Financial Times: Petrobras confident over deep water well

By Ed Crooks
Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

In more than 2,000 metres of water off the coast of Brazil, Petrobras, the Brazilian national oil company, is drilling what could become one of most important oil wells of recent years.

Sergio Gabrielli, chief executive of Petrobras, told the Financial Times that results from a well now being drilled in the offshore Carioca field, the subject of fevered excitement, should provide some answers about its true potential in about three months’ time.

While Mr Gabrielli warned that exploration was still at an early stage, he said the potential reserves of the Brazilian deep water could be “huge”, and he did not think Petrobras would face “insurmountable challenges” in producing the oil it found.

This month, the head of Brazil’s petroleum regulator provoked uproar when he suggested that Carioca could contain 33bn barrels. That would make it one of the biggest finds ever, holding enough oil to meet global demand for more than a year.

His remarks, later clarified as not giving an official estimate, caused jumps in the share prices of Petrobras and its partners in the Brazilian deep water project such as BG Group, of the UK, and Repsol, of Spain.

Last year, Petrobras drilled a first well on licence block BM-S-9, which covers Carioca, and a second well is under way. Mr Gabrielli said the drilling would take a month or two, and analysing the results another month or two after that.

“We cannot have a final assessment of the oil in Carioca, because we are still drilling,” he said. “Given the expectations from geological and seismic information, we could find a very large volume, but we do not know.”

The figure of 33bn barrels of oil - more than the proved reserves of the whole of the US - came from World Oil magazine, he added.

“What the regulator was saying he got from a publication in the US,” he said. “The regulator does not have the information. We are the operator; we are the only ones who have the information, and we will not know more until three months from now.”

He added that the 33bn estimate did not apply to just the BM-S-9 block, but to a geological structure that extended over several blocks, and to areas for which the Brazilian government had not yet awarded licences.

Petrobras is working on different blocks in the area with different partners, including ExxonMobil and Hess, of the US, BG, Royal Dutch Shell, Repsol and Galp, of Portugal.

Arthur Berman, the Houston petroleum consultant who wrote the article on Carioca for World Oil, acknowledged that the 33bn figure was “a very speculative number”, although a “credible guess”.

He told the Financial Times that he had calculated it by using a geological structure map to assess the size of the potentially oil-bearing area, which he believes is about five times the size of the structure at the Tupi field, another Petrobras deep-water discovery north-east of Carioca estimated by Petrobras to hold 5bn-8bn barrels of recoverable oil.

So the 33bn for Carioca comes from taking the mid-point of the Tupi range and multiplying by five.

Mr Berman said the well being drilled on BM-S-9 would be an important source of additional information, but even after the results were in, estimates of of the size of Carioca would remain “highly speculative”.

Finding resources in the area around Carioca and Tupi is difficult because they are pre-salt, or sub-salt. The oil-bearing rocks are beneath a thick layer of salt, which creates problems for seismic surveys.

The first well drilled in the region cost $240m, including all the preparatory work, although the most recent cost only $60m, Mr Gabrielli said.

Oil extraction from sub-salt reservoirs is difficult, too; salt tends to move, and there is a risk of it shearing or crushing the production well casing.

Another problem is that the oil-bearing rocks are carbonates such as limestone, which can be more variable than the easier sandstone reservoirs. Oil flows can be very variable, and in the worst cases can drop off very quickly.

Mr Gabrielli believes the problems are soluble. “Most of the technical problems we would face have solutions already developed, but we don’t have experience with the different bits all working together,” he said. “But I don’t think we face any insurmountable challenges.”

Petrobras plans to begin testing on the Tupi field by the end of next year. Mr Gabrielli said Petrobras was “very positive that we can declare commerciality”, draw up a development plan and get first oil by the end of 2010.

Copyright The Financial Times Limited 2008

Financial Times: Shell output up

Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

For Royal Dutch Shell, which has been dogged by concerns about falling production, the rise in its first-quarter output reported yesterday, though small, was particularly welcome. The reason was the growth in its gas business.

Shell still has 164,000 barrels per day of production shut-in as a result of the violence in Nigeria, and its total crude oil production was 6 per cent lower in the first quarter of this year than the equivalent period of 2007. But gas production was up 9 per cent.

Peter Voser, the chief financial officer, said: “We are becoming a more gas-driven company.”

Shell is also highlighting the contribution of its Canadian oil sands division, publishing the results separately, which enables rough comparisons of profitability to be made.

The business appears to be commercially attractive in spite of its high costs: profit from the oil sands of $249m was equivalent to about $19 per barrel sold, compared to an average of $16 per barrel of oil equivalent produced in Shell’s conventional exploration and production business.

Sales volumes from the oil sands rose only 1 per cent, but Shell has a big expansion project under way. It is part of the $26bn-$27bn investment plan Jeroen van der Veer, chief executive, called “the largest capital spending programme in our industry today”.

Copyright The Financial Times Limited 2008

Financial Times: Lex Column: Shell and BP

Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

Mega-cap energy stocks are not supposed to move this much. Yesterday’s first-quarter figures from BP and Shell - comfortably above consensus in both cases - sent the pair’s shares up about 6 per cent. Investors may have been waiting for an excuse to pile back in; BP had underperformed the sector by 13 per cent over the past 12 months and Shell had lagged behind by 8 per cent.

Is the rally justified? Earnings were boosted by forces beyond the duo’s control: average crude oil selling prices during the period were two-thirds higher than a year earlier, with gas about a quarter better. And there is nothing to alter the underlying story of structural decline. Shell’s crude oil output was down 6 per cent year on year while BP’s fell 2 per cent. At the oil sands division, Shell’s big hope - accounting for 3 per cent of earnings but 9 per cent of capital expenditure - net production fell by a quarter after mechanical setbacks. Glitches are becoming a habit for a unit that represents about a third of Shell’s proved reserves.

Investors’ optimism seems to be founded on signs of operational improvement. BP’s refining and marketing unit reported a profit for the quarter in spite of heavy losses in the US caused by refinery shutdowns, suggesting that cost-cutting measures are delivering results earlier than expected. Shell, meanwhile, reminded investors of its earnings power by smartly steering shipments of its liquefied natural gas to wherever prices were highest.

In spite of the share price spike, the bigger picture is unchanged. Both companies have ordinary valuations, good cash flow, mixed execution and poor immediate growth prospects. A step change in production is unlikely until after 2011 when new but risky projects are forecast to come onstream. It is hard to imagine yesterday’s bounce occurring without the backdrop of record oil prices.

Copyright The Financial Times Limited 2008

oil fat cats should be hung up and beaten like scalded dogs

Comment posted by Daniel Dillard

Shell, BP, Chevron, Exxon and all of you other money grubbing oil fat cats should be hung up and beaten like scalded dogs. YOur practices sicken me and the rest of the world. I hope we find another source of power that has nothing to do with oil so we can see your fat butts suffer like the rest of us. We have a baby on the way and now that childs future is in jeopardy and she hasn’t even been born yet. Mommy and daddy can’t afford to put gas in the car to get to two separate jobs. You should be ashamed of yourselves.

Daniel Dillard
Indianapolis, IN
Contact details supplied

Photograph: David McNew/Getty images

Brown wants profits poured into North Sea

· BP and Shell announce £7bn bonanza
· Motorists and greens united in condemnation

Terry Macalister
The Guardian, Wednesday April 30 2008

Gordon Brown stepped into a growing row about oil company profits yesterday, calling on BP and Shell to spend more of their combined £7bn first-quarter earnings on activity in the North Sea.

The prime minister’s comments came as lorry drivers took a protest on the soaring cost of petrol to central London, while other motoring organisations and environmentalists accused the oil industry of profiteering at the expense of car drivers and the planet.

“We do need the oil coming out of the North Sea; we do need to encourage the new exploration,” said Brown. “That is more expensive to do. That is why I hope that these profits are going to be invested in getting more oil out of the North Sea.”

BP raised replacement cost profits by 50% to $6.6bn (£3.3bn) and Shell increased its earnings by 12% to $7.8bn in the first quarter with help from a near-doubling in the price of oil since last year, although both say margins at the British petrol pump are still very slim.

The two companies have been making much of their profit abroad and have been selling off assets in Britain. BP has disposed of its Forties field, as well as Grangemouth and other refineries, and Shell has announced it is cutting 180 jobs in Aberdeen and has put a range of offshore fields up for sale.

BP said last night that it was continuing to spend up to $3bn a year in the North Sea developing new fields such as the Rhum gas field and the Clair oilfield but a spokesman believed the North Sea would never be able to compete with the likes of Angola and the US Gulf, where enormous discoveries were still possible.

“You have to have something to spend it on,” the spokesman said. “We have been producing in the North Sea since the 1960s at great benefit to the economy but it is a finite resource.”

Shell insisted that it was pumping out more oil and gas than ever and blamed financial speculators for driving crude up to nearly $120 a barrel.

Peter Voser, the company’s financial director, said the weakness of the dollar, political pressures and investors switching from equities to commodities all affected the value of oil, though there was “enough product and enough crude” available.

“We don’t understand the oil price at this stage,” Voser said, adding that there was no immediate sign of weakening demand as a result of the US economy slowing down. “The fundamentals do not justify the oil price at this level.”

Edmund King, president of the Automobile Association, warned that drivers would be shocked by the earnings at a time when they were struggling with high prices at the pump.

“The motorist feels somewhat battered from all sides, seeing the oil companies going off with cash in their pockets and the Treasury filling its coffers,” he said. “It’s the ordinary motorist that’s bearing the brunt of this, while the oil companies and the government are laughing all the way to the bank.”

He called on the oil companies to reinvest the windfall in drilling and refining, to increase the supply of oil and create downward pressure on petrol prices.

Graham Tran, regional officer of the Unite union, joined the attack on the industry. “These profits are a slap in the face for 180 staff at Shell who were told less than seven days ago that they face redundancy,” he said. “Both Shell and BP have announced pension holidays for 2008 at a time when our members in Grangemouth are fighting to protect their pension fund.”

Friends of the Earth’s economics coordinator, Tim Jenkins, said: “Oil companies are making vast profits at the expense of the planet. Ministers should introduce a windfall tax and invest the money in tackling climate change, including a comprehensive energy-efficiency programme to end fuel poverty and cut emissions from peoples’ homes.

“Oil firms must also do more to clean up their activities. There must be a fundamental shift away from fossil fuels and much greater investment in the clean, green, renewable solutions that are essential for a low-carbon future.”

Richard Griffith, analyst at the City brokerage Evolution Securities, said that yesterday’s figures from BP showed that new chief executive Tony Hayward’s turnaround plan was “bearing fruit” faster than expected.

The City cheered the performance, pushing Shell’s shares 5.5% higher to £20.43, while BP’s shares gained 6% to 613p.

guardian.co.uk © Guardian News and Media Limited 2008

http://www.guardian.co.uk/business/2008/apr/30/oil.commodities

Headline by John Donovan of www.royaldutchshellplc.com

The Independent: The power struggle

Oil companies rake in profits of £7.2bn as fuel prices soar

By Cahal Milmo
Wednesday, 30 April 2008

The price of power and who foots the bill for Britain’s rocketing energy costs took centre stage yesterday as the oil giants Shell and BP unveiled huge combined profits of £7.2bn, made in just three months, and consumers were hit with a new round of steep rises in prices from gas and electricity to air travel.

Npower, Britain’s fourth largest domestic power supplier, signalled the start of what experts said will be another round of price increases in gas and electricity after it abolished its cheapest online dual fuel tariff and raised charges for new internet customers by up to 20 per cent. Industry analysts expect all energy bills to rise by another 20 to 25 per cent by next spring, pushing another one million Britons into fuel poverty.

The hike was just one of several being absorbed by consumers yesterday, ranging from an increase of up to £30 per return flight in the fuel surcharge paid by British Airways’ passengers, to petrol pump prices now averaging 109p per litre of unleaded fuel. One forecourt in Kent was charging 129p per litre.

Amid a row about the “extreme” size of the first-quarter profits announced by BP and Shell, which exceeded City expectations, Gordon Brown called on the oil companies to invest more in increasing production in the North Sea. The Prime Minister admitted he was “very worried” about the impact of rising oil prices on pensioners and families, as opposition politicians pointed to the growing disparity between corporate profits and the financial squeeze being felt by households.

Sarah Teather, the Liberal Democrat business spokeswoman said: “Many people will feel deeply uncomfortable that some of the world’s wealthiest companies are experiencing a profit surge at a time when household budgets are under tremendous pressure.

“Consumers are already facing huge price hikes in food and utility bills. Now petrol prices seem to be rising, while oil companies’ profits are going sky-high.

Oil companies should not be profiteering while so many are struggling to make ends meet. We need to ask whether the price rises being passed on to consumers are proportionate.”

The first rumblings of popular discontent were felt on the streets of London yesterday when some 250 hauliers staged a noisy protest against record diesel prices which they said could drive them out of business.

Pump prices are expected to continue to rise, despite the return to work yesterday by staff at the Grangemouth oil refinery, where strike action over a pensions dispute was blamed for helping to push crude oil prices to just under $120 (£60) a barrel. It could take as much as three weeks before the refinery is restored to full production.

A cavalcade of HGV’s paraded along Park Lane with their horns blaring. The haulage industry wants the 2p increase in fuel duty planned for October to be deferred and a fuel duty regulator to be appointed with the power to reduce the Government’s income from petrol and diesel sales when oil prices rise.

Motoring lobbyists estimate the Treasury is making an extra £123m a month more than it was a year ago in VAT on fuel sales. Edmund King, president of the AA, said: “The motorist feels somewhat battered from all sides, seeing the oil companies going off with cash in their pockets and the Treasury filling its coffers. It’s the ordinary motorist that’s bearing the brunt of this.”

BA said its decision to increase its fuel surcharges for the third time in less than six months “reflects continuing oil prices”. The troubled airline’s finance director warned last month that it would become unprofitable if oil prices remained at “just under $120 a barrel”. Opec warned this week that prices could reach $200 by the end of this year.

For their part, the oil companies insisted their dramatic rise in profits was because of the near doubling of the price they received for a barrel of oil during the past year and not from their forecourt sales. The two said they already pay high taxes to the Treasury and blamed the high price of crude on financial speculators. Between them, Shell and BP pumped profits of more than £3m an hour in the first three months of 2008 with Shell recording a 12 per cent rise to £3.92bn and BP improving by 48 per cent to £3.32bn.

The Prime Minister said he recognised the impact that Britain’s economic problems were having and pledged help for families and pensioners. He told GMTV: “We have got this credit crunch, we have got food prices rising, we have got fuel prices rising. I feel very worried about the effect of that on ordinary hard-working families and on pensioners.”

The trend for passing on increasing fuel costs to consumers was continued by Npower, which has 6.8 million customers, when it withdrew its cheapest gas and electricity product available online. The replacement tariff is between 10 and 20 per cent more expensive depending on location. The company declined to comment, insisting it had no immediate plans for further price rises.

Analysts have been predicting that big gas and electricity suppliers will find it hard to resist offsetting their costs with higher fuel bills, meaning an average household bill could rise by up to £190 over the next 12 months. Such an increase would raise the number of Britons in fuel poverty – defined as needing to spend 10 per cent or more of income on energy – to about 5.5 million people.

http://www.independent.co.uk/news/business/news/the-power-struggle-818046.html