By Neil Hume

Published: June 25 2010 18:47 | Last updated: June 25 2010 18:47

Extracts:

At the very least investors should now be more wary of investing in a sector where a company the size of BP can see its share price halve in a little over two months and come under such political pressure that it feels the need to halt dividend payments and set up a $20bn compensation fund.

Shell has a more diversified portfolio and most of its important developments – the Pearl gas to liquids plant in Qatar and Canadian oil sands – do not involve deepwater drilling. Even so, it still has material operations in the Gulf of Mexico.

neil.hume@ft.com

Copyright The Financial Times Limited 2010.

FULL FT ARTICLE

THE SUNDAY TIMES

Shell chief Terry Nolan is confident that despite being a decade late and three times over budget, Corrib will win over its critics

Like another oil firm in big trouble at the moment, Shell caused a lot of upset, which Nolan accepts. ‘If I was doing it all again, we would put more effort into understanding the community,’ he says

Terry Nolan, the managing director of Shell Exploration and Production (E&P) Ireland, picks up the microphone and addresses the 700 construction workers gathered at Shell’s Bellanaboy gas refinery, near Rossport on the wild northern Mayo coast.

The refinery will serve the contentious Corrib gas field, located 83km out in the Atlantic Ocean.

With the near-complete installation looming in the background, Nolan thanks the workers for their safety record. They have clocked up almost 1.4m man hours since their last serious incident.

Speech finished, Nolan joins the front, facing a photographer perched on a cherry picker. The Corrib class of 2010 beams on cue, posing like one big, happy family.

If only everyone in Rossport was so happy.

Nolan, a Carlow-born mechanical engineer, is in charge of delivering the most controversial piece of infrastructure in the history of the state.

It has become a lightning rod for years of protests by worried locals, anti-corporate demonstrators and eco-warriors. The recent BP oil spill debacle in America has added spice to the opposition.

Since February, two protesters have languished in Castlerea prison, emulating the Rossport Five, the local anti-Corrib objectors who were jailed in 2005 after obstructing the development.

Corrib is one of the biggest investments ever made in the west of Ireland and, despite the trouble, Nolan says he is determined to finish the job. “I don’t foresee any circumstances where this project is not going to go ahead,” he said.

When the pipeline is completed by 2013, Corrib will have cost three times its original €800m budget and will be a decade late. “It is clearly taking longer than any of us anticipated, but we are absolutely committed. Nothing will stop us finishing it.”

Weary of years of bad publicity over the protests, he is keen to talk up the project’s economic significance. Corrib is a big deal for the country. “We’re proud of what we’re doing here,” said Nolan.

“Clearly we haven’t got everything right. But Corrib will be good for everyone once we get it finished.”

Saturday, 26 June 2010 22:09

DOHA: The Board of Directors of Royal Dutch Shell plc has met in Doha, underlining the importance of the country as a new heartland for Shell.

Chairman Jorma Ollila, Chief Executive Officer Peter Voser and other senior Board members were received during their visit by Deputy Premier and Minister of Energy and Industry, H E Abdullah bin Hamad Al Attiyah.

The Board of Directors which consists of three Executive Directors, nine Non-Executive Directors and the Company Secretary meets around eight times a year, usually in Shell’s headquarters in The Hague, to discuss Shell’s business and plans. Once a year the Board visits a key location for Shell’s global business and in 2010 they decided to come to Qatar.

The Board meeting was held at the Qatar Shell Research & Technology Centre at the Qatar Science & Technology Park. During a break in their meetings the Directors were briefed on progress in some of the research programmes being undertaken by Shell at the science park, where the company is investing $100m over 10 years.

The Board also visited the Pearl Gas to Liquids (Pearl GTL) and Qatargas 4 construction sites in Ras Laffan Industrial City and was briefed on progress on these projects.

Pearl GTL, which Shell is building with Qatar Petroleum (QP), is Shell’s largest single investment worldwide. Over 50,000 workers are currently employed on the construction site, which is the largest in the oil and gas industry.

At the project site, the Board members met with employees, acknowledging them first-hand for their achievements, particularly in safety, where the onshore project has just reached 60 million hours without an injury involving lost time.

Qatargas 4 combines Shell’s global leadership amongst private energy companies in liquefied natural gas (LNG) with Qatar’s vision to become the world’s leading LNG exporter. QP is a 70 per cent shareholder in Qatargas 4, with Shell holding 30 per cent.

Jorma Ollila, Chairman of Shell, said, “Shell is proud to have been chosen by the State of Qatar as its partner in Pearl GTL and Qatargas 4 and we intend to live up to that trust.”

Peter Voser, Chief Executive Officer of Shell, noted that Shell is developing a long-term, trusting and mutually-beneficial relationship with the State of Qatar. “This country is vital for the future of Shell and I believe we are making a valuable contribution to the achievement of Qatar National Vision 2030. Holding the Board meeting here underlines the importance of Qatar to Shell,” he said.

the peninsula source article

Posting on Shell Blog by IT4me on Jun 26th, 2010 at 8:50 pm

By SABRINA CANFIELD

NEW ORLEANS (CN) – While BP’s top U.S. official said he stands by BP’s “culture of safety” and said BP’s practices are the same as those “deployed by the other companies out there,” a federal class action claims that BP refineries in Texas and Ohio have accounted for 97 percent of the “egregious, willful” citations from the U.S. Occupational Safety and Health Administration in the past 3 years.

BP was cited for 760 such violations, while Sunoco and Conoco-Phillips had 8 apiece, Citgo had 2 and Exxon had 1 comparable citation, according to the complaint.

Plaintiff Armand’s Bistro cites sworn testimony from BP employees and engineers and documents released through investigation to buttress claims that BP has a long history of sacrificing safety for profit. In its 72-page filing, Armand’s Bistro also cites a shareholder derivative complaint filed against BP in May.

Employee accounts of the weeks leading up to the explosion indicate that numerous safety issues aboard the Deepwater Horizon were ignored by BP. Survivors of the explosion said they had recurring problems with pockets of flammable natural gas bubbling up the drilling pipes. So much gas rose to the surface in the weeks before the spill that all “hot work” had to be stopped, including welding, cooking and any other use of fire or igniters, according to the complaint.

Meanwhile on Thursday, a local attorney who represents several plaintiffs in claims against BP estimated the company’s actual damages from the spill at $39 billion to $50 billion – and said that BP has hired bankruptcy attorneys in New Orleans.

Daniel Becnel Jr. did not say BP is preparing to file for bankruptcy, but said that for the past month BP has paid attorneys $1,100 an hour to work for 10 to 12 hours a day. Becnel, who represents Armand’s Bistro, declined to name the firm.

Also on Thursday, BP America’s Chief Operating Officer Doug Suttles says he stands by BP’s “culture of safety” and that BP’s practices in the Gulf of Mexico are the same as those “deployed by the other companies out there.”

Suttles told the Times-Picayune he’d like to see the U.S. moratorium on deepwater drilling lifted as soon as possible.

“I understand why people might wasn’t to put a moratorium in place, but my personal view on this is we need to look very rapidly at what needs to be done that gives you confidence to restart [drilling in deepwater] because the consequences of stopping are also significant,” Suttles said.

Louisiana officials have said more than 10,000 jobs may be at stake if the moratorium remains in place for 6 months. Royal Dutch Shell, which was not involved in the spill, has said it will await the appeals process before resuming operations.

“Whether it’s the safety equipment that’s used, how it’s tested, how well designs are examined and approved or how decisions are taken through that process, I would hope that those things could be examined very quickly with the right experts and at minimum you could come up with interim conditions to restart while you study it even further,” Suttles said.

Suttles appears to be the first BP official to publicly question the moratorium. Last week in congressional testimony, BP CEO Tony Hayward said the moratorium was “probably the right thing to do until such time as we have greater clarity.”

U.S. District Judge Martin Feldman blocked the moratorium on Tuesday and rejected the Interior Secretary’s request for a stay on Thursday. Feldman ruled that the moratorium was it overly broad and arbitrary.

The Minerals Management Service has been criticized repeatedly for its cozy, de-facto deregulation of oil companies. Norway, Brazil and other nations require drilling rigs to be outfitted with a remote device that works as a last ditch effort to prevent a spill in the case the blowout preventer fails. The device costs about $500,000. BP says it has spent more than $100 million already compensating Gulf Coast residents for the oil spill.

SOURCE ARTICLE

What they’re still touting as the “worst environmental disaster in US history” is quickly growing up into the worst environmental disaster in the history of humanity.

Seeking Alpha

June 25, 2010

There is no doubt that BP (BP) will not emerge from this oil spill disaster intact. Make no mistake – this is the fatal black swan event in BP’s life that is going to take investors by the hundreds down with the ship. Its not going to happen immediately. Much like the slow initial fall and eventual breakneck pace of collapse of a giant tree, the giant oil leak is the event that will catalyze the fall of this far flung and storied company.

Here’s some food for thought in support of my prediction. I also caveat that statement with the possibility that a ‘merger’ or ‘buyout’ will be forced and negotiated out of public view to offset political carnage. Either way, shareholders and taxpayers alike will burn.

What they’re still touting as the “worst environmental disaster in US history” is quickly growing up into the worst environmental disaster in the history of humanity. With the unprecedented scale and scope of this astonishing catastrophe, BP will likely not survive. There are reasons for this which are not currently part of the mainstream analysis. But the mainstream is reactive, and to some degree compromised by conflicted cross ownership of shares in both big oil and big media.

When will the actual rate of flow be known? At this point, it grows weekly.

What will be the long-term effect of such a severe and unprecedented change in ocean chemistry within the Gulf? Might this trigger some sort of domino effect that can spread to the rest of the world’s oceans? Will the Gulf become a pelagic desert?

These are questions that lurk along the outer reaches of a lot of minds of late. With BP now acknowledging that it will likely be at least August before the leak is brought under control, its share price is plummeting, and that makes the 100 year old company both a takeover target and a bankruptcy concern.

Never mind any semblance of moral imperative – this disaster has already upset the entire offshore drilling industry, and with the clamor growing around the world, you can bet that serious – and expensive – legislation curbing the industry’s growth is inevitable. Besides banning offshore drilling off Alaska and the entire eastern seaboard (which has already happened), the new rules governing the procedures of exploration and extraction of offshore hydrocarbon resources are going to make the commodity and the final product more expensive. We are obviously going to see new safety requirements and probably requirements for substantial contingency funds.

But it’s the legal and financial exposure that BP is going to be desperately seeking ways to avoid. Its safe to say a good portion of the days of BP CEO Tony Hayward are devoted to ducking responsibility for the event. BP’s history is rife with incidents involving collusion, perjury, political interference, and other chicanery. As the price plummets further and further downward in a self-perpetuating cycle that only increases downward momentum, the company might soon cease to exist.

What does that mean for the Gulf coastline and the years of damaged economy and ecology?

Well first of all, any takeover/rescue deal of BP involving another major oil company is going to involve a negotiation with the United States government to cap the financial exposure and legal responsibility for the cleanup. The acquiring company will argue that the assets and earning power of the acquired BP assets must be unencumbered by any unknowns such as where the limit might be on the actual cost of damages. They will furthermore argue, at precisely the right moment, that the alternative is let the company go completely bankrupt, and stick the American taxpayer with the bill.

The Great Unknown

BP’s scientific team responsible for evaluating and reporting the flow rate of oil escaping from the leak has been schizophrenic to date. Its gone from 5,000 barrels per day at the onset of the disaster to somewhere between 50,000 and 85,000 barrels of oil per day. (Though they now claim to be firm in their assessment of a rate of 60,000 barrels of oil per day!) That’s a tremendous amount of oil. The implications for such a huge and continuing disaster are as yet unknown, and there is surely a point in the forward accounting math exercise on going at BP where two lines cross and financial insolvency results.

There will be many secret meetings among governments of the United States and the United Kingdom and BP executives. This is an unprecedented catastrophe. The future reverberations will penetrate distant markets, economies, and ecosystems, and will potentially become an economic and then political time bomb.

If BP were to fail, its contribution to the decades of ecological relief efforts that will be required will suddenly cease, and the United States government will be forced to pony up year after year after year, and that won’t be an easy situation to diminish in the eyes of voters. Obama, while doing all he possibly can and setting precedents of his own, will nonetheless be remembered as the president who stuck the American taxpayer with the clean-up bill when BP collapsed. His advisors are acutely aware of this, and BP’s voluntary commitment to cancel dividend payments and put up US$20 billion are designed to assuage the anxiety of shareholders dumping BP stock like an Exxon Valdez.

It is important to consider too that maybe 60,000 barrels a day is yet wrong. Maybe its more like 200,000 barrels of oil per day. At a mile beneath the sea, how do they know? What was the production flow rate of the Discovery platform before the disaster? Was it choked or open?

The Smokescreen

Disinformation, whether inadvertent or intentional, has the same effect. The public is lulled into a complacency that soon morphs into apathy. Just as roadside bombs killing civilians and soldiers alike has become such a ubiquitous news item that the horror and tragedy are now lost in the message, we grow a resignation and finally an indifference to the ongoing calamity. We can’t help it…its called ‘news’ for a reason. Our collective attention span has a limit, and it is this limitation that thwarts us from genuinely responsible environmental stewardship.

BP and the United States government know and count on this. When BP came out with the misinformation that they thought their ‘top kill’ technique had been successful, shares in the stricken stock briefly rallied before news of its actual complete failure induced the resumption of hemorrhaging value.

Getting What You Pay for

BP’s recent earnings proudly proclaimed a huge reduction in operating and replacement costs as it boosted profits amid flat production growth. Stories are emerging by the dozen of a cost-cutting managerial mindset that, at the end of the day, will be deemed criminally negligent. Shareholders are bearing the brunt of this eventuality now, as opposed to later.

Since the shares of BP are half owned by Americans, this is a fitting outcome. Investment in corporations as massive and far flung as BP comes with a certain exposure to financial liability that can only be mitigated by due diligence. If you look at the track record of BP’s poor judgment and absence of integrity since the company’s founding, you should be able to deduce that while the company has been paying fat dividends for a long time, it has also demonstrated a willingness to disregards the law and ethical conduct.

As evidence emerges suggesting shortcuts in the interest of cost reductions despite awareness of increased risk of mechanical failure, the potential for criminal charges grows. Obviously, the increase in financial exposure should this possibility become reality could be exponential. If you bought shares of BP thanks to its impressive history of dividends without performing such due diligence, you have nobody but yourself to blame.

$20 Billion Is a Drop in the Bucket

Although it seems like a lot of money, the $20 billion fund pledged by BP CEO Tony Hayward as result of Obama’s demand will prove wholly insufficient in the big picture. But beyond that, both Hayward and Obama have stipulated unequivocally that this is no cap. That’s a horribly dangerous precedent for Big Oil, whose legal and financial obligation was heretofore limited by the Oil Exploration Act of 1991′s ceiling of $75 million for oil spills.

That law has been effectively erased as a result of the statements by Hayward and Obama, though the Act’s existence will likely play big time into BP’s defense of civil and criminal charges.

BP’s Other Woes

Besides the as yet unquantifiable exposure from civil, criminal, punitive and compensatory outcomes from the Discovery spill, there are other factors on the BP landscape that, while puny in comparison with the oil spill, still incrementally weaken the company’s financial firepower. When a major foe such as BP is suddenly wounded by this black swan event, wolves circle mercilessly waiting for an opportunity to go for the throat.

The Russian – BP natural gas joint venture, TNK-BP Ltd, has been forced into bankruptcy by the Russian side, who seek to kick BP out of the deal altogether. BP has no choice at this point but to bend over and take one for the team.

The lawsuits from the New York State pension fund has just been announced. The State of Florida pension funds, who have already pegged losses on investment in BP to $65 million, is certainly observing the situation with great interest, and 5 will get you twenty that they follow suit (pun intended). What about the thousands of other investors who hold (or held) billions of dollars worth of increasingly worthless BP scrip?

The End of BP

BP’s earnings in 2009 were over US$6 billion, up from $2 billion the previous year. But very tellingly, there was no growth in production over the previous year. If BP has already committed to a $20 billion fund for this year, of which over $2 billion has already been consumed in immediate cleanup and containment costs, then what’s to stop the company from continuing to hemorrhage cash even as the leak gushes at 60,000 barrels of oil per day? Who can say with any credibility when the flow will be stopped? And certainly no one but no one can authoritatively predict the immense and possibly irreparable damage to ecosystems both local and far flung from the site of the disaster. The collapse of BP might not be imminent, but its eventual demise is, in my opinion, without doubt.

Disclosure: No positions

About the author: James West

James West is the publisher of the Midas Letter (http://www.midasletter.com/), a financial advisory service that identifies opportunities and risks to investors active in the small cap resource sector. Visit the Midas Letter (http://www.midasletter.com/).

• Company: Midas Financial Publishing LLC
• Blog: MidasLetter.com
• SOURCE ARTICLE

THE WALL STREET JOURNAL

JUNE 26, 2010

LONDON (Dow Jones)–Iran is leaving the door open to Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) to join a giant gas project but Repsol YPF (REP, REP.MC) has completely pulled out, a top government official said Friday.

The statement comes after state-owned Pars Oil and Gas Co. awarded contracts to develop phases 13 and 14 of the South Pars field to domestic companies after talks with Shell and Repsol came to no avail.

Speaking to Dow Jones Newswires, Hojatollah Ghanimifard, vice president in charge of investment affairs at the National Iranian Oil Co., said the Anglo-Dutch company has been told to contact POGC so “they will be introduced to contractors” with whom they could work. Shell declined to comment.

But Ghanimifard said Repsol has “apologized” as “they cannot be in Persian LNG,” the liquefied-natural-gas project tied to the phases.

A spokeswoman for Repsol said it “has formally informed the National [Iranian] Oil Company (NIOC) of its decision to discontinue its participation.”

Ghanimifard said Shell and Repsol’s decisions had nothing to do with sanctions. He said Repsol’s pullout was tied to the financial crisis in Spain. It’s “because of problems the country [Spain] cannot sort out,” the official said.

He also pointed out that Shell previously signed and completed oil-field deals after the Clinton administration tightened sanctions on Iran in 1996.

-By Benoit Faucon, Dow Jones Newswires; benoit.faucon@dowjones.com; 44 20 7842 9266

WALL STREET JOURNAL ARTICLE

THE WALL STREET JOURNAL

JUNE 25, 2010

By Chris Dieterich Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Oil giants are ramping up their borrowing, braving higher interest rates in order to lock down funding as a hedge against further turmoil in their industry or in credit markets, traders and analysts said.

Facing possible further legislative or market turmoil from the ramifications of BP PLC’s (BP, BP.LN) efforts to deal with an oil spill in the Gulf of Mexico and the need to refinance current bond offerings when they come due later this year, companies in the energy sector are trying to get their balance sheets in order now in case credit markets tighten further in the future.

Worldwide, oil and gas companies have taken out $83.3 billion in loans so far this year, a 41% increase over the same period in 2009, according to data provider Dealogic. Most of it–$53.3 billion–has come in the second quarter, the busiest quarter since before credit markets froze in 2008.

Energy companies also are tapping the bond market. Globally, they have sold $29.1 billion worth of bonds since late April, when the Deepwater Horizon rig BP leased from Transocean Ltd. (RIG, RIGN.VX) blew up and sank in the Gulf of Mexico. More than the $25.7 billion were sold in the first 3 1/2 months of 2010.

Shell International Finance BV, a unit of Royal Dutch Shell PLC (RD, RDSA), sold $2.75 billion of bonds on Monday. Total Capital, the finance arm of French oil titan Total SA (TOT, FP.FR), sold $2.5 billion in notes last week. Petroleos de Venezuela SA’s Citgo Petroleum Corp. unit sold $300 million of bonds last week as part of a $2.1 billion refinancing that also included a new three-year $750 million revolving credit facility, a five-year $350 million term loan and a seven-year $700 million term loan, according to a company news release.

Citgo didn’t comment further about its refinancing. Shell offered no comment about the timing of its most recent bond sale. Total didn’t respond to an inquiry.

There was strong investor demand for each of these debt sales, said Andrew Karp, head of investment-grade bond syndicate at Bank of America Merrill Lynch, which was an underwriter for the Total and Shell deals.

One reason investors were eager to buy was that they saw a reasonable value, Karp said. Risk premiums, or spreads, on oil-companies’ debt–the extra yield investors demand to buy company bonds rather than less-risky Treasury securities–have risen around 0.90 percentage point since the Gulf spill began.

Composite oil- and gas-sector credit spreads have stretched from 2.43 percentage points over Treasurys on April 28 to 3.35 percentage points Thursday, according to Standard & Poor’s.

Wider spreads normally would encourage issuers to postpone borrowing until costs came down, but oil companies are eager to borrow while they can. One concern is that further problems with BP’s spill could further sour investor attitudes toward energy companies.

Those worries were stoked on Wednesday, when a remote-controlled robot knocked into a containment cap over the well, prompting its temporary removal and delaying operations to divert oil to ships on the surface. Other failures to stop the leak pose risks to the credit environment of industry players.

“In late July, if there’s noise that the relief wells aren’t working, the energy space could be a lot wider and [oil companies] will likely try to get ahead of that,” said Justin D’Ercole, head of Americas investment grade syndicate at Barclays Capital.

Oil companies that need to refinance outstanding debt over the next few years also will be eager to sell bonds soon, said Thaddeus Strobach, credit strategist at Royal Bank of Scotland. Stobach said he expects additional oil-company issuers to market bonds in the coming weeks.

“We do not know ultimately what legislation and governmental restrictions will shake out,” Strobach said. “[Oil companies] feel it’s more important to have their [financial] house in order than to have to deal with the unexpected.”

-By Chris Dieterich, Dow Jones Newswires; 212-416-2611; christopher.dieterich@dowjones.com

SOURCE ARTICLE

Telegraph.co.uk: BP shares slumped to their lowest level in 14 years on Friday on concerns that a hurricane next week could worsen the impact of the spill as it hampers clean-up work.

Published: 25 Jun 2010