Three days after the explosion of the Deepwater Horizon in the Gulf of Mexico, the Dutch government offered to help.

BP’s stock price may make it takeover bait

By LOREN STEFFY Copyright 2010 Houston Chronicle

June 1, 2010, 10:39PM

Are BP’s days numbered?

That question bubbles up from beneath new cost estimates and growing market skepticism as the company’s latest attempt to cap a runaway well a mile below the Gulf of Mexico failed last week.

The British-based oil giant has been hammered by investors, regulators, the public and even the U.S. president, and while it’s trying yet again to stop the oil flow, it could be the end of summer before it succeeds.

A few weeks ago, it appeared the disaster might just result in regulatory backlash and cost CEO Tony Hayward his job. Now, it’s the future of BP as a stand-alone company that may be in jeopardy.

BP’s U.S. share price has fallen 40 percent since the explosion of the Deepwater Horizon drilling rig on April 20, to $36.52, its lowest in more than a year. The decline has slashed almost $75 billion from BP’s market value, leaving it worth about $114 billion and making it among the wimpiest of the supermajors.

By comparison, Exxon Mobil’s market value is $278 billion, Chevron’s is $145 billion and Shell’s is about $163 billion.

That last comparison is telling, because for more than a decade, Shell traded at a discount to BP. In 2004, an emboldened BP considered acquiring Shell, former BP CEO John Browne said in his book Beyond Business. (The deal was scuttled by the Texas City refinery explosion, which led to Browne’s ouster.)

Now it may be Shell that has the upper hand. Such an acquisition would, of course, face antitrust opposition in the U.S. and Europe, but six years ago Browne planned to dodge those concerns by selling BP’s U.S. refining and retail operations.

Still, it’s unlikely that Shell or anyone else will go near BP as long as the Macondo well is still belching crude into the Gulf.

‘Legal nightmare’

“Why on earth would another company want to wade into this legal nightmare?” asked Pavel Molchanov, an analyst with Raymond James. “The other supermajors are likely to stay as far away from this as possible.”

Molchanov, who has a “hold” rating on the stock, recommends other investors do the same. While the shares may look cheap, BP has acknowledged that the oil could flow unabated until a relief well is completed in August, which means “we’re looking at two months of excruciating news flow,” Molchanov said.

Ballooning expenses

BP said it’s already spent almost $1 billion on the futile efforts to plug the well and clean up the spill, and Molchanov estimates its expenses this year will balloon to $5.2 billion from $1.6 billion. That doesn’t include the cost of civil lawsuits or any possible fines or criminal liability.

While $5 billion is a huge expense, it would represent about one-quarter of the profit that analysts forecast for BP this year.

The question, then, is whether the open-ended liabilities from the spill are enough to scare off a suitor with the deep pockets of an Exxon Mobil or Shell. The more BP’s shares fall, the more attractive that tradeoff becomes.

BP’s biggest reserves are in politically stable areas — the U.K.’s North Sea, Alaska and the Gulf. At a time when large oil deposits are concentrated in the hands of state-owned oil companies or in volatile regions such as Africa, BP’s assets may start looking like a bargain to rivals.

Concentrating those reserves in one company would probably make regulators on both sides of the Atlantic uncomfortable, but oil is a global market, and the combined reserve base would still be tiny compared to the vast holdings of state-owned companies such as Saudi Aramco or Russia’s Gazprom.

Takeover shield?

Ironically, the very spill that’s driving down its stock price may be shielding BP from a takeover for now. But even if it survives this disaster as a stand-alone company, its operations will be affected for years.

“As a result of this disaster, regulatory scrutiny of BP’s operations, not just in the U.S, but overseas as well, will be elevated,” Molchanov said.

Better late than never.

Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.

SOURCE ARTICLE

A view from a helicopter shows a supply vessel near the massive Perdido hub, which is temporarily burning off natural gas until production begins.

Blazing a trail far out at sea

By BRETT CLANTON Copyright 2010 Houston Chronicle

April 17, 2010, 12:24AM

Astronauts just had to get to the moon. They didn’t have to figure out how to extract oil from it.

With the new $3 billion Perdido oil and natural gas platform, in a remote deep-water area of the Gulf of Mexico, Shell and its partners have effectively done both.

After more than a decade of work, they began last month pumping oil at the massive floating facility, which sits in nearly 8,000 feet of water and draws from wells that far below the sea floor, setting several records along the way.

A recent visit to Perdido, roughly 200 miles south of Houston, brings the scope of the achievement into focus.

It also offers a glimpse of what could be ahead for the oil and gas industry as it presses farther into one of the last remaining U.S. regions where big quantities of crude oil are still being discovered.

“What we’re seeing here is the start of a new frontier in the Gulf of Mexico,” Bill Townsley, Shell’s Perdido venture leader, said as he stood aboard the hulking steel structure, staffed with 150 people, that he has dedicated the last three years of his life to building.

Indeed, Perdido could offer a template for rivals to follow in coming years as they develop fields of their own in an emerging deep-water area known as the Lower Tertiary trend. In recent years, more than a dozen big oil discoveries have been in made Lower Tertiary formations — deposited from 65 million to 35 million to 23 million years ago — in a 300-mile band on the outer edge of the U.S. Gulf between Texas and Louisiana.

Shell’s Perdido — which in Spanish means “lost” — is the first to achieve commercial production there, but Lower Tertiary fields are also being developed by BP, Chevron Corp. and others and are expected to help reverse years of oil and gas output declines in the well-plowed offshore region.

Perdido alone is capable of producing 100,000 barrels of oil and 200 million cubic feet of natural gas per day — enough to meet the energy needs for over 2 million households for a year.

Though not at that level of production yet, getting to this point hasn’t been easy. Shell, with partners Chevron Corp. and BP, has done the equivalent of moving mountains to bring the project online.

To make the project feasible, Shell, the lead operator, and partners devised an elaborate plan for tying in three distinct fields — called Great White, Silver Tip and Tobago — and handling their production through a single platform. Doing it, however, would require drilling at least 35 wells, some as far as seven miles from the platform and all extremely costly.

“When we came at them with 35 wells, people’s heads exploded,” Townsley said.

Has its own drilling rig

To help reduce costs, the platform was designed with its own drilling rig, which will drill nearly two dozen of those wells over the next few years and is itself a marvel of engineering. A mobile drilling rig will drill the rest.

Jutting out of the top of the platform, the onboard rig can move on a track to six different slots running through the middle of the buoylike spar that serves as Perdido’s base. Nine mooring lines, which anchor Perdido to the sea floor, can also be adjusted to move the entire 50,000-ton structure within an area the size of a football field to aid the rig in drilling wells.

But perhaps the biggest innovations are not visible from onboard.

In a first for the Gulf of Mexico, new equipment separates water from oil and natural gas at the sea floor, rather than having to do it all on the platform. Subsea boosting systems also help push oil to the top of low-pressure reservoirs, improving recovery rates.

Finally, powerful pumps are used to send the oil and natural gas back to the platform, nearly two miles above, for further processing, before it is finally sent to shore in pipelines.

“This is serial number one for this type of project,” Townsley said, who said some of the technology on Perdido did not even exist in 1996 when Shell acquired government leases to explore the fields.

Larry Goldstein, a director at the nonprofit Energy Policy Research Foundation in Washington, said other oil companies could develop their own ways to solve challenges posed by producing oil from Lower Tertiary discoveries. But the example of Perdido, which draws on fields discovered in 2002, could help speed development of other projects, he said.

Gary Luquette, president of Chevron North America Exploration and Production Co., a Houston-based arm of the California oil major, said while there are great incentives to bring large deep-water projects up faster, he doubts it can be done, given the vast amount of exploration and technical work required.

“When you stack all this stuff together, eight to 10 years is pretty damn good,” he said.

Four more are possible

Meanwhile, Shell says it is already thinking beyond Perdido. After a string of recent exploration successes, the company is considering adding as many as four major oil and gas production platforms in the Gulf to complement the six it has there today.

The platforms, or hubs, as Shell calls them, would be akin to Perdido in that they would tie in production from multiple fields that alone may not be substantial enough to warrant development. The hubs would be near recent Shell discoveries called Vito, Stones and Appomattox, and by the Mars field, where the company already has a major platform, officials said.

A final investment decision on the first of those could come as early as this year, Marvin Odum, Royal Dutch Shell’s top U.S executive, said in an interview.

“We’ll sort out through our normal processes which ones we’ll move forward on first,” he said. “What I can tell you, though, is the Gulf of Mexico opportunities are very attractive.”

The doubling down by Shell in the Gulf of Mexico highlights the region’s rising importance to Western oil companies as access to new oil and gas resources becomes tougher around the globe.

It also suggests there could be much more life ahead for a U.S. offshore basin that after being left for dead many times continues to surprise.

“The honest answer about whether we’re running out of oil,” said Goldstein, with Energy Policy Research Foundation, “is that we don’t have an honest answer.”

brett.clanton@chron.com

SOURCE ARTICLE

Royal Dutch Shell has quietly expanded its position in an emerging natural gas field in South Texas as part of a broader bid to become a bigger player in the North American gas business in coming years, the company’s top U.S. executive said Friday.

Bloomberg News
March 24, 2010, 12:53PM

Royal Dutch Shell Plc, Europe’s second-largest oil producer, said it expects to double spending on acquisitions to about $2 billion this year.

Shell will dispose of about $1 billion in assets this year, The Hague-based company said in slides prepared for the Howard Weil Energy Conference in New Orleans. The company sees its net capital investment this year at $29 billion.

Shell spent $1 billion on acquisitions last year and is targeting another $1 billion in cost savings this year. It will cut 2,000 more jobs by the end of next year to weather the economic slowdown, which has caused fuel inventories to swell in the U.S. and Europe.

The company is teaming up with PetroChina Co. to buy Arrow Energy Ltd. for A$3.5 billion ($3.2 billion). Shell is focusing investment in Australia, the Gulf of Mexico and U.S. gas that’s found in hard-to-reach rock formations.

www.bloomberg.com

SOURCE ARTICLE

When the recession hit, the major companies streamlined, cut costs and became more efficient, giving them a shot at a profit comeback

By BRETT CLANTON
HOUSTON CHRONICLE

Feb. 21, 2010, 4:32PM

Big Oil has had a little less swagger in its step of late, humbled by a global recession that halted a multi-year run of soaring profits and exposed weaknesses that had been less acute when times were good.

International giants like Exxon Mobil and BP have suffered the effects of the economic downturn, which brought the first significant decrease in global energy demand in nearly three decades, created wild gyrations in oil and natural gas prices and wreaked particular havoc on the oil refining business.

But they responded in different ways. Some took a hard look at organizational structures and cut thousands of jobs. Others pared portfolios to pay debts and refocus on core businesses, while at least one took advantage of the depressed climate to boost spending and make a major acquisition, even as profits tumbled.

“The majors weathered the storm in 2009, but I would also say it made them more efficient, more focused,” said Gary Adams, vice chairman of Deloitte’s oil and gas practice in Houston.

The biggest international oil companies will likely continue to face tough conditions in oil refining this year, amid still-weak demand for gasoline and other fuels, rising crude prices and surplus plant capacity.

The natural gas business also remains challenging in the short term, as does the task of trying to lure back investors who recently have been more enamored of shares in smaller, faster-growing oil and gas firms.

Add broader concerns about the slow pace of economic recovery, the increasing difficulty in accessing new oil and gas resources and the possibility of new, costly regulations on the industry, and the outlook grows cloudier still.

Majors have advantage

Yet, the oil majors — with their diverse integrated business models, big balance sheets and cautious approach to investing — still may be among the best equipped in the industry to ride out what’s ahead.

“That’s partly why they’ve gotten to be as big as they are,” said Ken Medlock, a fellow in energy studies at Rice University’s Baker Institute.

Or, as Kenneth Cohen, Exxon Mobil’s vice president for public and government affairs, put it recently, “It’s really these times that our company and our business model are designed to handle.”

In recent years, rising oil and gas prices drove profits of the five biggest Western oil companies — Exxon Mobil, Royal Dutch Shell, BP, Chevron Corp. and ConocoPhillips — to new heights.

In 2008, when crude oil reached nearly $150 a barrel and retail gasoline topped $4 a gallon nationwide, the companies made a combined profit of $100 billion. That’s the second-highest on record from the group, exceeded only by the 2007 combined total of $123 billion. But the global economic crisis changed all that and in 2009 slashed the group’s combined haul to $61 billion.

In response, the majors have taken steps to cut costs and streamline operations.

• • Shell, under a sweeping reorganization launched in July by new CEO Peter Voser, cut 5,000 jobs last year, including hundreds in Houston, and aims to eliminate an additional 1,000 positions this year. It’s also reviewing 15 percent of its non-U.S. refining capacity for possible sale.

• • BP has shed 7,500 employees since late December 2007 under an ongoing turnaround program led by CEO Tony Hayward, who said this month the British oil giant still has a way to go in becoming more competitive.

• • ConocoPhillips, Houston’s largest public company, plans to sell $10 billion in assets over the next two years to help pay debts and improve financial flexibility. Separately, the company recently said it may consider closing refineries that can’t cover their costs.

• • Exxon Mobil, the biggest U.S. oil company, has shed global refining assets in recent years, and officials said it will continue to “optimize” its downstream portfolio, but it doesn’t see any need for a major restructuring.

• • Chevron Corp., after cutting expenses 15 percent in 2009, is planning a reorganization of its global refining business, which will result in an unspecified number of job losses. It has also cut its 2010 capital spending budget by 5 percent.

‘Becoming leaner’

Many of the moves were tied directly to the global collapse in refining, but the poor economic environment also gave some companies cover to take an ax to organizations that had grown too big or complex.

“A lot of this is eliminating redundancy, becoming leaner, and that’s important, particularly in an environment where costs are as high as they are,” Medlock said.

Recently, however, stabilizing global economic conditions and higher oil prices have helped stoke investment and are buoying hope of a recovery.

Spending on exploration and production, excluding acquisitions, is expected to rise by 7 percent to $326 billion in 2010 among more than 65 of the largest publicly traded oil and gas companies, according to a recent report by Norwalk, Conn.-based energy research firm IHS Herold. That compares with a 23 percent decline in upstream spending in 2009.

Also this year, majors likely will be on the hunt for acquisitions, particularly those that expand their holdings in North American natural gas shale plays, like Exxon Mobil’s recent deal to purchase Fort Worth’s XTO Energy for $41 billion.

“Unconventional gas is still where a lot of the action is going to be,” said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates in Cambridge, Mass.

Not only are such deals a strategic bet the world will move toward cleaner fuels, they could help majors regain the attention of investors who have recently rewarded independent oil and gas producers for leading the way in shale and other unconventional gas plays.

In 2009, Standard & Poor’s Oil and Gas Exploration index — a basket of stocks that includes names such as Anadarko Petroleum, Apache Corp. Devon Energy and Southwestern Energy — grew 41 percent. By contrast, a Standard & Poor’s index that tracks the majors fell 4 percent.

But there is another possible explanation for the majors’ renewed interest in North American gas plays. With access increasingly limited to new oil and gas reserves around the globe, they’re simply running out of places to invest.

“All of the sudden, North America looks very attractive relative to other opportunities out there,” said Fadel Gheit, industry analyst with Oppenheimer & Co. in New York.

“It’s the devil you know versus the devil you don’t know,” Gheit said, “and they know this devil pretty well.”

brett.clanton@chron.com

SOURCE ARTICLE

“Risk Awareness has gone up; risk tolerance has gone down,” said Jon Unwin, vice president of safety, environment and sustainable development for Shell Upstream Americas’ deep-water unit. Today, Shell, Chevron and others talk about cutting offshore incidents to zero.

A trial against Shell Oil on these allegations is set for trial in May.

QUOTE FROM ROYAL DUTCH SHELL CEO PETER VOSER IN A COMMENT TO SHELL EMPLOYEES: “I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months…”

Introduction by John Donovan: Printed below is a syndicated Bloomberg article published by the Houston Chronicle containing the above quote. It must rank as Grade A BS on a par with Shell Ethics and Compliance Chief, Richard Wiseman, making an anti-corruption speech, when in fact he has a track record of supporting and encouraging corruption, deceit and predatory IP theft by Shell managers.

We are encouraged to speak out even more frankly now that we have written confirmation from Shell that the company decided long ago that it will never sue us, apparently because we have too much Shell “internal laundry.”

Instead, discredited pathetic Shell executive directors are reduced to launching a covert global spying operation directed against Shell employees specifically in connection with this website. And they could not manage to even keep that secret. More humiliation.

Houston Chronicle: Bloomberg News

Shell chief calls 2010 ‘challenging’ for refining, costs

Dec. 29, 2009, 5:59AM

Royal Dutch Shell Plc, Europe’s largest oil company, expects the pressure on refining margins and costs to persist next year amid a challenging economic situation.

“I expect that 2010 will be, from a macro environment point of view, still a challenging year,” Peter Voser, chief executive officer at the Hague-based Shell, said in a video to employees. “We’ll see pressure on refining margins and some further pressure on competitive performance regarding costs.”

Shell and competitors such as Exxon Mobil Corp. are cutting costs as they seek to rebuild profits battered by a global recession and reduced energy demand. Shell, whose refining earnings fell 47 percent in the third quarter, is responding by cutting 5,000 jobs, or about 5 percent of its workforce, and reducing operating costs by about $1 billion in the first nine months of the year.

Voser, who took over from Jeroen van der Veer in July, wants to streamline operations after saying the company was “too complex.” As the first non-British or Dutch national to head Shell in its 102-year history, he started off by announcing a reorganization called Transition 2009, almost two years after a similar shake-up at BP.

“I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months,” Voser said to employees. “We’re closing Transition 2009 in 2009. What we’re doing now is actually embedding what we want to achieve with the restructuring into the plans and your activities in 2010.”

The refining margin is the amount companies make by turning crude oil into products like gasoline.

www.bloomberg.com

COMMENT POSTED ON ARTICLE BY JOHN DONOVAN

Royal Dutch Shell CEO Peter Voser is quoted in the Bloomberg article as saying to Shell employees: “I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months,”

This unfortunately confirms that he is just another B/S merchant. I operate a website which a Shell official has acknowledged “is an excellent source of group news and comment and I recommend it far above what our own group internal comms puts out.”

According to our network of Shell internal sources, for which we are renowned, the Voser restructuring has been a disastrous distraction with thousands of employees forced to reapply for a limited number of jobs. Voser has described this totally ruthless policy as “an interesting exercise”.  As per “Terminators” comment, thousands of jobs are also being outsourced to China and India.

In the meantime, Shell is doing business with the fanatical Iranian regime which supplies munitions that kill and maim American soldiers. Also with the Libyan dictator responsible for the bombing of Pan Am 103.

I therefore entirely endorse the call for Americans to boycott this evil company which is prepared to deal with the devil if needed, to get its hands on hydrocarbon reserves.

Remember, this is the same multinational which settled a US lawsuit in June 2009 for $15.5 million in respect of the torture and murder of its opponents in Nigeria. They rightfully objected to the decades long plunder and pollution of their Country by the Anglo Dutch oil giant.

Posted by John Donovan: http://royaldutchshellplc.com/

POSTING BY A SHELL INSIDER: “JO BLOW”

The state of Accountability within Royal Swiss err.. I mean Dutch Shell

After the recent announcements concerning moving more of the finance functions to shared service centers in India and Manilla I thought now would be a perfect time to make a few points that are obvious to me.  If we all recall last May, the Board of Directors for RDS came under intense fire from shareholders on the disparity between executive pay packages versus performance.  Mr. Voser apparently heard the cry and began cutting fixed cost immediately, however the question remains whether his cost cutting will be effective and sustainable.  In my humble opinion all he has accomplished is short term cost reduction, I don’t see that he has fixed anything culturally that will translate to sustainable cost structure improvement.  At this point you may be saying “but Jo, these folks he got rid of are not coming back so that cost reduction is permanent”, and ordinarily I might be inclined to agree with you.  The fact of the matter is simple he did not hold the people accountable that created the bloated cost structure, he promoted them.  This does not really suprise me in the least because despite the corporate claims, Accountability for actions does not exist, I will qaulify this assertion with a few specific points.

What was Mr. Van der Veer given for his contribution to the state of Shell Oil today?  A big fat pay package that outraged share holders.

What happened to the brain trust that created the bloated cost structure Shell operates in today?  Massive IT projects that never delivered the promises of improved efficiency, Support sections like Finance and HR that are empires in themselves.  Shell Global Solutions, our own internal technology group that cost a business unit more to use then they lose by not inviting them in.  If you want to know where these folks are, just take a peek in EC-1 through EC-3, you will find them there.  I doubt that they have learned any valuable teachings about accountability.

Who was fired or disciplined for the poor performance of the Crude Expansion project at Port Arthur?  I can tell you that it was not the Venture Manager Forrest Lauher.  Under Lauher’s control the project budget escalated from a 7.2 billion dollar project to north of 10 billion, productivity in the field did not exist, the managing contractor had sufficient control of the project to work it as a schedule driven project instead of the cost driven project it had always been.  Where was Mr. Lauher during all this?  I would expect he was up at the Lake with his buddy Mr. Purves.  What happened to Mr. Lauher after the meltdown and re-organization of the project?  Well, He got him a nice little promotion to GM of Port Arthur Refinery instead of the pink slip that he deserved if held accountable for his poor management.

The vast majority of people that have been or will be let go as part of Transition 09 had nothing to do with creating the problems, but they are the people that will pay the price.  The jobs in finance and that will be migrated to India and Manila were not created by the employee filling the job, but by some executive.  Do you think that executive will be held accountable for his apparent bad decision to create a bloated finance section that cost to much to operate?  Until Shell makes meaningful changes to its culture at the top leadership levels the sustainability of cost improvement will not exist.