Posts from ‘February, 2007’

By Catherine Belton in Moscow
Published: February 28 2007 02:00 | Last updated: February 28 2007 02:00

Russia stepped up pressure on a key asset held by TNK-BP, BP’s Russia venture, yesterday as Lord Browne, BP chief executive, arrived in Moscow for talks and the end-game neared for a possible transfer of part of a key asset to the state.

Oleg Mitvol, the official who led the state campaign against Shell’s oil and gas venture in Sakhalin2, said yesterday that Russia’s Natural Resources Ministry would not budge on threats to revoke TNK-BP’s licence to develop its vast east Siberian Kovykta gas field in three months time.

“The conditions can be changed only one way,” said Mr Mitvol of TNK-BP’s calls to soften licence terms that it says are impossible to meet. “You tear up the license agreement and the state sells it off at an auction anew.”

Mr Mitvol’s ministry has declared TNK-BP in violation of conditions to develop the field and has given the joint venture group three months to start producing 9bn cubic meters of gas, as the license stipulates, or have its license revoked.

TNK-BP produces a fraction of that amount and has said the terms are impossible to meet as there is not enough demand for that volume of gas in the local region.

The attack on TNK-BP’s Kovykta licence is seen by many industry watchers as part of a wider political strategy as TNK-BP moves into a crucial phase and the state tightens its grip over the energy sector.

TNK-BP’s Russian billionaire shareholders are believed by many analysts to be readying to sell their stakes in the venture to a state-controlled company such as Gazprom. A moratorium on any change of ownership at TNK-BP is due to expire this year. TNK-BP’s Russian shareholders have repeatedly denied that any such sales are contemplated.

But Vladimir Milov, the former deputy energy minister in the Putin government, said Gazprom was stepping up the pressure on TNK-BP.

Sergei Kupriyanov, Gazprom spokesman, declined to comment on whether talks were ongoing about Gazprom becoming BP’s new partner in Russia.

But he said Gazprom was not interested in Kovykta by itself. “TNK-BP is more interested in bringing us into this project than we are,” he said.

TNK-BP declined to comment on Mr Mitvol’s remarks yesterday.

Copyright The Financial Times Limited 2007

By Peter Smith and Angela Maier in Frankfurt
Published: February 28 2007 02:00 | Last updated: February 28 2007 02:00

David Bonderman, founder of Texas Pacific Group, kicked off the private equity industry’s Super Return conference yesterday with adeclaration that the sector had now reached the scale to target the largest global companies.

“There have been more public to private [deals] in the last 18 months than in the previous 18 years,”Mr Bonderman told delegates at the event in Frankfurt.

The comments came a day after TXU, the Texas-based energy group, agreed to a $45bn takeover including debt, by TPG group and KKR, the largest buy-out in history.

In an apparent game of one-upmanship, Steve Schwarzman, chief executive of rival private equity firm Blackstone, said meanwhile that it had run the slide rule over a $50bn German company.

“But the stock went up too much and it didn’t work,” Mr Schwarzman said on the fringes of Super Return.

BASF, Bayer and Volkswagen all have enterprise values that fit that bill. And late in the summer of 2006, Continental, the automotive equipment group, confirmed that unnamed private equity funds had attempted a takeover of the company.

But Mr Bonderman also sought to play down the power of the private equity industry, in an apparent response to the trade union and political backlash against buy-outs.

He said the global private equity industry’s size was little more than a “rounding error” when compared to the $70,000bn enterprise value of global equity markets.

The total amount of purchasing power of private equity including leverage of $1,200bn was less than the total enterprise value offive large public companies – Siemens, Shell, Microsoft, Toyota and General Electric – which had an aggregate value of $1,600bn, he said.

The strength of opinion against the industry seemed muted at yesterday’s conference. A union protest outside was attended by less than a dozen people.

A union campaign in the UK has recently triggered a wide-ranging debate into the role of the private equity industry.

Tony Blair, the UK prime minister, yesterday saidprivate equity brought “alot of benefits” to the economy.

Mr Bonderman said: “We recognise there is xenophobia but private equity should more or less follow GDP.”

He said large German groups had laid off 100,000 people in the past two years, compared to 7,000 by those owned by private equity.

Copyright The Financial Times Limited 2007

 

By Stephen Voss

Feb. 27 (Bloomberg) — Repsol YPF SA, Europe’s fifth-biggest oil company, joined BP Plc and Royal Dutch Shell Plc in cutting production forecasts after their output dropped in 2006 amid rising energy nationalism and supply disruptions.

Repsol’s production this year will slide about 12 percent, following a 3.3 percent decline in 2006, the Madrid-based company said today. Output at Total SA, Europe’s third-biggest oil company, also fell last year.

European producers pumped less oil and gas because governments in Venezuela and Russia took greater control of their energy industries and disruptions and delays curbed supply in Nigeria and the U.S. Total was the only company among the top five, which includes Eni SpA of Italy, to increase its forecast for production growth this decade.

“We’re in a business where they don’t offer us the easy territory to produce,” Thierry Desmarest, chairman of Total, said at a conference organized by the French Association of Economic and Financial Journalists in Paris, where the oil company is based. “Many oil producing nations don’t have an urgency to develop reserves with international oil companies unless it’s expensive and complicated.”

Repsol said production this year will drop because of the partial nationalization of reserves in Venezuela and Bolivia. The company in January 2006 said it would write off a quarter of its reserves because of higher taxes in Bolivia and deteriorating output in Argentina.

“The really big fields are maturing so the yields are getting smaller,” Repsol Chairman Antonio Brufau said in an interview today in Madrid. “State-owned companies are in control of many of the big areas, so private companies have less access.”

Abandoned Targets

Venezuelan President Hugo Chavez signed a decree yesterday allowing the government to seize at least a 60 percent stake in the nation’s last four heavy-crude-oil private joint ventures by May 1. The ventures include stakes held by BP and Total.

BP this month abandoned an earlier goal of increasing output by 4 percent a year through the end of the decade. Instead, the London-based company adopted a target that equates to about 1.5 percent annual growth through 2012. BP last year posted its first annual production decline this decade because of curbed pumping in Alaska and delays repairing Gulf of Mexico rigs.

Higher prices and demand for oil services and construction crews that had “stretched to breaking point” were reasons for BP’s new “conservative” forecasts, Tony Hayward, who takes over as Chief Executive Officer on Aug. 1, said this month.

Falling Production

Oil and gas production last year fell 2.2 percent at BP, 5 percent at Total and 1 percent at Shell.

Production at Eni rose 1.9 percent last year, the sole producer among Europe’s top five whose output rose in the period. The Rome-based company said the amount of oil and gas it extracts through 2010 will be less than previously expected after delaying the start-up of the Kashagan field in Kazakhstan by two years and losing output in Venezuela.

“It’s becoming difficult to get projects up and running on time and it’s also becoming more expensive,” said Richard Griffith, an analyst at Evolution Securities Ltd. in London.

The battle to pump more oil and gas reflects greater control moving into the hands of state-run companies such as OAO Gazprom, which last year took a majority stake in the Shell-led Sakhalin-2 venture in Russia’s Far East. Militant attacks in Nigeria have also slashed output at The Hague-based Shell.

Gazprom, the world’s biggest producer of natural gas, is also seeking a greater role in a BP-led field in Russia.

“In the case of BP and Shell, there is quite a long track record of them putting up targets, to then come back and disappoint,” said Griffith.

Griffith cut his recommendation on BP to “add” from “buy” earlier this year, and cut Shell to “reduce” from add.”

Total predicted output growth through 2010 will rise by an average 5 percent, compared with a previous estimate of 4 percent.

Still, Desmarest said there are numerous countries where investments are “impossible,” highlighting Saudi Arabia, Mexico and Kuwait. Host nations generally aren’t eager to develop reserves with international oil companies unless they involve liquefied natural gas, he said.

To contact the reporter on this story: Stephen Voss in London at sev@bloomberg.net
Last Updated: February 27, 2007 12:29 EST

By Shigeru Sato and Yuji Okada

Feb. 28 (Bloomberg) – OAO Gazprom plans to complete the acquisition of shares in Royal Dutch Shell Plc’s Sakhalin-2 oil and gas project by March 31, giving the Russian company control over the country’s first liquefied natural gas project.

“We’re targeting the end of March,” Igor Bakhtin, deputy head of Gazprom’s eastern projects department, told Bloomberg News in Tokyo when asked for the company’s timetable for the share transaction.

Gazprom agreed in December to buy 50 percent plus one share of the Sakhalin-2 project for $7.45 billion. Shell, Mitsui & Co. and Mitsubishi Corp. will each sell half of their stakes in the project to the Russian company. Shell and the two partners have invested $12 billion in the venture, which clinched contracts to export 5 million tons a year of LNG to Japanese buyers.

Sakhalin-2 has committed to sell almost all of its planned LNG output to utilities in Japan, South Korea and North America. The project is expected to produce 9.6 million tons a year of LNG, which is gas cooled to liquid for transport by tanker.

Shell owned 55 percent of Sakhalin-2, Mitsubishi 20 percent and Mitsui 25 percent before the agreement with Gazprom.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net ; Yuji Okada in Tokyo at yokada6@bloomberg.net .

Equity firms seen making bigger deals
 
By Edward Evans
Published: February 28, 2007
 
FRANKFURT: A day after he helped set a $45 billion record for the biggest buyout in the world, David Bonderman, co-founder of Texas Pacific Group, said Tuesday that he expected buyout firms to maintain their acquisition spree.

Speaking at a conference here, Bonderman said, “2006 was a record year, and I predict we’ll have another record year in 2007.” He added, “I see no reason why private equity won’t be a substantial part of the capital markets — a much more substantial part than it is today.”

With low-cost debt, Bonderman said, buyout firms would single out publicly traded U.S. companies as their stock market valuations languished and executives sought to avoid the disclosure rules created by the Sarbanes- Oxley Act. Buyout firms will continue their record deal-making until the debt available dried up, he added.

Texas Pacific and a partner, Kohlberg Kravis Roberts, agreed Monday to buy the Texas power producer TXU for $45 billion in cash and debt in the biggest leveraged buyout ever. Texas Pacific, like other buyout firms, is under increasing pressure from investors to complete larger deals after it amassed a record $15 billion fund last year.

Closely held buyout firms like KKR and Texas Pacific finance their deals using cash from investors, their own funds and debt secured by the companies they are buying. They typically seek to expand companies or to improve their performance before selling them, usually within five years.

Lenders are relaxing the rules they require borrowers to follow, Bonderman said. In July, Texas Pacific and Leonard Green & Partners bought Petco Animal Supplies for a second time. This time, the lenders did not set leverage limits or specify how much cash they would require Petco to set aside to cover interest payments.

Bonderman played down growing political scrutiny of the industry, saying private equity firms’ activities amount to just a “rounding error” in the global capital markets.

The industry has less purchasing power than the combined market value of Siemens, Microsoft, Toyota Motor and Royal Dutch Shell, he said.

What has drawn attention, he added, is the number of public companies taken private. “There’s plenty more room for this phenomenon to continue and plenty more room for anxiety for those who feel anxious about private equity transactions,” he said.

Blackstone takes on KKR

Stephen Schwarzman, co-founder of Blackstone Group, said Tuesday that his rival, Henry Kravis, had destroyed demand for initial public offerings of private equity funds.

In May, KKR raised $5 billion — triple the amount it originally sought — for its first publicly traded leveraged buyout fund. The shares have since dropped by as much as 16 percent and have never traded above their IPO price. That performance prompted the buyout firm Doughty Hanson to drop plans for a €1 billion, or $1.32 billion, fund IPO.

“KKR did a great job with their vehicle,” Schwarzman said during a panel discussion at the Frankfurt conference. “They destroyed the market for everyone else, which was their objective.”

Last Update: 7:46 PM ET Feb 27, 2007

The Russian government has increased pressure on TNK-BP over one of its assets as BP PLC (BP) Chief Executive John Browne arrived in Moscow for talks, the Financial Times reported on its Web site Tuesday.

Russian environmental regulatory official Oleg Mitvol said the Natural Resources Ministry wouldn’t back off from threats to revoke the license of TNK-BP, BP’s Russian venture, to develop its Kovykta gas field in eastern Siberia in three months, FT reported.

“The conditions can be changed only one way,” Mitvol said, according to FT, regarding TNK-BP’s calls to ease license terms that it says can’t be met. “You tear up the license agreement and the state sells it off at an auction anew.”

The ministry says TNK-BP is in violation of development of the field. It gave the group three months to start producing 9 billion cubic meters of gas, as called for by the license, or have it revoked, according to the FT.

TNK-BP declined to comment on Mitvol’s remarks, the FT reported.

Newspaper Web site: http://www.ft.com
-Contact: 201-938-5400 

Headline: Shell: FM for C2/C3 at Moerdijk lifted

Shell Chemicals (London / UK; www.shell.com) lifted “force majeure” on C2 and C3 at Moerdijk / The Netherlands on 19 February 2007, the company has confirmed. Shell declared force majeure on output from the site´s 900,000 t/y cracker on 11 December 2006, citing technical problems resulting from a lightning strike on 7 December. Shell Chemicals (London / UK; www.shell.com) lifted “force majeure” on C2 and C3 at Moerdijk / The Netherlands on 19 February 2007, the company has confirmed. Shell declared force majeure on output from the site´s 900,000 t/y cracker on 11 December 2006, citing technical problems resulting from a lightning strike on 7 December.
 
© Plastics Information Europe, Bad Homburg 

Published: Wednesday, 28 February, 2007, 10:13 AM Doha Time
 
SINGAPORE: Royal Dutch Shell, the world’s biggest non-state liquefied natural gas producer, may double imports through a $600mn LNG terminal in India this year, after customers agreed to pay international prices for the fuel.

Shell and partner Total aim to import about 24 cargoes this year, equivalent to about 56% of the terminal’s capacity, Marc den Hartog, director of gas and power at Shell India Ltd, said by phone from New Delhi on Monday.

Indian power producers and manufacturers are turning to imported gas, paying as much as five times more, because declining output from aging fields failed to keep pace with demand growth.

The turnaround at Shell’s West Coast terminal underscores increased confidence in India’s gas market.

“There were genuine concerns in 2005 among customers that spot LNG was expensive and that it would set a precedent for other gas prices,” said Hartog, 46. “It took time to convince customers.”

Shell has never operated its 2.5mn metric tonne-a-year port and terminal project at Hazira at more than a third of its capacity since opening in April 2005. The terminal, Shell’s first ever LNG import facility, imported three cargoes, or about 175,000 tonnes, in the first year of operations ending March 2006, Hartog said.

Total has a 26% stake in the project, according to Total’s website.

Shell is boosting LNG imports because fertiliser, power and petrochemical plants are switching from more expensive naphtha, an alternative to gas.

Petronet LNG Ltd, India’s first LNG importer, is in talks to lease Shell’s remaining capacity, Petronet managing director Prasad Dasgupta said on February 9. – Bloomberg
 

By Gavin Evans

Feb. 28 (Bloomberg) — Royal Dutch Shell Plc, the world’s second-biggest oil company by market value, is studying alternative technology to extend the life of New Zealand’s oldest gas field.

Kapuni, discovered in 1959, has pumped more than three times its original reserves estimate and Shell plans to keep it flowing by loosening “tight” rock formations, said Gaurdie Banister, Shell’s technical vice president for exploration in Southeast Asia. Shell and Todd Energy Ltd. each own half of the field, supplier of a fifth of the nation’s gas.

“The tight gas opportunity at Kapuni, we think is something that deserves better understanding,” Banister said in an interview yesterday. “We hope it’s possible to unlock more gas at Kapuni.”

Oil companies are developing new drilling techniques to meet rising energy demand by extracting oil and gas from reservoirs previously considered too deep or too complicated. Shell is the biggest gas producer in New Zealand, where rising energy demand risks exhausting fields as soon as 2015.

Shell’s $600 million Changbei project in China is the country’s first to use horizontal bores drilled off main wells to open up tight rock formations, Banister said while attending the National Power conference in Auckland, New Zealand.

The Changbei field straddles Shaanxi and Inner Mongolia provinces and is shared by Shell and PetroChina Co., the country’s biggest oil company. Production began last year and will rise to 3 billion cubic feet annually by 2008.

In New Zealand, the company will study development options for Kapuni, an onshore field, during the next couple of years, Banister said. Shell may use the rock fracturing and rig management experience gained at the Pinedale field in the U.S. state of Wyoming, he said.

Pinedale Field

Estimated to hold enough gas to heat 10 million homes for 30 years, Pinedale was barely developed for more than 60 years because of its low flow rates, Shell said in a publication on new technologies. Acquired in 2001, the field is now delivering gas from as many as 65 wells per square mile, compared with one or two wells per square mile at a conventional gas field.

The company started deliveries from its Pohokura field last year and added another 200 billion cubic feet to reserves at the Maui field by drilling two new wells from an existing offshore platform. Demand on the international market for drilling rigs makes further drilling at Maui unlikely in the short-term, he said.

Pohokura is meeting the company’s expectations, Banister said. Wells from the offshore portion of the field will be producing soon and the company should know by year-end the scope for further gas sales, he said.

Close Bidding

New Zealand’s government will next month close bidding for exploration proposals in the Great South basin off the southern coast of the country’s South Island. Fields within the region may hold as much as 7 trillion cubic feet of gas.

Banister wouldn’t say whether Shell will participate in the bid. Still, the company does have the scale and technology necessary to deliver a large-scale, deepwater project in what is a “pretty harsh environment”.

“Great South in a way represents something that plays to Shell’s strengths,” he said. “It’s not for the faint of heart.”

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net .

Last Updated: February 27, 2007 15:00 EST

February 28, 2007

There is no rush by engineering graduates to work in the sector, but those who do enjoy high job satisfaction

Martin Birchall

When Sir John Rose, chief executive of Rolls-Royce, was said to have voiced concerns last year about the lack of experienced engineers in Britain’s industrial sector, he wasn’t highlighting a new problem. For much of the past two decades, the proportion of students who study engineering at university but then embark on an entirely different career has been increasing.

In the first edition of The Times Top 100 Graduate Employers, published in 1997, six of the top ten employers were engineering or industrial firms. In the latest edition, the top three places in the league table all went to accountancy firms and only one manufacturer, Procter & Gamble, remained within the top ten employers.

Research from The UK Graduate Careers Survey 2006, based on interviews with more than 16,000 final-year undergraduates from 30 leading universities, showed that just 47 per cent of engineering students from the Class of 2006 said that engineering was their first-choice career and fewer than two thirds bothered to make applications for engineering jobs.

This exodus from the sector is not due to a lack of opportunities. More than a quarter of the organisations featured in The Times Top 100 Graduate Employers are recruiting for engineering vacancies in 2007, including organisations as diverse as the BBC, Unilever, the Ministry of Defence, GlaxoSmithKline and BP. And recruitment numbers at the major industrial employers — such as BAE Systems, Corus, Atkins and Rolls-Royce — are up by 4 per cent compared with 2006.

One of the main reasons why new engineering graduates look elsewhere for work after university is the lure of higher salaries. According to The Graduate Market in 2007 report from High Fliers Research, average graduate packages at the top consulting firms and investment banks are between £28,000 and £35,000, whereas a typical salary in engineering is £23,000.

The leading City and financial firms make no secret of the fact they value the analytical skills and problem-solving abilities of engineering graduates and are prepared to pay generous bonuses, either when graduates start work or during their first year of employment.

But higher salaries are certainly available for graduate engineers working in specific industries. Oil & energy companies are expecting to pay an average of £28,000 to this year’s new recruits, the biggest chemical and pharmaceutical firms are offering an average of £26,500 and the major IT and telecoms companies have packages worth at least £24,500.

For those who are planning a career in engineering, the recruitment odds are encouraging. Whereas the top investment banks often attract between 100 and 250 applications per vacancy, engineering employers typically receive 25 or fewer applicants for each graduate place. And working as an engineer scores highly too for job satisfaction and a better work-life balance.

Being “interested in the content of the work” was finalists’ main reason for choosing engineering as a career in 2006 and more than 90 per cent thought the profession offered excellent long-term opportunities. Shell was voted the Engineering Employer of Choice for graduates in The Times Graduate Recruitment Awards 2006, edging Rolls-Royce, the previous sector winner.

Martin Birchall is editor of The Times Top 100 Graduate Employers