oil equivalent per day. The spar will be secured in place by nine chain and polyester rope mooring lines, spanning an area of the seafloor roughly the size of downtown Houston. On the seafloor, 22 wells, each extending more than 14,000 ft from the surface and into the mud and rock beneath the vast Alaminos Canyon, will be linked to the Perdido spar above. Oil will be brought to the surface against the extreme pressure of the deepwater by 1,500 horsepower electric pumps and gas will be separated on the sea floor and naturally rise to the production unit on the surface. The remotest producing platform in the entire Gulf of Mexico region, Perdido will float 220 miles from Galveston, Texas, and provide living quarters for 150 industry personnel. The helicopter landing deck will also set new industry records, accommodating two long-range Sikorsky S92 helicopters simultaneously, each holding up to 24 passengers and crew. Following its departure from Finland, the hull will travel by transport barge to Ingleside, Texas, where it will be outfitted for offshore installation before beginning the journey to the deep sea and its final frontier destination in block 857 of the Alaminos Canyon.
• Downstream news:
- Royal Dutch Shell Plc supports the EU commitment to demonstrate Carbon Capture and Storage (CCS) technology in 12 large-scale plants by 2015. Early demonstration is key to bring environmentally safe CCS to commercial deployment from 2020. Commenting on the European Parliament’s first debate on CCS held yesterday in Brussels, Shell’s Executive Vice President CO2 Graeme Sweeney said: “The proposed CCS and Emissions Trading Directives provide a unique opportunity to establish a framework for funding using the power of the carbon market to drive CCS deployment. We support the proposals discussed in the Parliament to award carbon credits for CO2 captured and stored, during the demonstration phase. This would enable investment decisions on CCS to be made as early as 2009.” Shell welcomes the draft CCS Directive which provides for a sound regulatory framework for the geological storage of CO2. But in its initial stages of implementation a transitional funding is crucial to accelerate CCS deployment which is key to achieve CO2 emission reduction targets by 2020. Shell believes that government policies adopted in Europe in the next five years could help shape the world’s energy landscape for a half-century to come. Shell has estimated that a seven year delay in the world’s known CCS projects means 90-100 billion tones of avoidable CO2 emissions being released into the atmosphere, or a 10 ppm increase in long-term CO2 stabilization levels.
- Shell Canada Limited recently signed on as a co-sponsor of the International Energy Agency Greenhouse Gas (IEA GHG) Weyburn-Midale CO2 Monitoring and Storage Project (Weyburn-Midale CO2 Project) at the Petroleum Technology Research Centre (PTRC) in Regina, SK. The Weyburn-Midale CO2 Project is one of the world’s three largest in-field carbon storage research projects, and the largest CO2 enhanced oil recovery (EOR) project on land. In its final phase, the $80 million international study is investigating long-term geological storage of man-made carbon dioxide (CO2) – used around the world to increase oil production – in mature oil reservoirs. Research from the project is shared with partners on an ongoing basis. When CO2 is injected underground in carbon flooding, it helps to thin light to medium oil and move oil that was previously unrecoverable towards production wells. The majority of the CO2 remains underground and the portion that returns to the surface with the produced oil is captured and returned underground in a closed loop system. Economically feasible storage of CO2 provides a real tactic to mitigate the environmental impact of oil production. It’s understandable that the environmental potential of the technology is grabbing international attention, while the economic benefits encourage early adoption of the technique. The final phase of the Weyburn-Midale CO2 Project, which Shell has committed to co-sponsor, will build on the data gathered in the first phase to further develop the most scrutinized data set for CO2 geological storage in the world. A key end deliverable for this final phase is also to compile a Best Practices Manual to guide all aspects of future CO2 storage projects. This Best Practices Manual will address both technical and policy considerations for successful implementation.
- Shell is demonstrating its commitment to fuels innovation and the development of sustainable, low-carbon fuels with the blending of BTL (Biomass to Liquids) into its Shell V-Power Diesel race fuel at the 24 Hours of Le Mans race, in France on June 14, 2008. This will be the first time a second-generation biofuel has been used at the 24 Hours of Le Mans race, highlighting the role of Shell V-Power Diesel race fuel as a test bed for new technologies and fuels innovation. Shell V-Power Diesel also includes synthetic GTL (Gas to Liquids) Fuel made by Shell from natural gas, which provides very clean and efficient combustion. BTL is a high-performance synthetic diesel fuel made from non-food biomass, such as forest residues and waste wood, and promises to reduce CO2 production by up to 90% compared to conventional diesel. A small amount of this new biofuel will be blended into the Shell V-Power Diesel race fuel together with the established GTL component, which is already being produced at a commercial scale and has been used in the Shell V-Power Diesel race fuel since 2006.
• Business/Finance news:
- Shell China Limited and its affiliated companies in China will donate a total of RMB10 million to support the earthquake rescue in the Sichuan province. The donations will be made through the China Foundation of Poverty Alleviation and are fully supported by the Shell Group. As part of these donations, Shell China and its business partners in China are making the following contributions: CNOOC and Shell Petrochemicals Company Limited, a CNOOC-Shell joint venture, and its staff are donating RMB3 million; Shell Tongyi Lubricants is actively organising donations and support in kind in excess of RMB 400,000 to affected distributors and families; Shell Hong Kong and staff have donated HK$100,000; Shell Lubricants is providing support in kind amounting to RMB200,000 to affected dealers, and will organise fundraising at the forthcoming National Distributors Conference in late May. In addition, Shell Retail staff in the Chongqing and Chengdu regions are working hard under challenging conditions to serve the local communities, whilst Shell staff from around the world are also raising funds to support the affected communities.
- The 2008 edition of the Shell Eco-marathon Europe was a great year in spite of the occasional rain showers. Chief among the record-breakers was the team from De Haagse Hogeschool in the Netherlands, which recorded a 848 km/l result with its Hydrogen fuel cell vehicle in the UrbanConcept category, up from the event record of 810 km/l. The 2007 CO2 emissions record was also improved on by Lulea University of Technology achieving 6.15 grammes of CO2 emissions per kilometre with their UrbanConcept vehicle. This year's Prototype winner, Lyceé La Joliverie, also surpassed its 2007 winning performance, recording a result of 3,383 km/l. The Shell Eco-marathon Europe continues to be a truly international event, and this year’s entries included teams from Hungary, Norway and Singapore. As ever, the event was fuelled by the students' enthusiasm which makes this environmental engineering challenge such a unique event.
- 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. 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. 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 today 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. 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.
- There is no such thing as the future. There are only futures, plural. Historians are supposed to confine themselves to the study of the past, but by drawing analogies between yesterday and today, they can sometimes suggest plausible tomorrows. Seven years ago, the economist Brigitte Granville and I published an article in the Journal of Economic History titled "Weimar on the Volga," in which we argued that the experience of 1990s Russia bore many resemblances to the experience of 1920s Germany. No historical analogy is exact, needless to say. Russia's currency did not collapse as completely as Germany's did in 1923, though the annual inflation rate did come close to 300% in 1992. Our hunch, nevertheless, was that the traumatic economic events of the 1990s would prove as harmful to Russian democracy as hyperinflation had been for German democracy 70 years earlier. "By discrediting free markets, the rule of law, parliamentary institutions and international economic openness," we concluded, "the Weimar inflation proved the perfect seedbed for national socialism. In Russia, too, the immediate social costs of high inflation may have grave political consequences in the medium term. As in Weimar Germany, the losers may yet become the natural constituency for a political backlash against both foreign creditors and domestic profiteers." Seven years later, the man who succeeded Boris N. Yeltsin as our article was going to press is doing much to vindicate our analysis. The rule of law is the keystone of both liberal democracy and international order. Yet, last week, the Russian government showed its contempt for the rule of law by flatly refusing to extradite the man who is the prime suspect in the case of Alexander Litvinenko, poisoned in London in November. The British authorities say they have sufficient evidence to warrant prosecution of Andrei Lugovoy. But the Russians maintain that it would be unconstitutional to hand him over. It is tempting to regard the spat over Lugovoy's extradition as part of a new Cold War between Russia and the West. The list of strategic bones of contention is a long one: the U.S. invasion of Iraq; Russia's assistance to Iran; U.S. missile defenses in Eastern Europe; Russian pipelines in Kazakhstan…. And the rhetoric is getting colder too. Only three months ago, I heard Russian President Vladimir V. Putin give a speech in Munich in which he bluntly warned that Washington's "hyper use of force" was "plunging the world into an abyss of permanent conflicts." Yet this is not Cold War II. Unlike in the 1950s and 1960s, Russia is not self-confident but insecure. It is reliant on exports of natural resources, not its own ability to match American technological accomplishments. It is a waning power. The value of the parallel with Weimar Germany is precisely that it captures the dangers of a backlash against such weakness. As Granville and I anticipated, one of Putin's earliest moves was to launch a campaign against the oligarchs who had been the principal beneficiaries of Yeltsin's (admittedly crooked) privatization, securing the imprisonment of Mikhail Khodorkovsky and the destruction of his oil company. Having frightened the other oligarchs into exile or submission, Putin set about renationalizing energy resources through the state-controlled Gazprom and Rosneft. Foreign investors have also felt the backlash. Having reduced Royal Dutch Shell's stake in the Sakhalin II oil and gas field, Moscow now seems intent on doing the same to BP. As before, the tactic is to accuse the foreign company of violating the terms of its license. Russia under Putin has remained outwardly a democracy. Yet there is no mistaking the erosion of democracy's foundations. In the name of "sovereign democracy," the direct election of regional governors and presidents was replaced with a centralized presidential nomination system. Opposition groups can no longer operate freely. This month, chess maestro and Putin critic Garry Kasparov and other anti-government activists were prevented from boarding a plane to Samara, where Russian and European Union leaders were meeting. On Putin's watch there also has been a discernible reduction in the freedom of the press. The three major TV networks are under direct or indirect government control, and reporters who antagonize the authorities no longer feel safe. Last year, investigative journalist Anna Politkovskaya was murdered, one of 14 Russian journalists who have been slain since Putin came to power. Having more or less stifled internal dissent, Russia is now ready to play a more aggressive role on the international stage. Remember, it was Putin who restored the old Soviet national anthem. And it was he who described the collapse of the Soviet Union as a "national tragedy on an enormous scale." It would be a bigger tragedy if he or his successor tried to restore that evil empire. Unfortunately, that is precisely what the Weimar analogy predicts will happen.
- Oil companies are hardly going green, writes Edward Silver in Money & Co. "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."
• Upstream news:
- Shell Exploration Company B.V. (Shell) and Arrow Energy Ltd. (Arrow), have signed a preliminary agreement to jointly develop projects to extract clean-burning natural gas from coal deposits in Australia, China, Indonesia, Vietnam and India. The alliance with Australian company Arrow will boost Shell’s existing strategic positions in potential coal seam gas (CSG)areas including China, where Arrow’s international acreage is an excellent fit. Arrow has significant CSG production facilities in Queensland, Australia, where it is the largest CSG acreage holder. It has four producing projects in Queensland, and supplies gas for industrial users such as power stations. The memorandum of understanding calls for Shell to acquire a 30% interest in Arrow’s CSG acreage in Queensland, Australia, as well as a 10% stake in Arrow International - a wholly owned subsidiary of Arrow Energy Ltd, which holds Arrow’s international interests in CSG opportunities. The agreement also gives Shell a five-year option to acquire up to 50% of individual Arrow International projects, which includes activities in China.
- Shell Exploration Company (West) B.V. (Shell) and BPZ Energy Inc. have signed a preliminary agreement to jointly explore for oil and gas in northern Peru. The agreement calls for Shell to fund a three-phase exploration programme in exchange for a 50% interest in parts of three BPZ blocks in northern Peru. Under the agreement, Shell will evaluate progress at the end of each exploration phase and decide whether to proceed to the next one. The agreement covers BPZ blocks XIX and XXIII and parts of block Z-1. BPZ retains 100% rights for the parts of block Z-1 where there are existing discoveries. Under the agreement Shell has the possibility to buy into these areas at a later stage. The agreement complements Shell’s ongoing strategy of expanding its upstream oil and gas activities.
• Downstream news:
- Shell exclusive supplier in efficiency challenge for commercial vehicles. Shell was the exclusive supplier of fuels and lubricants for Daimler AG’s “Truck fuel efficiency drive” in Nardo, Italy, last week during which a new record was set for the world's most economical series-production truck with the New Mercedes-Benz Actros.
- In the presence of His Highness Sheikh Tamim Bin Hamad Al-Thani, the Heir Apparent of the State of Qatar, Qatar signed today with PetroChina Company Limited (PetroChina), and Shell (China) Limited (Shell), a Letter of Intent (LOI) to commence joint preliminary studies to assess the viability of building a refinery and petrochemical manufacturing complex and marketing its products in China. The signing was witnessed also by Mr. Xi Jinping, Vice President of the People’s Republic of China and His Excellency Sheikh Hamad Bin Jassem Bin Jabor Al-Thani, Qatar’s Prime Minister and Minister of Foreign Affairs. The LOI was signed by His Excellency Abdulla Bin Hamad Al Attiyah, Deputy Prime Minister, Minister of Energy and Industry, Chairman of Qatar Petroleum International, Mr. Jiang Jiemin, President of China National Petroleum Corporation (CNPC), and Ms. Linda Cook, Executive Director of Royal Dutch Shell plc. The integrated refinery and petrochemical complex will have world-class production capabilities to produce refined fuels and petrochemical products. PetroChina will have a 51% shareholding, QPI 24.5% and Shell 24.5%.
- New station joins 'hydrogen highway,' and gives consumers a taste of the future. Shell Hydrogen LLC announced the opening of California’s first hydrogen refueling station on a conventional Shell gasoline forecourt in West Los Angeles (LA). Located on Santa Monica Boulevard and Federal Avenue (near I-405) the station joins California’s ‘hydrogen highway’, and gives consumers a taste of the future, with refueling services for hydrogen powered fuel cell vehicles becoming just as convenient as conventional gasoline motors.
• Business/Finance news:
- For the third consecutive year Shell V-Power Diesel race fuel has powered the Audi Sport team to victory in the 24 Hours of Le Mans race. This latest victory demonstrates again the power and performance of Shell V-Power Diesel technology embodied in the winning fuel. Following on from historic wins in 2006 and 2007, the Audi R10 TDI once again took the chequered flag in a thrilling race that saw a dramatic fight between the diesel competitors in mixed conditions. The power, efficiency and performance of Shell V-Power Diesel race fuel assisted Audi drivers Tom Kristensen, Allan McNish and Rinaldo “Dindo” Capello to complete the historic French circuit in a 381 laps.
- A hastily convened global energy summit meeting led by Saudi Arabia ended largely in disagreement, with only a modest pledge of increased production by the Saudis and no resolution on what other practical steps should be taken to ease the crisis over soaring oil prices. The global oil market appeared to shrug off the news, and prices rose afterward. The Saudis, who considered the meeting a success because of the high attendance, announced a production increase of 200,000 barrels a day and an expansion of their output capacity if needed in coming years. But news of the immediate production increase had already been absorbed by the world market for oil. Some experts had anticipated that the Saudis might announce a bigger increase. Saudi Arabia, the biggest oil exporter, is the only country with the ability to significantly increase production quickly. By Monday morning in Singapore, the first oil market to react to the Saudi news, oil cost $135.72 a barrel, up slightly from $135.47 in New York on Friday. Later in London trading, the price rose further to $136.78. Rather than finding areas of agreement, participants in the one-day meeting in this coastal city on the Red Sea illustrated the sharply diverging views on what has caused oil prices to double in the past year to the $130 to $140 per barrel range. Consumer nations, led by the United States, Britain and Japan, see more supply as the answer to higher prices. But most producing nations are either reluctant to or unable to pump more oil, and they say a big reason for the price inflation is speculation. Everyone agreed that surging demand in the developing world was a major factor. That point was punctuated last Thursday when China, the world’s fastest-growing consumer of oil, announced it was sharply raising the subsidized prices that its own citizens pay. The price of oil temporarily dropped more than 3 percent on that news alone because of expectations that demand from China would slow. But the overall demand for oil by China, India and other rapidly developing nations, including many in the Middle East, is still expected to grow relentlessly, putting enormous pressure on producers to keep pace. If anything, the Saudi summit meeting made plain the limited options available to push prices down from their record levels. For King Abdullah of Saudi Arabia, who called for the meeting just two weeks ago, it was an opportunity to show that his oil-rich kingdom was aware of growing anger and frustration caused by surging prices in oil-importing countries. It also reflected some alarm by the Saudis that the price inflation was causing consumer nations to look far more seriously at energy alternatives, which eventually could hurt the price of oil. The crisis is also becoming a central issue in the American presidential race, where arguments over who is to blame for high oil prices echoed some of what was heard at the Saudi summit meeting. President Bush has supported calls by Senator John McCain, the presumptive Republican presidential nominee, to allow for more drilling off the coast of the United States. Senator Barack Obama, the presumptive Democratic nominee, opposes more offshore drilling and has called for a crackdown on oil market speculators, whom he blamed for pushing up prices. The question of whether speculators are influencing prices is expected to get closer scrutiny this week in Washington, where a Senate committee led by Senator Joseph I. Lieberman, the Connecticut independent and former Democrat who supports Mr. McCain, will hold hearings on the price swings in the crude oil market. The oil summit meeting here was attended by energy ministers from 35 nations, who convened in a vast ballroom and listened as King Abdullah said he understood the pain that $140 oil was causing. But King Abdullah and Prime Minister Gordon Brown of Britain, who walked into the high-ceilinged hall together as a military band played, soon offered totally different perspectives on the problem. The king spoke of the “selfish interests” of speculators as a key reason and urged the gathered ministers to “rule out biased rumors” and to “reach the real causes for the increase in price.” But Mr. Brown pointed to fundamental economics and “oil demand rising faster than supply.” The American energy secretary, Samuel W. Bodman, put it more bluntly in a meeting with reporters, saying, “There is no evidence we can find that speculators are driving futures prices.”Both sides spoke about the need for compromise, with Mr. Brown calling for a “global new deal” that would allow a “greater commonality of interest” between consumers and producers, including greater freedom to invest in one another’s markets. But asked how all this would help remedy the worst oil crisis in decades, some ministers seemed baffled and uneasy. Despite the urgency that brought hundreds of participants here, Jeroen van der Veer, the chief executive of Royal Dutch Shell, summarized the difficulties faced by oil producers in dealing with record prices: “There are no overnight solutions.” King Abdullah also called for OPEC, the global oil cartel, to pledge $1 billion to help developing nations deal with the effects of soaring energy costs, to which the Saudis would contribute an undetermined share. He also offered an additional $500 million in loans from Saudi Arabia. Beyond that, participants called for both more transparency and more regulation in energy markets, more investments in both production and refining capacity, and more cooperation between producers and consumers. While it is reaping record profits, Saudi Arabia is growing increasingly concerned that current oil prices might eventually dampen economic growth around the world and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices could make alternative fuels much more viable and threaten the long-term prospects of the oil-based economy. Japan’s minister for economy, trade and industry, Akira Amari, made some sharply worded comments on that subject, warning that steep increases in the price of oil were already leading to greater energy efficiency and to the introduction of alternative fuels. He called these “natural self-defense measures” that would “inevitably reduce the revenues of oil producing countries in the medium- to long-term.” To alleviate fears over the supply of oil in the future, one of the main factors behind the rally in oil prices, Saudi officials said the kingdom would be able to increase production capacity in the coming years. The Saudi oil minister, Ali al-Naimi, said that Saudi Arabia would be capable of adding an additional 2.5 million barrels a day to its output beyond the current expansion plans the kingdom is completing. Saudi Arabia is increasing its production capacity to 12.5 million barrels a day in a $90 billion expansion plan that is scheduled for completion next year. Beyond that, Mr. Naimi said, oil experts in the kingdom had identified additional opportunities to expand production, if needed, to 15 million barrels a day in future years. Mr. Naimi said this additional capacity would be used only “if and when crude oil demand levels warrant their development.” He used the same language in saying the kingdom could add even more than the new 200,000-barrels-per-day increase in the short term. The Saudis have already said they believe current demand is being met, despite the high prices — suggesting that high prices alone might not be enough to warrant the increase in supply. Saudi Arabia has already increased its daily production by 300,000 barrels, or about 3 percent, to 9.45 million barrels. But that has had little impact. “There is a very clear difference of opinion on key issues underpinning the high price of oil,” said Raad Alkadiri, an energy analyst at PFC Energy, a consulting firm, who was present in Jidda. “It’s not clear that anything you heard today is going to reverse sentiment. One thing is clear: You are not going to wake up tomorrow and find that oil prices have dropped 20 or 30 dollars.”
• Upstream news:
- Shell announced that it has achieved yet another milestone in the Ursa/Princess Waterflood project. First injection of water occurred on July 3, 2008, and is planned to continue for the next 30 years. With a listed volume enhancement capacity of 30-thousand barrels of oil equivalent per day, the waterflood is expected to extend the life of the field by 10 years. The Ursa/Princess Waterflood is one of the largest construction projects on an existing platform in the Gulf of Mexico. This presented challenges of very high activity levels and simultaneous construction, commissioning, maintenance and well servicing activities, while performing production operations on a large facility located 100 miles offshore. The relentless focus on hazard management and emphasis on reducing risk exposure resulted in strong safety performance over the entire project. Waterflood is a method of secondary recovery in which water is injected into the reservoir formation to displace additional oil. The water from injection wells re-pressurizes the formation and physically sweeps the displaced oil to adjacent production wells. The Ursa/Princess Waterflood topsides injection system injects filtered and treated sea water via two separate flowlines to three subsea sites - one to an existing well site northwest of the Ursa Tension Leg Platform (TLP), one to an existing well site southeast of the Ursa TLP and one to a new well site northeast of the Ursa TLP. Producing wells will include three Princess subsea wells and as many as six Ursa TLP wells. Ursa is located in 3,800 feet of water and encompasses Mississippi Canyon Blocks 808, 809, 810, 852, 853 and 854. Princess is located in Mississippi Canyon Blocks 765 and 766, in approximately 3,650 feet of water. Shell is operator of this project with 45.39%; BP Exploration & Production Inc. has 22.69%; Exxon Mobil Corporation and ConocoPhillips Company each have 15.96%.
• Downstream news:
- Royal Dutch Shell plc and its subsidiaries (“Shell”) and Iogen Corporation today announced an extended commercial alliance to accelerate development and deployment of cellulosic ethanol. The terms of the agreement include a significant investment by Shell in technology development with Iogen Energy Corporation, a jointly owned development company dedicated to advancing cellulosic ethanol. The arrangement will also see Shell increasing its shareholding in Iogen Energy Corporation from 26.3% to 50%. Shell first took an equity stake in 2002. The collaboration with Iogen is a key part of Shell’s strategic investment and development programme in biofuels, particularly in 'next generation' biofuels using non-food feedstocks. The fuel is made from raw materials such as wheat straw and promises to reduce CO2 production by up to 90% compared to conventional gasoline. Iogen’s first demonstration commercial plant opened in Ottawa in 2004. Shell is considering investing in a full-scale commercial cellulosic ethanol plant and is contributing to Iogen’s detailed feasibility and design assessment work.
• Business/Finance news:
- Royal Dutch Shell plc (“Shell”) announced a proposal by its wholly owned subsidiary Shell Canada Limited, to offer (the “Offer”) to acquire all of the outstanding shares of Duvernay Oil Corp. (“Duvernay”). The Offer will be a cash offer of C$83 per share of Duvernay. The Offer would value Duvernay’s fully diluted share capital at approximately C$5.9 billion, including debt, and would be a 36% premium over the average share price over the last 30 days. The Board of Duvernay has voted unanimously to recommend the Offer to shareholders. In connection with the Offer, directors and officers of Duvernay have entered into lock-up agreements pursuant to which they have agreed to tender all of their shares in connection with the Offer, subject to certain exceptions, representing in aggregate some 18.1% of the fully diluted share capital of Duvernay. In addition, Duvernay has agreed in certain circumstances to pay a non-completion fee of C$120 million, and the parties have agreed to customary non-solicitation covenants. Duvernay is a leading acreage holder in the Western Canadian Sedimentary Basin. The company has some 1,800 square kilometers (~450,000 acres) of landholdings there, including positions in the emerging Montney tight gas trend. Duvernay has reported over 25,000 barrels oil equivalent per day (boe/d) of production, predominantly in natural gas, with plans to increase production to around 70,000 boe/d by 2012. Shell has around 80,000 boe/d of tight gas production in North America, and has been building its acreage positions for future growth.
- Duvernay Oil, a natural gas company based in Alberta, agreed to be acquired by a larger rival, Shell Canada, for $5.9 billion. The acquisition, which must be approved by Duvernay’s shareholders, comes as major energy companies turn their attention toward difficult-to-extract natural gas deposits like those held by Duvernay. High energy prices have made such reserves more attractive. The all-cash offer is valued at 83 Canadian dollars ($82) a share, which Shell said represents a 36 percent premium over Duvernay’s average share price over the last 30 days. Like many junior energy companies in Canada, Duvernay has seen a significant rise in its share price this year as the sector recovered from a negative change to tax laws introduced in October 2006. Duvernay has about 450,000 acres of holdings in western Canada. But investors have been most interested in a specific portion near Montney, British Columbia. That deposit, which is divided among several companies, is estimated to contain about 50 trillion cubic feet of gas, more than all the proven reserves in Alberta, Canada’s largest natural gas producer. The catch, historically, is that the Montney is a “tight gas” reserve, the industry’s term for difficult to extract. A relatively new, if costly, process that involves setting off underground explosions to release trapped gas has proven successful for Duvernay and other companies. Duvernay’s production, including a relatively small amount of oil, averaged the oil equivalent of 25,000 barrels a day last year and the company is moving toward 70,000 barrels. Shell currently extracts tight gas in North America with the oil equivalent of 80,000 barrels a day. Duvernay was formed in 2003 by former executives of Berkley Petroleum after that company was sold to Anadarko Petroleum of Houston. They took the company public a year later, but Duvernay’s executives and directors still own about 18 percent. A pension fund, the Caisse de dépôt et placement du Québec, holds about 10 percent of Duvernay, according to securities filings. Shell will require two-thirds of Duvernay’s shareholders to approve the transaction. The Canadian company’s board has unanimously recommended that they accept the bid. Shell anticipates that the deal, if approved, will close within a month.
- At 07.00 BST (08.00 CEST and 02.00 EDT) on Thursday July 31, 2008 Royal Dutch Shell plc released its second quarter results and second quarter interim dividend announcement for 2008.
• Upstream news:
- The Shell-operated Perdido Regional Development Spar has arrived in the ultra-deep waters of the Gulf of Mexico and is currently being secured to the seafloor in about 8,000 feet of water. Once completed, the Perdido spar will be nearly as tall as the Eiffel Tower and weigh as much as 10,000 cars. Perdido will be the deepest oil development in the world, the deepest drilling and production platform in the world and have the deepest subsea well in the world. Perdido will be a fully functional oil and gas platform with a drilling rig and direct vertical access wells, full oil and gas processing and remote subsea wells. The facility is designed to produce 100,000 barrels of oil per day and 200 million standard cubic feet of gas. The production from these fields will be transported via new and existing pipelines to US refineries. The Perdido Spar will bring in production from three fields: Great White, Silvertip and Tobago. These fields are located in 10 Outer Continental Shelf blocks in Alaminos Canyon, approximately 200 miles south of Freeport, TX. This development will provide the first Gulf of Mexico commercial production from a Paleogene reservoir. All three fields have been granted production units from the Minerals Management Service and the accumulations are completely in US waters, some eight miles north of Mexico international borders. First production from Perdido is expected around the turn of the decade.
• Downstream news:
- Shell has topped the list of the world’s leading lubricants suppliers, according to new research into the global lubricants market. The research, conducted by Kline & Company(1), gives Shell 13% of the market by volume in 2007, and a two per cent lead over its nearest competitor. Shell topped the annual rankings by achieving a 10% year-on-year increase in sales volumes in 2007, significantly out-pacing the lubricants market as a whole which grew by 2% overall.
• Business/Finance news:
- Royal Dutch Shell, Eni and Repsol, three of Europe’s largest oil companies, reported strong profits, although their production results disappointed analysts. Shell reported its output had declined by 1.6 percent in the quarter, and Repsol’s production fell by nearly 20 percent. Eni’s production was slightly higher. Nevertheless Shell, Europe’s largest oil company, reported a 33 percent increase in second-quarter profit, to $11.56 billion, from $8.67 billion in the period a year ago. Oil companies are under pressure to find new reserves as their traditional fields age and they face increasing competition from state-run oil companies in Russia and the Middle East. Shell is also looking to make up for production lost in Nigeria, where militants attacked an offshore production vessel in June, and in Russia, where it had to sell its share in the Sakhalin Island oil and natural gas project to the state-controlled energy company Gazprom last year. Adding together the output of all the major international oil companies, including Chevron, Conoco, BP, Shell, Total and Exxon, this appears to be the fourth straight quarter of production declines, according to Barclays Capital analysts. Barclays said the total decline might exceed 600,000 barrels a day, reflecting the difficulties the oil companies had in gaining access to new regions to make up for the decline of mature fields.
- Shell Canada Limited ("Shell Canada"), a wholly owned subsidiary of Royal Dutch Shell plc, announced that it has received the approval of the Minister of Industry under the Investment Canada Act for its offer to purchase all of the outstanding common shares of Duvernay Oil Corp. ("Duvernay") (including common shares issuable upon the exercise or surrender of any options). In approving the acquisition, the Minister determined that the transaction is likely to be of "net benefit to Canada" for purposes of the Investment Canada Act. Shell Canada also announced that the Commissioner of Competition under the Competition Act (Canada) has granted Shell Canada an advance ruling certificate, which constitutes compliance with the requirements under the Competition Act (Canada). As a result, Shell Canada has now received all necessary Canadian regulatory approvals to proceed with the acquisition of Duvernay. Shareholders are encouraged to tender their Duvernay common shares to the offer as soon as possible. The offer remains open until 1:01 a.m. (Calgary time) on August 22, 2008, unless the offer is withdrawn or extended by Shell Canada. Under the terms of the offer, Duvernay shareholders will receive C $83.00 for each Duvernay common share. Shell Canada first announced its intention to make the offer on July 14, 2008 and its wholly owned subsidiary, BRS Gas Corp., mailed its take-over bid circular to the shareholders of Duvernay on July 17, 2008.
- Shell Canada Limited (“Shell Canada”), a wholly owned subsidiary of Royal Dutch Shell plc, announced that as of 1:01 a.m. on August 22, 2008, 61,661,551 common shares of Duvernay Oil Corp (“Duvernay”) have been validly deposited to the offer by BRS Gas Corp., a wholly-owned subsidiary of Shell Canada, to acquire all of the common shares of Duvernay (including common shares issuable upon the exercise or surrender of any options). BRS Gas Corp. has taken up all such shares, which represent approximately 97.7% of the common shares of Duvernay on a fully-diluted basis, and will pay for such shares on or before August 27, 2008. Shell Canada first announced its intention to make the offer on July 14, 2008 and BRS Gas Corp. mailed its take-over bid circular to the shareholders of Duvernay on July 17, 2008. As a result of the announcement, Shell Canada, through its wholly-owned subsidiary BRS Gas Corp., has now declared its offer to acquire the common shares of Duvernay to be wholly unconditional. BRS Gas Corp. will now exercise its statutory rights under the Business Corporations Act (Alberta) to compulsorily acquire the remaining Duvernay common shares that were not deposited to the offer. Following the compulsory acquisition, BRS Gas Corp. intends to cause Duvernay to de-list the Duvernay common shares (TSX:DDV) from the Toronto Stock Exchange and to apply to securities regulatory authorities to cease to be a reporting issuer.
• Upstream news:
• Downstream news:
- The Ministry of Oil of the Republic of Iraq and a wholly owned affiliate of Royal Dutch Shell plc (“Shell”) signed a Heads of Agreement that sets the commercial principles to establish an incorporated joint venture (the “JV”) between the South Gas Company and Shell for the processing and marketing of all associated natural gas produced in the Governorate of Basra in southern Iraq, an area covering some 19,000 square kilometres. The signature follows the approval [ref: 329/2008] of the Iraqi Council of Ministers on 7th September 2008. Some 700 million standard cubic feet per day of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared in southern Iraq. By capturing and processing this natural gas, the JV should create an important and reliable supply of domestic energy, reduce greenhouse gas emissions, and create significant value for Iraq. The JV will purchase associated natural gas from upstream operations; own and operate existing gas gathering, treating and processing facilities; and invest to repair non-functioning assets and develop new facilities. The JV will be focused initially on creating reliable sources of domestic energy, including liquefied petroleum gas, natural gas liquids, natural gas supply for power generators, and deliveries to local distribution networks. In the future, the JV could develop a liquefied natural gas facility to export natural gas not needed for local domestic use. The JV structure is the model chosen by the Ministry of Oil as the vehicle to create a world-class natural gas industry in Iraq. South Gas Company will be the 51 percent majority shareholder in the JV, with Shell holding 49 percent.
- Royal Dutch Shell, one of the world’s biggest oil companies, completed a multibillion-dollar natural gas deal with the Iraqi government and said it had established an office in Baghdad — the first foreign petroleum giant to do so since Iraq nationalized its oil industry more than three decades ago. The company described its decision to open an office here as a milestone that partly reflected the vast improvement in Iraq’s stability compared with conditions during the worst years of the war. But in a sobering reminder of the underlying dangers of doing business here, the company would not disclose the location of its office, and the senior Shell official who announced the gas deal was accompanied by a phalanx of armed guards. The joint venture — to recapture gas that now goes to waste during oil extraction in Basra, in southern Iraq — is the company’s official return to Iraq after 36 years. Shell, along with the predecessors to BP, Exxon Mobil and Total, was among the original partners in the Iraq Petroleum Company before the companies lost their concessions to nationalization as Saddam Hussein rose in the 1970s. Much of the recaptured gas will go to power stations and industrial sites like petrochemical and fertilizer plants, Mr. Shahristani said. The signing of the deal was expected; Shell is one of more than 30 foreign companies bidding on long-term contracts for six important oil fields. The winners are to be announced in 2009. A condition for any winning bid set by the Iraqi government is that the company be willing to establish a presence in Baghdad. Shell was also among a smaller group of Western companies negotiating no-bid contracts to help Iraq increase production from existing oil fields, but the process was suspended earlier this month following criticism from several United States senators. Mr. Shahristani praised the gas joint venture, which will be 51 percent owned by the Iraqi government through the South Oil Company and 49 percent by Shell, as a step to address Iraq’s chronic and crippling power shortages. Besides their economic implications, the power problems have become a highly charged political and emotional issue for Iraqis. The deal with Shell came on the heels of a $3 billion agreement with China to develop the Ahdab oil field in the south, which was signed last month. Eleven people died in violence on Monday, and the American military said a soldier had been killed by small-arms fire in Baghdad on Sunday. In Diyala Province, two people were killed when a roadside bomb was detonated near the car they were driving in, according to police officials in Baquba, the provincial capital. In Hamam al Alil, a town about 10 miles south of Mosul, five children were killed and three were wounded when their soccer ball hit a roadside bomb on the street where they were playing. In Baghdad, a suicide bomber detonated his car at midday near a Shiite mosque in the busy Karrada neighborhood, killing himself and two passers-by and wounding nine people. A mortar shell killed one person in the Tobchi neighborhood, on the west side of the Tigris.
• Business/Finance news:
- Nigeria is an important oil and gas producer and potentially an engine for growth in Africa. Unfortunately, that potential is yet to be fulfilled. Not all Nigerians have benefited from the country’s oil wealth. In the Niger Delta, where much of this wealth is created, many people remain poor. Among Niger Delta communities, frustration has grown. Poverty, crime and militancy have become overlapping problems. Militant groups attack oil and gas facilities, while criminals steal oil and take it by barge to tankers waiting offshore. Shell’s country chair in Nigeria, Basil Omiyi, believes any solution to the crisis will have to address poverty. Shell and other oil companies can contribute by generating income and jobs and investing in community development. But they cannot take the place of government, despite many people’s high expectations.
- With Hurricane Ike leaving less wreckage than feared, the price of oil fell sharply to a low of $94.13 a barrel before rallying somewhat – marking the market’s first major push below the $100 mark since February. The cost of light, sweet crude for October delivery traded at $97.34 a barrel just before 11:30 a.m., down nearly $4. The futures price dipped below $100 on Friday, but closed at $101.18. Before Friday, crude prices had not traded below triple digits since briefly touching $99 levels on April 1 and in February, when oil prices fell as low as $86.25. Analysts attributed the pullback mostly to a sense of relief that the massive energy infrastructure in the Gulf Coast region suffered relatively minor hurricane damage. But the oil markets were also reacting to the economic gloom that overtook Wall Street today as it digested the news that two major investment banking firms – Lehman Bros. Holdings Inc. and Merrill Lynch & Co. – were felled by the mortgage lending crisis. The futures price of gasoline was also falling today, but the story was much different in the so-called cash markets, where fuel deals are done for immediate delivery. In the cash markets, the cost of gas was sharply higher, reflecting supply strains in the wake of hurricane-related refinery closures along the Gulf Coast. Pump prices also are moving higher even in places far Ike’s wind and rain as a reaction to a supply crunch caused by the closure of Gulf Coast refineries. Although many companies are reporting no major damage from Hurricanes Gustav and Ike, the precautionary closures curbed production, and some plants have to wait for power to be restored before they can restart. The U.S. average cost of self-serve regular rose to $3.842 a gallon today, up 16.7 cents since Friday, according to AAA’s daily survey. South Carolina, one of the states dependent on fuel produced in the Gulf region, posted a record high average price of $4.121 a gallon. Prices also rose in California, an isolated fuel market with no direct ties to Texas refineries. The statewide average ticked up less than a penny to $3.823 a gallon, AAA said. As of this morning, 14 refineries remained closed, representing 3.6 million barrels a day or about 20% of the nation’s oil-processing capacity. Key pipelines are restarting operations but have little fuel to deliver to the Northeast, Southeast and Midwest.
• Upstream news:
- Nederlandse Aardolie Maatschappij BV (NAM) and GDF SUEZ have signed Sales and Purchase Agreements for NAM assets situated along the NOGAT pipeline, covering exploration, production and transportation of oil and gas in the Dutch section of the North Sea. This follows the earlier announcement on September 5th, 2008 of the commencement of exclusive negotiations between NAM and GDF. The transaction, for a total consideration of 1,075 million euros, is subject to regulatory approvals and third party consents. The transaction is expected to be completed at the turn of the year.
• Downstream news:
- Shell Petroleum Development Company (SPDC) as operator of the joint venture with Nigerian National Petroleum Company (55%), Shell (30%), Agip (5%) and Total (10%) has begun commissioning the first turbine of the Afam VI Power Plant, the Okoloma Gas Plant and associated gas wells - collectively known as the Afam Gas and Power Project. The Okoloma Gas Plant started supply of gas on 11 October, and commissioning of the second turbine of the Afam VI Power Plant is planned for early November. Performance tests on the first gas turbine should be finalized by early November. To date the project represents an investment by the joint venture partners of $1.3 billion. When completed it will provide gas equivalent to approximately 20% of the current total Nigerian domestic gas supply. The second phase of the power plant will collect heat from the exhaust gases of the three gas turbines to generate steam to power a turbine capable of generating an additional 200 MW of electricity. This second phase provides both environmental and efficiency benefits since it does not require the burning of any addition hydrocarbon fuel. In addition to supplying power to the grid and gas to the domestic market, the project is also procuring and installing transformers, concrete poles and conductors to provide electricity to local communities. In the first phase, seven communities will be connected.
• Business/Finance news:
- At 07.00 GMT (08.00 CET and 03.00 EDT) on Thursday 30 October, 2008 Royal Dutch Shell plc will release its third quarter results and third quarter interim dividend announcement for 2008.
- The Board of Royal Dutch Shell plc announced that Peter Voser will succeed Jeroen van der Veer as Chief Executive, effective 1 July 2009. Voser (50) is Chief Financial Officer and a Director of the Board since October 2004. Voser joined the Royal Dutch/Shell Group of Companies in 1982 and has held a number of finance and business roles in Switzerland, Argentina, Chile and the UK until March 2002. He then joined Asea Brown Boveri (ABB) Ltd as Chief Financial Officer, returning to Shell four years ago. Voser, a Swiss citizen, was born in Baden, Switzerland. He is married and has three children. Voser graduated in business administration from the University of Applied Sciences, Zurich, Switzerland, in 1982.
- Among the primary themes running through the World Conservation Congress in Barcelona was how economics, markets and business increasingly relate to environmental causes. Equally prominent was the role big business could play in helping reduce negative impacts of commerce and industry on plant and animal species. The organizers of the meeting, the International Union for Conservation of Nature, held 50 events spread over four days centered around the theme of markets and business. For the first time, the World Business Council for Sustainable Development had a large stand in the congress hall. Senior executives from a number of the world’s largest oil and mining companies were also in attendance. That’s a big change from past meetings, which are held once every four years and have traditionally been the preserve of scientists, government officials, experts and campaign groups. One of the top business figures at the event was Jeroen van der Veer, the chief executive of Royal Dutch Shell. I spoke with Mr. van der Veer in Barcelona about two of the ways businesses are becoming involved in the effort to prevent environmental degradation: compulsory carbon markets, and the use of a relatively new tool called biodiversity offsets that one day could mean companies will be compensating for their entire environmental footprint. Green Inc.: Can you update me on your views on regulations for capping carbon dioxide in Europe? Jeroen van der Veer: Shell is not defensive about CO2 at all. The whole world is very concerned about it and we think this is a major opportunity. It is quite clear from most of our long-term energy scenarios that the world has huge problems seeing how we can lower concentrations of CO2. What I advocate to help most effectively is a relatively high CO2 price. We think the best way of doing that is building on the experience of the European trading system, preferably for other regions as well. GI: Shell previously has said that the company is not ready to buy 100 percent of its carbon allowances for its refineries after 2012. What is your current position? JV: The story is more complex. The problem is that refineries or chemical industries and cement industries in Europe are a very good example of when you have local industry exposed to a lot of import and export. If there is then only a penalty on the European industries while there is open import and export, and where CO2 is a significant part of the cost of the product, does this work? What we say is that we have various ways you can compensate for that. And then, if the rest of the world moves, you can be one step ahead, but not too big a step. GI: So no obligation to buy 100 percent of your permits? JV: From Day One 100 percent basically means that you make part of European industry uncompetitive. GI: And that would mean leaving Europe? JV: No, that is a dramatic way of expressing it. I don’t like to do that. It is better to explain to E.U. officials in Brussels, “Hey, hang on, we like this very much. It would be good for our reputation. We are even prepared to be a bit ahead of the world, but there is only so much we can do, so please realize that.” That is well understood. I try to work on the solutions rather than threaten. GI: At a project in Qatar, Shell is voluntarily planning to offset some of the residual effects of constructing a new gas facility and undersea pipeline by protecting other parts of the local ecosystem. But can ecosystems really be preserved this way? JV: I think this is simply a good approach to work this way. In China we built a chemical plant and in order to make the jetty, part of the coral, not a lot, would have got lost. People found a way to take up that coral and to keep it alive and to transplant it. You can say on the total scale of corals in the world it was nothing. But it is amazing how proud people were. The message was, “See how we work.” People felt very good about it. So it is not only about nature conservancy, but what it means to work in a responsible way. GI: Taking measures to compensate for any damage could become a major part of how extractive industries operate in the future. Should these measures be mandatory, should they be voluntary? JV: It’s a good question. We are an extractive industry and we do build large installations – think about a refinery or something like that. Long term, as an international oil company, we can only get those new projects if we are in harmony with society, and certainly with local society. So, first, this is all part of a business model to have a sufficiently good reputation as a sustainable company. Secondly, would regulations help? I think it is too generic to say yes, or too generic to say no. I think in the end what is important is that you do it either in a way that is good project planning but so that this does not create a completely non-level playing field, because then the projects will not happen. GI: Will offsetting your environmental footprint – you build over here and you do good here to make up the difference – become the norm? JV: If you say it’s part of the thinking, yes. But that’s the easy part. The difficult part is for every project to find the right solutions and then to deliver on the expectations. It’s the delivery that matters. Secondly we see that the expectations today are different from the expectations 30 years ago. By the same token, I expect that the expectations 30 years from now are again going to be quite different from today. That’s quite a problem because many of the installations we build will last for 30 years or longer. GI: It’s almost like the extractive industries are hunter-gatherers. They move around the globe, and as the good sites become scarce they will be under more pressure than before to clean up the trail they leave behind them. This offsetting could be a way of combating that. JV: Combating, yes. But technology and working practices will help as well, and those improvements will continue. It is not a static game, where everything keeps going just one way to the negative and always requires compensation. My message is, first priority, reduce your footprint. Second priority – reduce your footprint even further. And then only can you start to think, are there compensations possible. GI: If you do more that’s good than you’ve done that’s bad, you also could create a market on which to sell, or trade, these surplus gains for the environment. JV: That is part of the business model, as we say.
- 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.”
- Oil prices dropped below $70 a barrel for the first time in 14 months , prompting the OPEC cartel to call for an emergency meeting to establish some stability in prices that have plummeted recently after rising for months. The instability of prices may discourage long-term projects to develop new sources of oil. Oil prices have tumbled by nearly $40 a barrel in just three weeks as indications grow that demand for energy will slow along with weakening economies around the world. As recently as July, oil was trading at a record of $145 a barrel. Crude oil for November delivery traded at around $73 a barrel on the New York Mercantile Exchange, according to news reports. The decline in oil prices could provide a form of stimulus to the economy as consumers pay less to fill up their tanks. If oil prices stay at current levels, consumers would have $250 billion more, over a year, to save or spend elsewhere, according to Lawrence Goldstein, an energy economist. Some analysts expect oil prices to keep declining, perhaps to as low as $50 a barrel in coming months. Americans will probably see lower energy bills this winter, as gasoline and heating oil futures also dropped sharply . Gasoline prices now average $3.08 a gallon, down from a summer peak of $4.11 a gallon, according to AAA. The decline in oil prices came after a government report showed domestic crude oil stockpiles rose more than expected as Americans use less oil, in part because they are driving less. In the last month, domestic oil demand has fallen to its lowest level since June 1999, at 18.6 million barrels a day, according to the Energy Department. Oil settled down $4.69 a barrel, at $69.85. The drop, along with other promising signs on the inflation front, was among the reasons investors bid stocks higher, with the Dow Jones industrial average closing up 401.35 points at 8,979.26. Natural gas prices have also tumbled since their summer peak of $13.58 per thousand cubic feet. Natural gas futures rose 19 cents, to $6.81, after a report showed that stockpiles rose less than expected. While consumers may have reason to cheer the falling oil prices after such a sharp run-up, the wild roller coaster of volatility is a nightmare for oil producers and petroleum executives who say they need more stability to plan long-term projects to develop new sources of oil. If they cannot be confident that they will get a stable return on their investment, they may hold back. That in turn could set the stage for possible shortages of oil and higher prices when global demand picks up again. The sharp drop-off has forced OPEC’s hand. The cartel said just last week that it would meet in mid-November, after the United States elections. But it rescheduled its emergency session for Friday, Oct. 24. The cartel’s producers, which control 40 percent of global exports, could curb their output by about a million barrels a day to try to stem the drop in prices, according to analysts. It is unclear what price range for oil the cartel wants to establish. But the meeting “sends a clear signal that OPEC is concerned about the speed with which oil prices are slipping away from a preferred price of around $80 a barrel,” said Lawrence Eagles, an oil analyst at JPMorgan. Iran’s oil minister, Gholamhossein Nozari, told reporters in Tehran, “I think the low price is a real damage to the future of production.” From its inception, the oil industry has gone through countless cycles, with oil companies cutting investments when prices fell. The price collapse of the 1980s forced companies to slash investments and prompted a wave of large mergers through the industry. But this retrenchment left the world scrambling for oil when demand from Asian and Latin American economies soared. Concerns that this pattern might be repeated were mentioned frequently during an industry conference in Venice last weekend, where oil executives said they worried that a prolonged recession, tighter credit and lower energy consumption would mean slower growth in energy supplies in coming years. The credit freeze has already forced some projects to be scaled back, some energy analysts and executives said. “This is a real test,” said Jeroen van der Veer, the chief executive of Royal Dutch Shell, in an interview at the conference. “Some people will be overstretched, and there will be some delays in some projects.” Over the last decade, growth in oil consumption has outpaced the ability of producers to meet that demand with more production. Many experts have predicted a new squeeze within the next five years that could once again propel oil prices over $100 a barrel. The drop in prices has already created problems for oil producers. Iran and Venezuela both need oil prices at $95 a barrel to balance their national budgets, Russia needs $70 and Saudi Arabia needs $55 a barrel, according to Deutsche Bank estimates. Algeria’s oil minister, Chakib Khelil, said on Thursday that the “ideal” price for crude oil was $70 to $90 a barrel. In Russia, which is not part of OPEC, the drop in prices is threatening the country’s ability to increase production. The Russian government has reportedly agreed to allocate $9 billion to its four major producers — Lukoil, Gazprom, Rosneft and TNK-BP — to help them cope with investment needs amid the credit crisis. In the United States, Chesapeake Energy, a gas producer, has recently indicated it will reduce its capital investments over the next few years in response to falling prices. Global oil demand is undeniably slowing down, particularly in developed nations. Japanese oil consumption tumbled by 12 percent in August over the same month a year ago, while in the United States, demand fell by 8 percent in September. Consumption is still growing in developing nations, but at a slower pace than in recent years. The International Energy Agency expects global oil demand to grow by just 400,000 barrels a day this year, to 86.5 million barrels a day. The agency, which had been revising downward its predictions all year, forecast growth of 2 million barrels a day for 2008 when the year started. The two-day energy meetings last week were held in private in the baroque setting of the island of San Giorgio Maggiore, home to a 10th-century Benedictine monastery. In many conversations with senior executives outside of the conference meetings, they voiced concerns about their industry becoming increasingly vulnerable to a slowing economy. “We pretty much know where supplies are going to come from in future years, but today the biggest uncertainty is demand,” said Christophe de Margerie, chief executive of Total, the French oil company. Some executives, though, are still holding out hope that Asian economies may weather the economic storm and help the global economy recover faster. Lower oil prices could also make it harder for some companies to survive on their own, leading to a new wave of mergers and acquisitions. “This new environment is not all doom and gloom,” said Mr. van der Veer, of Shell. “It can also provide some opportunities. Certain assets may become available.”
- At 07.00 GMT (08.00 CET and 03.00 EDT) on Thursday 30 October, 2008 Royal Dutch Shell plc released its third quarter results and third quarter interim dividend announcement for 2008. Royal Dutch Shell’s third quarter 2008 earnings, on a current cost of supplies (CCS) basis, were $10.9 billion compared to $6.4 billion a year ago. Basic CCS earnings per share increased by 74% versus the same quarter a year ago. Cash flow from operating activities for the third quarter 2008, excluding net working capital movements, was $10.4 billion. Net capital investment for the quarter was $11.2 billion. Total distribution to shareholders, in the form of dividends and share repurchases, was $3.1 billion and gearing was 15.4% at the end of the third quarter. The sale of the BEB Erdgas und Erdoel GmbH (Shell share 50%) gas transport business in Germany was closed, increasing the third quarter 2008 earnings by some $1.4 billion. A third quarter 2008 dividend has been announced of $0.40 per share, an increase of 11% over the US dollar dividend for the same period in 2007.
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- A federal appeals court blocked Royal Dutch Shell from drilling oil wells off Alaska’s North Slope after finding that the Interior Department had failed to conduct an environmental study before issuing the company’s drilling permit. In a long-awaited ruling, the court said that the Minerals Management Service, the federal agency in charge of offshore leasing, had violated the 1970 National Environmental Policy Act by failing to take a “hard look” at the impact that offshore drilling would have on bowhead whales in the Beaufort Sea as well as indigenous communities on the North Slope. The decision canceled Shell’s permit to drill at a prospect called Sivulliq, about 16 miles off northern Alaska, and ordered the agency to begin the process from scratch. Environmental groups, including the Alaska Wilderness League, as well as the North Slope Borough, which represents the indigenous Inupiat people, had sued to stop Shell from drilling, claiming that the company’s plans to send icebreakers, drill ships and vessels to conduct seismic surveys might harm bowheads. The whales migrate through the Beaufort Sea twice a year and are the basis of the Inupiat community’s subsistence culture. The decision is a costly setback for Shell, which had waged a vigorous campaign to expand offshore exploration in Alaska. The company recently spent $2.1 billion to acquire leases in the Chukchi Sea, after spending $84 million to buy leases in the Beaufort Sea. The company said it would review its options. “We believe the M.M.S. did a thorough job and that Shell has met or exceeded requirements for responsible Arctic exploration,” the company said in a statement. “Shell is committed to operating safely and responsibly and will continue to comply with all regulatory requirements.” The oil industry had been looking at the case as a test on how to tap the Arctic’s hydrocarbon potential, and offset declines from the onshore Prudhoe Bay oil field. It comes at a time of renewed public debate in the country about opening other offshore tracts for exploration. Charles Clusen, the director of the Alaska project at the Natural Resources Defense Council, one of the plaintiffs in the case, said the ruling left it to the next administration to decide how offshore drilling would be conducted in the nation’s Arctic region. “This is really a signal that Shell’s plan was simply too much, too fast, and too shoddy,” Mr. Clusen said. “By this decision, the court has opened the door to a new administration to take a whole new approach, and hopefully a more precautionary approach, to America’s Arctic and make sure we don’t lose endangered species.” In a statement, the Minerals Management Service said it was disappointed by the ruling and defended its environmental review process.
• Upstream news:
- Shell U.K. Limited (Shell),Esso Exploration and Production UK Limited, (ExxonMobil), Mobil North Sea LLC (ExxonMobil) and Enterprise Oil U.K. Limited (Shell) completed the final sale and transfer of a number of northern North Sea assets to TAQA Bratani Limited, a wholly owned subsidiary of Abu Dhabi National Energy Company PJSC (TAQA). The assets include equity and operatorship of Tern, Kestrel, Eider, Pelican, Cormorant North and South Cormorant fields (TENC-CA) and related infrastructure, a non-operated interest in Hudson, and equity interests in the Sullom Voe Terminal and Brent System. TAQA Bratani will assume responsibility for the decommissioning liabilities relating to these fields and infrastructure. This concludes the transaction for which, Sale and Purchase Agreements were signed between the parties on 7th July 2008. TAQA has appointed John Wood Group PLC (Wood Group) as their initial operating and maintenance contractor and initial Duty Holder. A total of 133 Shell staff transferred employment to TAQA Bratani Limited in accordance with the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) as of 1st December 2008.
• Downstream news:
- Shell Global Solutions International B.V. acquired 100% of the shares of Cansolv Technologies Inc. (Cansolv), a provider of technologies designed to counter air pollution. Cansolv offers technology for the control of sulphur dioxide (SO2) and other contaminants as well as a carbon dioxide (CO2) capture process for greenhouse gas reductions. Cansolv has a strong research and development strategy to develop new and enhance existing applications for its technologies. The CANSOLV® SO2 Scrubbing System removes sulphur dioxide from combustion gases. SO2 removal helps industries such as oil refining, chemical processing, utilities and metals to improve environmental performance and meet regulations that aim to reduce acid rain. Cansolv’s offices are located in Canada (Montréal) and China (Shenzhen). All employees will be retained. The company will become fully integrated into Shell Global Solutions over time.
- Essent Business Development B.V. (Essent) and Shell Gas & Power Developments B.V. (Shell) agreed to study the feasibility of a 1,000-megawatt, low-CO2 power plant. Most of the CO2 produced by the plant would be captured and stored underground. Essent and Shell signed a Memorandum of Understanding for the feasibility study. Shell and Essent will evaluate the feasibility of combining a high-efficiency gasifier, a power generation plant and equipment to capture and store CO2. Coal and solid biomass would be gasified to produce synthesis gas which in turn is used to make hydrogen. The hydrogen would then be used to generate electricity in turbines. Gasification technology makes it simpler and cheaper to capture CO2 than conventional coal and biomass firing. The study will assess which depleted oil and gas fields would be suitable for CO2 storage. Because of the volume of CO2 involved, the study will consider both onshore and offshore fields. The companies are evaluating possible sites for the plant in the south-west part of the Netherlands. This joint initiative will make an important contribution to ensuring a secure supply of affordable energy for the future, as well as helping to meet government emissions targets. Gasification offers a cleaner way to use fossil fuels, providing an important complement to renewable energy such as wind, which provides only intermittent power. Besides electricity generation, the gas produced in the installation can be added to the natural gas network. This enhances the flexibility of the Dutch energy infrastructure, which is required to further integrate sustainable energy. The Dutch Energy Council, a government advisory body, also believes the flexibility provided by multiple types of power generation will be essential for integrating sustainable energy into the electricity infrastructure of the Netherlands. Moreover, storing CO2 and gasifying solid biomass contribute significantly to sustainability and climate objectives. The production of solid biomass has no harmful effect on the climate or food chain. Essent is currently using biomass as a fuel in various power plants. The project supports the European Union’s plan to reduce CO2 emissions and is in line with the vision of the Rotterdam Climate Initiative. There is great urgency: in order to achieve their CO2 emission reduction targets by 2020, European governments must soon take decisions that both enable and encourage capital investments by businesses. The EU aims to demonstrate that CO2 capture and storage is feasible with 10 to 12 large-scale demonstration projects starting between 2015 and 2020. Dutch and European government support, financial and regulatory, will be indispensable for realising pioneering projects like the one announced today. For large-scale CO2 capture and storage, CO2 transport infrastructure and suitable storage locations are essential. Governments must create the regulatory framework that will encourage their development.This project forms part of the further modernisation of the energy production park of the Netherlands. Shell and Essent are convinced that innovation, integration and investments made in partnership are key factors for resolving the world’s energy challenge: meeting the growing demand for energy while coping with energy-related CO2 emissions.
- As part of an ongoing strategy of portfolio management, Shell Petroleum NV (Shell) has successfully completed the sale of its 50% shareholding in Refinería Dominicana de Petróleo, S.A. (REFIDOMSA), for a total value of $110 million, to the Government of the Dominican Republic, who is now the sole owner of the refinery. This concludes a share purchase agreement signed on 5 August 2008. The REFIDOMSA refinery was commissioned in January 1973. With a processing capacity of some 34,000 barrels per day, it is the primary petroleum products refinery in the Dominican Republic and, along with its import terminal, supplies most of the fuel requirements in the country. This decision to sell the shareholding is part of Shell’s active portfolio management to realise value for shareholders, and to refocus the downstream portfolio. Shell will continue to serve its customers in the Dominican Republic in a range of businesses including Retail, Lubricants and Commercial marketing.
- Sakhalin Energy marked the commencement of year-round oil export from its new Oil Export Terminal. The terminal is located in Aniva Bay in the south of Sakhalin and forms part of the Prigorodnoye port, which was purpose built for the year-round export of oil and liquefied natural gas (LNG). The first cargo is oil from Molikpaq, Sakhalin Energy’s first platform, but later this month the Piltun-Astokhskoye-B platform will also begin sending oil into the system. Gas condensate from the third platform in the Lunskoye gas field will further boost production in the coming weeks. Sakhalin Energy has produced over 100 million barrels of the Vityaz crude since 1999. Oil has been exported through an offshore facility, which limited production to about 6 months of the ice-free season. Year-round oil production has become possible due to the commissioning of the TransSakhalin oil and gas pipeline system. The system connects three offshore platforms in the north east with the new terminal and port in Aniva Bay in the south of the Island. The oil is exported through a tanker loading unit which is installed 4.5 km offshore in Aniva Bay and is connected to the export terminal by an undersea pipeline. In the winter of 2008/2009 oil will be delivered to customers by two specialised tankers, Governor Farkhutdinov and Sakhalin Island. Year-round production and export of the Sakhalin II oil will significantly enhance energy security in the Asia Pacific and strengthen Russia’s position in the world markets.
• Business/Finance news:
- The Board of Royal Dutch Shell plc announced the appointment of Hans Wijers, Chairman of the Board of Management of Akzo Nobel NV, to replace Nina Henderson, who will be retiring as a non-executive director. Hans Wijers, who joins the Board on 1 January 2009, will stand for election at the Annual General Meeting in 2009. Nina Henderson has served as a director on the Board of The "Shell" Transport and Trading Company Plc from 2001 to 2005 and on the Royal Dutch Shell Board since October 2004. She is stepping down as part of the ongoing renewal of the Board announced at the time of the unification of Royal Dutch Petroleum Company and Shell Transport and Trading in 2005.
- The Board of Royal Dutch Shell plc announced that Mark Williams will take over the responsibilities of Rob Routs for the Oil Products, Chemicals and Oil Sands business, as Downstream Director and a member of the Executive Committee of Royal Dutch Shell. Mark Williams succeeds Rob Routs effective 1 January 2009, when he retires from the company after a distinguished career of 37 years. Williams, a US citizen has a PhD in physics from Stanford University. He joined Shell’s upstream business in 1979 in the United States. He has held a variety of upstream and downstream positions in the company, and is currently the Executive Vice President of Supply and Distribution in Oil Products. He is Chairman of the Executive Committee of the Athabasca Oil Sands Project, and Chairman of the Downstream Committee of the American Petroleum Institute. He is married with two children.
- At 07.00 GMT (08.00 CET and 02.00 EST) on Thursday 29 January, 2009 Royal Dutch Shell plc will release its fourth quarter and full year results and fourth quarter interim dividend announcement for 2008.
- Reporting from Salt Lake City -- A titanic battle between the West's two traditional power brokers -- Big Oil and Big Water -- has begun. At stake is one of the largest oil reserves in the world, a vast cache trapped beneath the Rocky Mountains containing an estimated 800 billion barrels -- about three times the reserves of Saudi Arabia. Extracting oil from rocky seams of underground shale is not only expensive, but also requires massive amounts of water, a precious resource crucial to continued development in the nation's fastest-growing region. The conflict between oil and water interests has now come to a head. On Oct. 31, Congress allowed a moratorium on oil shale leasing to expire. That paved the way for the Bush administration to finalize leasing rules last month that opened 2 million acres of federal land to exploration. Oil companies say that at a time of increasing foreign oil dependence, it would be unconscionable to forgo exploiting oil shale's potential. "Considering the magnitude of this resource -- it is so huge relative to other hydrocarbon resources around the world -- it merits taking a look at trying any method we can, safely and responsibly, to get at it," said Tracy C. Boyd, communications and sustainability manager for Shell Oil Co. Oil shale companies acknowledge that the technology required to superheat shale to extract oil is unproven. They also acknowledge that they are uncertain how much water would be needed in the process, although some experts calculate it would take 10 barrels of water to get one barrel of oil from shale. That water-to-oil equation has inflamed officials in the upper Rockies, who are raising the alarm about the cumulative effect of energy projects on the region's water supplies, which ultimately feed Southern California reservoirs via the Colorado River. "There are estimates that oil shale could use all of the remaining water in upper Colorado River Basin," said Susan Daggett, a commissioner on the Denver Water Board. "That essentially pits oil shale against people's needs." Even with the precipitous drop in oil prices and the staggering start-up costs and risks associated with oil shale exploration, oil companies are rushing ahead. "As long as we continue to be a nation that is hooked on liquid fuel," said Boyd, "we need to look at anything we can do to tap the sources of energy in this country." Prospectors have known about the oil shale deposits in the Rockies for more than a century, but the technology to extract it has remained imperfect, expensive and polluting. A variety of experimental methods have been developed. Although details are closely held, the broad outlines are similar. Shell has the most mature technology, which it has been experimenting with at its Mahogany test site, near Rifle, Colo. Tucked into a rolling landscape of empty range land, the company has sunk heaters half a mile into oil shale seams and subjected the rock to 700-degree temperatures. Over weeks or even months, a liquid known as kerogen is produced, which can be refined into diesel and jet fuel. To prevent the brewing hydrocarbons from spoiling groundwater, the heated rock core is surrounded by 20-to-30-foot-thick impermeable ice walls, frozen by electric refrigeration units. Other companies' methods are more akin to open pit mining, in which millions of tons of rock are excavated and then fed into a massive above-ground cooker. All of the processes require prodigious amounts of water, either for the electrical plants needed for heating and freezing or for the web of industrial facilities needed to extract the oil. But for all the years of research into oil shale extraction, there is little hard information on exactly how much water would be drained from the region. In its recent environmental review of proposed oil shale projects, the federal Bureau of Land Management, which oversees energy leasing on public lands, was unable to estimate the industry's region-wide water use. Mike Vanden Berg, the Utah Geological Survey's principal researcher for oil shale projects, said, "I still don't know how much water is used. . . . No one does." Meanwhile, already- parched Western states bracing for more growth are completing water supply inventories. A Colorado study projected that by 2050, with the state's oil shale operations at full capacity, the industry will require 14 times more power than currently generated by the state's largest power plant. The study's sobering bottom line is that meeting oil shale's energy demands could require more water than Colorado is entitled to under an interstate compact. "Can groundwater be protected?" asked Harris Sherman, executive director of the Colorado Department of Natural Resources. "Areas where this technology will be used are all tributaries for the headwaters for all of the seven Colorado Basin states." Despite the objections, oil shale development has been pushed forward by a series of recent actions. In an effort to encourage the fledgling industry, officials said, new regulations allow oil shale operators to pay unusually low royalty rates. The system calls for producers to pay 5% for the first five years, increasing 1% each year until reaching 12.5%, the standard federal oil and gas royalty rate. In recent weeks, the industry was included in the $700-billion government bailout package with investment and tax incentives to help oil shale producers build refineries and other expensive infrastructure. Though the region's elected officials support efforts to discover new sources of domestic oil, they say that with so many unanswered water questions, public land managers should be slowing the pace of development, not speeding it up. The governors of Colorado and Wyoming have expressed concerns about the venture's effect on water in their states. Not so, Utah. The state contains the least-rich shale deposit but is the most enthusiastic booster of the unconventional oil source. Gov. Jon Huntsman Jr. recently declared Utah "open for business as it relates to oil shale." The renewed push for oil shale development comes at a time when conventional energy companies are being blamed for squandering and fouling water across the West. Wyoming and Montana are squabbling over water quality concerns about coal-bed methane drilling. Colorado and New Mexico towns have discovered benzene and other dangerous chemicals in their wells, with energy projects the suspected culprits. Ranchers in the region say their crops and livestock suffer as oil and gas production drains underground aquifers. Sportsmen complain that rivers and streams are being compromised by the energy industry. The Environmental Protection Agency, in official comments to the Bureau of Land Management, expressed concerns about the possibility that oil shale production would deposit "salts, selenium, arsenic, and polynuclear aromatic hydrocarbons in groundwater." Craig Thompson found many of the same compounds when he studied groundwater pollution from an abandoned oil shale project in western Wyoming that began during the last oil shale boom, in the 1970s. Despite 30 years of cleanup efforts, he said, the aquifer is still not free of chemicals. "Development of oil shale is a groundwater nightmare," said Thompson, a chemist. "Oil shale serves as the floor for the aquifer. When you heat up the aquifer, it dissolves nasty stuff like fluoride and arsenic and selenium and cyanide . . . the list goes on." For now, with the support of Congress and the Bush administration, oil companies appear to have the upper hand. That might change with President-elect Barack Obama's selection this month of Colorado Sen. Ken Salazar, a former water lawyer, to head the Department of Interior. Salazar, a Democrat, has criticized the breakneck speed at which oil shale efforts are advancing. "Over and over again the administration has admitted that it has no idea how much of Colorado's water supply would be required to develop oil shale on a commercial scale, no idea where the power would come from and no idea whether the technology is even viable," Salazar said last month. But as long as the demand for fuel remains high, the dream of squeezing oil from rock will probably persist. "Oil shale is the last refuge of the hydrocarbon pioneers," Thompson said. "It's always been that last refuge because it's such a poor excuse for a fuel. Here's a commodity that's been developing for 100 years, and we still don't know anything about it."
- From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets. In the short run, falling oil prices are leading to welcome relief at the pump for American families ahead of the holidays, with gasoline down from its summer record of just over $4 to an average of $1.66 a gallon, and still falling. But the project delays are likely to reduce future energy supplies — and analysts believe they may set the stage for another surge in oil prices once the global economy recovers. Oil markets have had their sharpest-ever spikes and their steepest drops this year, all within a few months. Now, with a global recession at hand and oil consumption falling, the market’s extreme volatility is making it harder for energy executives to plan ahead. As a result, exploration spending, which had risen to a record this year, is being slashed. The precipitous drop in oil prices since the summer, coming on the heels of a dizzying seven-year rise, was a reminder that the oil business, like those of most commodities, is cyclical. When demand drops and prices fall, companies curb their investments, leading to lower supplies. When demand recovers, prices rise again and companies start to invest in new production, starting another cycle. As familiar as the pattern may be, the changes this time are taking place at record speed. In June, some analysts were forecasting oil at $200 a barrel and companies were scouring the earth for new places to drill; now, no one knows how low prices may fall. “It’s a classic — if extraordinarily dramatic — cycle,” said Daniel Yergin, chairman of Cambridge Energy Research Associates and author of “The Prize,” a history of the oil business. “Prices have come down so far and so fast, it’s become a shock to the supply system.” The list of projects delayed is growing by the week. Wells are being shut down across the United States; new refineries have been postponed in Saudi Arabia, Kuwait and India; and ambitious plans for drilling off the coast of Africa are being reconsidered. Investment in alternative energy sources like biofuels that had flourished in recent years could dry up if prices stay low for the next few years, analysts said. Banks have become reluctant lenders, especially to renewable energy projects that may prove unprofitable in an era of low oil and gas prices. These delays could curb future global fuel supplies by the equivalent of four million barrels a day within the next five years, according to Peter Jackson, an energy analyst at Cambridge Energy Research Associates. That is equal to 5 percent of current oil supplies. One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices. Many companies are waiting for those costs to come down before deciding whether to go forward with new projects. “The global market has been turned upside down since the summer,” the International Energy Agency, a leading energy forecaster, said in a recent report. In today’s uncertain environment, a slowdown in spending is inevitable, according to energy executives who are devising their budgets for next year. Last year, spending on exploration and production amounted to $329 billion, according to PFC Energy, a consulting firm. That figure is certain to fall. “We’re in remission right now,” said Marvin E. Odum, the vice president for exploration and production for Royal Dutch Shell in the Americas. But once the economy picks up, he said, “the energy challenge will come back with a vengeance.” Oil demand growth has weakened throughout the industrial world. The International Energy Agency projects that worldwide demand will actually fall this year, for the first time since 1983. So much surplus oil is sloshing around the world right now that some companies, including Shell, are using oil tankers for storage. Oil prices have declined by more than $100 a barrel since July, returning to levels last seen more than four years ago. They settled at $44.51 a barrel, down $1.77, on Monday in New York, as concerns about the economy outweighed efforts by oil producers to stem the slide in prices. Prices could drop below $30 a barrel, according to Merrill Lynch and other forecasters, if the Chinese economy slows drastically next year, which looks increasingly likely. Different companies have different price thresholds for going forward with drilling projects. But across the industry, a price drop this big has “a dampening effect,” according to Mr. Odum of Shell. “The big uncertainty is how long this economic environment is going to last.” The biggest cutbacks so far have been in heavy oil projects in Canada, where some of the world’s highest-cost production is concentrated. Some operators there need oil prices above $90 a barrel to turn a profit. StatoilHydro, a large Norwegian company, recently pulled out of a $12 billion project in Canada because of falling prices. Similarly, Shell, Nexen and Petro-Canada have all canceled or postponed new ventures in the province of Alberta in recent weeks. Producers are bracing for a painful contraction, and the drop in prices could crimp investments even in places where production costs are low. The Saudi monarch, King Abdullah, recently said he considered $75 a barrel to be a “fair price.” The kingdom, which has invested tens of billions of dollars in recent years to increase production, recently announced that two new refineries, with ConocoPhillips and Total of France, were being frozen until costs go down. In neighboring Kuwait, the government recently shelved a $15 billion project to build the country’s fourth refinery because of concerns about slowing growth in oil demand. The list goes on: South Africa’s national oil company, PetroSA, dropped plans to build a plant that would have converted coal to liquid fuel. The British-Russian giant TNK-BP slashed its capital expenditure budget for next year by $1 billion, for a 25 percent reduction from this year. In North Dakota, oil drillers are scaling back exploration of the Bakken Shale, a geological formation recently seen as promising, where production is more expensive than in conventional fields. “People are dropping rigs up there in a pretty significant way already,” Mark G. Papa, the chief executive of EOG Resources, a small natural gas producer, recently told an energy conference. Another domestic producer, Callon Petroleum, suspended a major deepwater project in the Gulf of Mexico, called Entrada, weeks before completion because of what it described as a “serious decline in project economics.” According to research analysts at the brokerage firm Raymond James, domestic drilling could drop by 41 percent next year as companies scale back. “We expect operators to significantly cut their activity in the coming weeks due to the holiday season, and many of these rigs will not come back to work,” the report said. As scores of small wells are shut down, analysts at Bernstein Research have calculated that oil production in North America could decline by 1.3 million barrels a day through 2010, or 17 percent, to 6.14 million barrels a day. This decline, rather than cuts by members of the Organization of the Petroleum Exporting Countries, “will be the catalyst needed for oil prices to rebound,” Neil McMahon, an analyst at Bernstein Research, said in a conference call this month. The United States remains the world’s largest oil consumer. The drop in energy consumption could afford some breathing room for producers, which had been straining in recent years to match fast-rising demand. But analysts warn the world can ill afford a lengthy drop in investment in energy supplies. To meet the growth in global population and the rising affluence expected in the future, the world will need to invest $12 trillion in order to increase its oil and natural gas supplies, according to the International Energy Agency. “If we cut back dramatically on investments, we could end up in a situation where supply growth goes flat when the economy starts to recover,” said Mr. Jackson, the analyst. “The steeper the decline, the steeper the response.”
- Surrounded by a moat and four watchtowers, the ancient Château d’Ermenonville is not the kind of place one would associate with a product as mundane as paraffin. But the discreet European luxury hotel, about 40 minutes outside Paris, was one in a circuit of hotels that served as bases for more than a dozen years for executives from some of the biggest names in oil to fix prices of paraffin, the wax byproduct of crude oil that is used in candles, paper cups, lip balm and chewing gum. Nine companies — including Exxon Mobil, Royal Dutch Shell, Sasol of South Africa, and Repsol YPF of Spain — controlled 75 percent of the European paraffin market, and the other 25 percent often fell in with the pricing structure they had engineered. The scheme drove up prices to consumers in a plot that probably touched most households in Europe, according to the European Union’s commissioner for competition, Neelie Kroes, whose office levied penalties of more than 675 million euros, or $900 million. In levying the fines in October, Ms. Kroes released a two-page statement and no supporting documentation, but The International Herald Tribune has reviewed dozens of pages of confidential legal documents that offer an unusual look inside the workings of a price-fixing cartel. Most cartels operate in secrecy, destroying documents, encrypting e-mail messages or using prepaid phone cards to erase communication traces. But the paraffin cartel was rare in that some members kept minutes, and attendance lists. Cartel members e-mailed invitations and sought R.S.V.P.’s. They booked each other’s rooms and played host to open bars. Documents found when investigators first raided the companies in April 2005 included handwritten notes on stationery from hotels on the cartel’s itinerary: the five-star Kempinski in Budapest or Château de Montvillargenne in the bucolic horse country of Chantilly, France. “Next price increase May/June 2000,” a Shell executive scribbled in a note after a meeting in Paris. Tibor Toth, a manager with the Hungarian oil company MOL, and the executive who often kept minutes and attendance, also recorded the prices agreed on in German marks, “Raise in January unless first-quarter quantities are reduced, otherwise raise in season, DM 120.” The relaxed clubiness of the paraffin conspirators stokes worries about the hold that price-fixing cartels have on European commerce. With Ms. Kroes taking action against cartels involving elevators, cement, automotive glass and drugs, total annual fines in the past five years have more than tripled, reaching 2.27 billion euros ($2.95 billion) this year. In the paraffin case, as in others, some of the biggest offenders walked off with no, or relatively small, fines because they were first in the door with information implicating less-involved conspirators. And, unlike in the United States, in the Europe Union price fixers do not face the prospect of criminal prosecution. Over all, the number of international cartels has been rising nearly every year since the 1980s, according to John Connor, a Purdue University economist whose studies show that global cartels are bigger and more plentiful in Europe. The paraffin cartel involved at least 35 sales or product managers. In internal memorandums they used nicknames for themselves and their meetings: the Blue Saloon, after a favorite bar in Hamburg; the Appetizer Meetings; even, for one participant, the Paraffin Mafia. At meetings, they fixed prices and carved up markets for their distinct product lines: extruder, coating wax, liquid slabs, tea-light candles and grave lights used for tombstones. Most cartels last five years, according to studies, then sputter out amid recriminations over cheating. European regulators suspect this one may date as far back as the 1970s, based on files plucked from some companies involved. Investigators said that they believed they had firm evidence to form a case starting with a Sept. 3, 1992, meeting of five participants at an unknown location, according to the European Commission’s confidential 200-page report laying out the evidence. In the months that followed, a ritual developed, according to the documents. Sasol, the market leader, based in South Africa and with an office in Hamburg, played ringleader and club booster. A product manager, Michael Matthäi, issued invitations by telephone, fax and e-mail. Usually it was for a half-day meeting, with dinner the night before along with a cocktail hour, often with Holger Schröder, sales manager for Shell Deutschland, playing host. At Sasol, where the club was known as “Blauer Salon,” or Blue Saloon, after the Hamburg bar, participants would report back on the gatherings to other executives who kept notes. The companies “tried to protect their home markets by creating an atmosphere of mutual trust and good will among themselves,” according to a file obtained from Sasol by commission investigators. The documents show that they shared information about customers, production capacities, sales volumes and even plant maintenance. They talked prices, agreeing on absolute numbers. Mr. Toth, the Mol executive, held a more junior position than other sales managers in the cartel, but according to legal documents he was sent to meetings because he spoke English and German. His notes, written in Hungarian, included careful tables and documents with titles like “Candle Industry Price situation,” listing prices for a variety of waxes and the notice of a new price structure. Memorandums outlining the agreements contained insider references to some of the biggest paraffin customers — the candle makers Iberceras of Spain, and Bolsius of the Netherlands — marked with prices by their names. Customers may not even have noticed because there was never a uniform price increase, just agreement on what specific companies would charge. Some candle makers had their suspicions. During the 1990s, when the cartel was in full swing, the biggest candle manufacturer in Europe, Bolsius, started looking for better prices in Asia, and decided to build a multimillion-euro, 30,000-ton storage depot in Rotterdam for imports, said Vincent Kristen, the company’s managing director. But that failed because the company started to detect a curious pattern. “Soon we found we were getting more or less European prices from suppliers in the rest of the world,” Mr. Kristen said. By late February 2005, the cartel started to fracture. It gathered for what would be its last meeting in the brightly colored four-star Hotel Madison Residenz in Hamburg but was unable to come to an agreement on prices. Three weeks after the Hamburg meeting, the cartel was shattered. Shell, facing $360 million in fines for its participation in other cartels — involving synthetic rubber and bitumen, a thick form of petroleum — revealed the paraffin scheme to European Union authorities on March 17, 2005. Under European Union regulations, Shell won complete forgiveness for what would have been a nearly $130 million fine, as calculated by the commission. Other companies — some far less implicated — faced fines eventually totaling nearly $900 million. A series of raids followed in the weeks after Shell talked. Perhaps the richest trove of evidence came from MOL headquarters in Hungary, where investigators discovered Mr. Toth’s files with a series of notes on hotel stationary arranged in chronological order. Sasol pressed for leniency the day after the raids concluded on April 29 and received a 50 percent reduction, lowering its fine to the equivalent of $423 million. More limited discounts were meted out to Exxon Mobil and others. Since the trustbusters issued the fines, chastened top executives have apologized, with several saying they unwittingly inherited cartel membership from smaller companies they acquired or that their managers acted without company knowledge. Nikolaas Baeckelmans, a spokesman for Exxon Mobil, said his company “deeply regrets our involvement, although limited, in the infringement.” He said participation was confined to four Mobil employees who became involved before the Exxon merger with Mobil in 1999 and a single Mobil employee held over in Germany after the merger. Rainer Winzenried, a spokesman for Shell, said that it took time to integrate DEA, a German business it purchased in 2002, which was already a cartel member. Sasol’s top executives blamed rogue employees. The commission argued that senior managers should have investigated the real purpose of the meetings since attendees submitted expenses. A spokesman for MOL initially said that the memo writer, Mr. Toth, left the company two years ago, later conceding that that information was incorrect. A colleague of Mr. Toth’s in Hungary said he was working there till October, the month the sanctions were announced.
- With Russia’s support, a dozen large natural gas-producing countries founded an organization that will study ways to set global prices for the fuel, much as the Organization of the Petroleum Exporting Countries does for crude oil. The development seems likely to further unnerve European Union nations, already wary of their dependence on Russian energy and what critics say are efforts by Moscow to use oil and natural gas exports as leverage to reassert sway over former Soviet nations. Russia’s foray into energy diplomacy affecting natural gas producers from the Middle East to South America also underlined its ambitions to assert itself on the world stage despite the slump in energy prices. Initially, officials from member countries say, the group will focus on coordinating investment plans to dissuade countries from flooding the market with gas. But if its longer-term goals are realized, the Forum of Gas Exporting Countries holds the potential to extend an OPEC-like model of price modulation to another basic commodity, even as natural gas is expected to play a larger role in global energy supplies. The forum “will represent the interests of producers and exporters on the international market,” Russia’s prime minister, Vladimir V. Putin, told the gathering of energy ministers. “The time of cheap energy resources, and cheap gas is surely coming to an end.” Formation of the group was a coup for Russia, the world’s largest producer of natural gas and oil. But most members also belong to OPEC, which has been at odds with Russia over its reluctance to reduce crude oil output in coordination with OPEC. The countries in the forum have been meeting informally since 2001; what was new Tuesday was the group’s adoption of a charter that would establish a permanent secretariat. Doha was chosen as the group’s headquarters. The Russian government, in a statement, said falling energy prices had impelled members to quickly formalize their organization. As in OPEC, the ministers in the new group espoused an ideology of defiance to the industrialized countries that are the primary customers, and stated the rights of commodity exporting nations to coordinate efforts to improve the terms of trade. That Russia decided to join forces with the petroleum-dependent nations is a bellwether of Russia’s economic trends. As its Soviet-era scientific and industrial accomplishments fade, the country is relying more heavily on natural resources exports and associated boom-and-bust cycles. Russia, which also belongs to the Group of 8 industrialized nations, said the group was not a cartel, like OPEC. A deputy chairman of the Russian gas monopoly Gazprom, Aleksander I. Medvedev, said the natural gas business, which relies on long-term contracts, would make the use of production quotas, the backbone of OPEC’s pricing policies, impossible. But the energy minister of Venezuela, the country that initiated the formation of the original OPEC in 1960, was not coy about his hopes for the new group as liquefied natural gas traded on spot markets is projected to become a more important fuel in the global energy mix. “We see this organization as OPEC,” Rafael Ramirez said on the sidelines of the meeting. “We are producer countries and we have to defend our interests.” But OPEC has not had a good track record of being able to control prices over the year. Despite pledges of cuts this year totaling 4.2 million barrels a day, or nearly 12 percent of OPEC’s capacity, oil prices, which topped $145 a barrel this summer, continue to fall. Prices settled Tuesday at $38.98 a barrel in New York. A study that the group commissioned said natural gas prices would inevitably remain linked to the price of oil. However, the study said that the environmental benefits of natural gas, including lower releases of greenhouse gases, are not priced into the fuel, offering room to negotiate higher prices. The study also concluded that the market for shipborne natural gas is transforming the fuel into a global commodity, suggesting the industry will transform from one modeled as a utility serving pipeline customers to one built around trading. The forum members include: Algeria, Bolivia, Brunei, Venezuela, Egypt, Indonesia, Iran, Qatar, Libya, Malaysia, Nigeria, the United Arab Emirates, Russia, Trinidad and Tobago and, as observers, Equatorial Guinea and Norway.
- A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric. Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company’s shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world’s largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom’s big private sector competitors in the West is looking for one. That Russia’s largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state’s rapid economic decline. During the boom times, Gazprom and the other Russian state energy company, Rosneft, became vehicles for carrying out creeping renationalization. As oil prices rose, so did their stocks. But rather than investing sufficiently in drilling and exploration, Russia’s president at the time, Vladimir V. Putin, used them to pursue his agenda of regaining public control over the oil fields, and much of private industry beyond. As a result, by the time the downturn came, they entered the credit crisis deeply in debt and with a backlog of capital investment needs. (Under Mr. Putin, now the prime minister, Gazprom and Rosneft are so tightly controlled by the Kremlin that the companies are not run by mere government appointees, but directly by government ministers who sit on their boards.) “They were as inebriated with their success as much as some of their investors were,” James R. Fenkner, the chief strategist at Red Star, a Russian-dedicated hedge fund, said of Gazprom’s ambition to become the world’s largest company. “It’s not like they’re going to produce a better mousetrap,” he said. “Their mousetrap is whatever the price of oil is. You can’t improve that.” Investors are now fleeing Gazprom stock, once such a favorite that it alone accounted for 2 percent of the Morgan Stanley index of global emerging market companies. Gazprom is far from becoming the world’s largest company; its share prices have fallen more quickly than those of private sector competitors. The company’s debt, amassed while consolidating national control over the industry, is one reason. After five years of record prices for natural gas, Gazprom is $49.5 billion in debt. By comparison, the entire combined public and private sector debt coming due for India, China and Brazil in 2009 totals $56 billion, according to an estimate by Commerzbank. Mr. Putin used Gazprom to acquire private property. Among its big-ticket acquisitions, in 2005 it bought the Sibneft oil company from Roman A. Abramovich, the tycoon and owner of the Chelsea soccer club in London, for $13 billion. In 2006 it bought half of Shell’s Sakhalin II oil and gas development for $7 billion. And in 2007, it spent more billions to acquire parts of Yukos, the private oil company bankrupted in a politically tinged fraud and tax evasion case. Rosneft is deeply in debt, too. It owes $18.1 billion after spending billions acquiring assets from Yukos. And in addition to negotiating for a government bailout, Rosneft is negotiating a $15 billion loan from the China National Petroleum Corporation, secured by future exports to China. Under Mr. Putin, more than a third of the Russian oil industry was effectively renationalized in such deals. But unlike Hugo Chávez of Venezuela or Evo Morales of Bolivia, who sent troops to seize a natural gas field in that country, the Kremlin used more sophisticated tactics. Regulatory pressure was brought to bear on private owners to encourage them to sell to state companies or private companies loyal to the Kremlin. The assets were typically bought at prices below market rates, yet the state companies still paid out billions of dollars, much of it borrowed from Western banks that called in the credit lines in the financial crisis. Rosneft, which was also held up as a model of resurgent Russian pride and defiance of the West as it was cobbled together from Yukos assets once partly owned by foreign investors, was compelled to meet a margin call on Western bank debt in October. Critics predicted Russia’s policy of nationalization would foster inefficiency, or at the very least disruption as huge companies were bought and sold, divided up and repackaged as state property. At stake were assets worth vast sums: Russia is the world’s largest natural gas producer and became the world’s largest oil producer after Saudi Arabia reduced output this summer to support prices. A deputy chief executive of Gazprom, Aleksandr I. Medvedev, predicted the company would achieve a market capitalization of $1 trillion by 2014. Instead, its share price has fallen 76 percent since the beginning of the year and its market cap is now about $85 billion. By comparison, Exxon’s share price of $78.02 is down 18 percent since January. The company’s market capitalization is $393 billion. And the Standard & Poor’s 500-stock index stocks is down more than 40 percent for the year. Mr. Medvedev, the Gazprom executive, defended Gazprom’s performance and attributed the steep drop in its share price relative to other energy companies to the company’s listing on the Russian stock exchange, which is volatile and lacks investors who put their money into companies for the long term. Mr. Medvedev said the share price “does not reflect the company’s value” and blamed the financial crisis that began on Wall Street for the company’s woes. It is true that Gazprom is far from broke. The company made a profit of 360 billon rubles, or $14 billion, from revenue of 1,774 billion rubles, or $70 billion, in 2007, the most recent audited results released by the company. Valery A. Nesterov, an oil and gas analyst at Troika Dialog bank in Moscow, said Gazprom’s ratio of debt to revenue — before interest payments, taxes and amortization — was 1 to 5 in 2007, high by oil industry standards but not so excessive as to jeopardize the company’s investment grade debt rating. The company, meanwhile, says it will go ahead with capital spending to develop new fields in the Arctic, and continues to pour money into subsidiaries in often losing sectors like agriculture and media. It is also assuming, through its banking arm, a new role in the financial crisis of bailing out struggling Russian banks and brokerages. Investors say an unwillingness to cut costs in a downturn is a common problem for nationalized industries, and another reason they have fled the stock. When oil sold for less than $50 a barrel in 2004, Gazprom’s capital outlay that year was $6.6 billion; for 2009, the company has budgeted more than $32 billion. Gazprom executives say they are reviewing spending but will not cut major developments, including two undersea pipelines intended to reduce the company’s reliance on Ukraine as a transit country for about 80 percent of exports to Europe. Gazprom and Ukraine are again locked in a dispute over pricing that Gazprom officials say could prompt them to cut supplies to Ukraine. But revenue is projected to fall steeply next year. Gazprom received an average of $420 per 1,000 cubic meters for gas sold in Western Europe this year; that is projected to fall to $260 to $300 in 2009. “For them, like everybody else, sober realism has intruded,” Jonathan P. Stern, the author of “The Future of Russian Gas and Gazprom” and a natural gas expert at Oxford Energy, said in a telephone interview. A significant portion of the country’s corporate bailout fund — about $9 billion out of a total of $50 billion — was set aside for the oil and gas companies. Gazprom alone is seeking $5.5 billion. For a time, Gazprom, a company that evolved from the former Soviet ministry of gas, had been embraced by investors as the model for energy investing at a time of resource nationalism, when governments in oil-rich regions were shutting out the Western majors. In theory, minority shareholders in government-run companies would not face the risk their assets would be nationalized. But with 436,000 employees, extensive subsidiaries in everything from farming to hotels, higher-than-average salaries and company-sponsored housing and resorts on the Black Sea, critics say Gazprom perpetuated the Soviet paternalistic economy well into the capitalist era. “I can describe the Russian economy as water in a sieve,” Yulia L. Latynina, a commentator on Echo of Moscow radio, said of the chronic waste in Russian industry. “Everybody was thinking Russia had succeeded, and they were wondering, how do you keep water in a sieve?” Ms. Latynina said. “When the input of water is greater than the output, the sieve is full. Everybody was thinking it was a miracle. The sieve is full! But when there is a drop in the water supply, the sieve is again empty very quickly.”
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