Posts Tagged ‘ConocoPhillips’

JANUARY 23, 2012

By LIAM DENNING

Even today, $1.67 trillion is a lot of money. That is the amount wiped off the combined market capitalization of the top 50 energy companies between the end of 2007 and the end of 2011. Breaking it down offers big clues on Big Oil’s prospects for 2012.

Every year, PFC Energy, a Washington, D.C.-based consultancy, ranks the top 50 listed energy companies in the world by market value. The latest, due Monday, has a surprise. The biggest gainers in 2011 were the dinosaurs of oil and gas: the supermajors. Their collective value increased by 8%, compared with a 7% decline for the PFC Energy 50 overall. It is only the second time they have led the field in the ranking’s 13-year history.

Conventional wisdom holds this shouldn’t be the case. Faith in the supermajors—Exxon Mobil, Chevron, Royal Dutch Shell, BP, ConocoPhillips and Total—has waned as state-backed rivals like PetroChina have emerged and smaller competitors have opened up new frontiers like U.S. shale. Seemingly too big to grow but too small to offset the power of petro-states, the supermajors have been priced for decline.

Why did investors fall in love with them again in 2011? First and foremost: security. The S&P 500 ended 2011 down slightly after wild swings. In choppy markets, scale and cash payouts provide comfort. And the supermajors, with a collective value of $1.2 trillion at year end, provide it in spades. The three U.S. ones alone paid out 9% of all S&P 500 dividends and buybacks in the year ended September 2011, according to data from Standard & Poor’s and Capital IQ.

So how about that missing $1.67 trillion? It is gone despite the average price of Brent crude being 53% higher in 2011 than in 2007 (and 13% higher than in 2008, year of the super-spike). About half of that market value was lost by listed state-controlled national oil companies, or NOCs, like PetroChina. State support has its advantages, but it also means NOCs serve two masters: markets and mandarins. That makes them riskier investments.

While the NOCs in the ranking lost 44% of their value between 2007 and 2011, the supermajors declined by just 22%.

But it isn’t just safety that helped the supermajors lead the charge in 2011. Chevron, Exxon and Shell likely all delivered cash flow per share growth of 30% in 2011, well ahead of the traditional growth stocks of the exploration and production sector, according to Credit Suisse.

Ed Westlake, analyst at Credit Suisse, says the oil majors are more sensitive to oil prices than many investors think. In part, that is because much of their global natural-gas production is sold at prices linked to oil, rather than at the depressed, de-linked levels that prevail in the U.S.

This year, the supermajors are forecast to make $67 billion in free cash flow, according to FactSet Research Systems. That is down slightly from 2011′s expectation but still equates to a healthy free cash flow yield of 5.6%.

Goldman Sachs points out, however, that unlike a year ago, supermajor stocks enter 2012 trading at a slight premium to their smaller integrated oil peers. That, coupled with the fact that 2011′s cash-flow surge is unlikely to be repeated, means some investors’ gains may be redeployed into other energy stocks.

It seems unlikely that the supermajors will register the biggest gains in the PFC Energy 50 2012. That doesn’t make them a bad investment. With markets still unsettled—Europe, in particular, remains unpredictable—Big Oil will likely remain a safe haven. Stocks don’t always have to be the biggest winners to be reliable repositories of value.

Write to Liam Denning at liam.denning@wsj.com

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By Barbara Powell – Jan 13, 2012 1:22 PM GMT

Royal Dutch Shell Plc (RDSA) and leaders of the union representing workers at 69 U.S. oil refineries will begin negotiating a new three-year labor contract Jan. 17 to avoid a work stoppage that could disrupt plant operations.

The current contract between oil refiners and 30,000 members of the United Steel Workers expires Jan. 31. The last contract negotiations in January 2009 were settled after 12 days of talks that stalled as the union tried and failed to win safety improvements.

The union will make a similar demand at next week’s talks, according to Gary Beevers, a USW vice president and the union’s lead negotiator. The union hasn’t struck since 1980, when a work stoppage lasted three months. A strike would affect almost two- thirds of U.S. refining capacity, according to the USW.

“The most important objective is to get enforceable health and safety language into the contract,” Lynne Baker, a spokeswoman for the union in Nashville, Tennessee, said yesterday in an interview. “Our proposal will help the industry do a better job.”

Shell, negotiating on behalf of the companies, and union leaders, including Beevers, will meet in Austin, Texas, to hammer out terms. Any deal is subject to approval by refiners and pipeline operators before becoming the national pattern they use in negotiating local union contracts.

“Shell is optimistic that a mutually satisfactory agreement can be negotiated with the USW,” Kayla Macke, a spokeswoman for Shell, said yesterday in an e-mail.

Previous Agreement

In 2009, the union accepted higher wages while relenting on new safety provisions. The three-year labor agreement included 3 percent annual raises and a $2,500 bonus for workers.

“I think the union will be able to achieve some increase in wages because the oil companies have been making money although they will make the argument that many of the refineries have been losing money,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Contracts between the companies, including Exxon Mobil Corp. (XOM), ConocoPhillips (COP) and Valero Energy Corp. (VLO), and the local USW members must incorporate the terms of the national agreement, Baker said.

The majority of local contracts expire Jan. 31 and most of the rest later in the winter and spring.

Valero Energy Corp. has 13 U.S. refineries, of which five have union representation, Bill Day, a spokesman in San Antonio, said. Four of those five have contracts that expire between the end of January and April 23, he said. He declined to comment on negotiations, saying Valero had a “gentlemen’s agreement” with the union to not comment publicly on the talks.

To contact the reporter on this story: Barbara J. Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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By Nariman Gizitdinov – Jan 11, 2012 6:00 PM GMT

The Kazakh government is considering a request from Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA) and other partners to raise the budget for the first phase of the Kashagan oil project by 20 percent to $46 billion, according to a person with knowledge of the matter.

The international oil companies, which include Eni SpA (ENI) and Total SA (FP), will bear the extra cost themselves, the person said, declining to be identified as the information isn’t public. Kazakhstan’s state energy company, which also has a stake, will reimburse them with barrels of oil for its share once output starts, he said.

Kashagan, once touted as the world’s biggest discovery in four decades, has been plagued by cost overruns and delays over the past decade. An early estimate of $24 billion for the first phase was revised up to $38.6 billion. The venture underestimated the cost of building artificial islands for equipment and to house workers in a region that’s frozen almost half the year, while construction expenses also surged.

Shell, Exxon, Eni and Total each hold a 16.8 percent stake in the field, as does state-owned KazMunaiGaz National Co., according to the website of the North Caspian Operating Co., or NCOC, which manages the project. ConocoPhillips holds 8.4 percent and Japan’s Inpex Corp. (1605) has 7.56 percent.

The costs and schedule of the field’s development are “currently being considered” with the government after a review was carried out, NCOC said in an e-mailed statement.

KazMunaiGaz referred questions to Kazakhstan’s (OLPDKAZA) Oil and Gas Ministry, which didn’t respond to an e-mailed request for comment. Shell declined to comment, as did Eni and Total. Charlie Engelmann, an Exxon spokesman based in Irving, Texas, directed a request for comments to the project’s joint operator.

The Caspian Sea field will produce 370,000 to 450,000 barrels of oil a day in the first phase, which may double in the second phase in 2018 or 2019, Deputy Oil Minister Lyazzat Kiinov said last month.

Production is slated to begin in June 2013 “at the latest,” Deputy Oil Minister Lyazzat Kiinov said last month.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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By Joe Carroll, Juan Pablo Spinetto and Edward Klump – Dec 23, 2011 10:15 AM GMT

Brazil’s threatened indictment of Chevron Corp. (CVX) and Transocean Ltd. (RIG) executives after offshore oil leaks shows that regulators from the North Sea to the Indian Ocean are stepping up scrutiny after BP Plc’s 2010 disaster.

Brazilian authorities have said they may prosecute employees, shut operations and exact more than $10 billion in fines after the leaks at the Frade field 230 miles (370 kilometers) off the coast of Rio de Janeiro. The spill occurred 19 months after an explosion in the Gulf of Mexico killed 11 workers and triggered the biggest offshore U.S. oil spill.

Governments around the world are paying closer attention to how energy explorers drill into high-pressure deposits of crude and natural gas as much as 8 miles beneath the sea surface. Chevron’s Brazil incident took place after a ConocoPhillips (COP) leak in China and prior to what may be Nigeria’s biggest spill in a decade at a Royal Dutch Shell Plc facility.

“There’s been just such a rash of them that governments have got to act tough” with oil companies, Allen Brooks, a managing director at energy-investment bank PPHB LP in Houston and Chevron shareholder, said in a phone interview. Since the BP accident “every spill after that is heightened in terms of media attention and obviously government concern.”

ConocoPhillips was criticized by the People’s Daily, China’s Communist Party newspaper, for “negligence, cover-ups and cheating” in its handling of a June leak in Bohai Bay. Premier Wen Jiabao ordered a “thorough” investigation in September.

In Nigeria, Royal Dutch Shell (RDSA) shut its 200,000 barrel-a-day Bonga field this week after a tanker-loading accident caused less than 40,000 barrels of crude to leak.

Olympic Hosts

Brazilian officials are seeking 20 billion reais ($10.8 billion) in penalties from Chevron for the Nov. 7 leaks that the San Ramon, California-based company has estimated at 3,000 barrels.

The furor in a nation keen to protect beaches from floating globs of crude ahead of the 2014 World Cup and 2016 Olympic Games may lead to new drilling rules so tough that oil exploration becomes unprofitable, said Adriano Pires, an economist and former adviser to Brazil’s state oil ministry.

“What I fear is now we have a circus created around the Chevron problem, a real circus, and to show the people they are doing something they may create norms, legislation and proceedings that make it impracticable to get environmental licenses for offshore exploring,” Pires, head of the Brazilian Center for Infrastructure, a Rio-based energy-industry consultancy, said in a telephone interview.

Making Exploration Expensive

“Depending on the measures that the government may take, it would make oil exploration in Brazil much more expensive,” he said.

Brazil’s federal police have said they intend to indict employees involved in the drilling that led to leaks from sea floor fissures near the $3.6 billion development, Kurt Glaubitz, a spokesman for Chevron, said in a Dec. 21 e-mail. In a separate statement, Transocean, owner of the drilling rig leased for the Frade field, said it will defend the company.

Chevron underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, president of Chevron’s Brazilian subsidiary, said on Nov. 20. Buck was among 17 Chevron and Transocean employees targeted for indictments, the Folha de S. Paulo newspaper reported on Dec. 21. Glaubitz declined to identify the employees targeted for indictment.

Foreign Investment ‘Chill’

“I’m a little surprised by the stance that you’re seeing in Brazil, largely because it’s so excessive, potentially, that you could put a very big chill on foreign investment in the deep water,” Ted Harper, who helps manage about $6.8 billion in assets at Frost Investment Advisors in Houston, including about $50 million of Chevron shares, said in a phone interview.

The response so far in Brazil is an “overreaction,” he said.

Chevron has lagged its peers since the leaks were disclosed on Nov. 10. Chevron has gained 0.8 percent since then, compared with increases of 7.1 percent and 4.9 percent, respectively, for Exxon Mobil Corp. (XOM) and Shell, the biggest Western energy companies by market value.

ConocoPhillips, the third-largest U.S. oil company, said on Dec. 21 that it’s taking responsibility for the Bohai Bay spill and is setting up compensation funds to support environmental research and affected communities.

Royal Dutch Shell, Europe’s largest oil company, said yesterday as much as half of the crude that leaked from the Bonga installation has dissipated through natural dispersion and evaporation. Bonga, located 75 miles off Nigeria’s coastline, pumps about 10 percent of the West African nation’s oil.

Worst Since 1998

The leak may have been the country’s worst since a January 1998 spill dumped an estimated 40,000 barrels into the sea from the Idoho platform on the southeastern coast, with slicks reported as far west as Lagos. Shell, the largest foreign oil producer in Nigeria, has been criticized by some local residents and foreign groups for onshore spills.

An “independent verification” of the Bonga platform incident is needed to ensure the spill wasn’t more, Nnimmo Bassey, executive director of Environmental Rights Action, said in a phone interview from Lagos. “Shell has never been forthcoming about incidents of oil spills in the past.”

BP has booked more than $40 billion in losses related to last year’s Gulf disaster that sank Transocean’s Deepwater Horizon rig and spilled an estimated 4.9 million barrels of crude. The London-based oil producer also faces hundreds of lawsuits by fishermen, hoteliers and property owners in coastal areas where crude washed ashore.

More Awareness

Unlike the BP incident in the Gulf, this year’s Brazilian and Chinese spills are within the normal range of oil industry accidents, Nansen Saleri, chief executive officer of Quantum Reservoir Impact LLC in Houston, said in a telephone interview.

“What’s different right now, post-Macondo, is that there’s far more awareness globally at all levels,” he said. In the long run, the industry will develop better and more stringent procedures to help prevent small incidents, he said, and oil and gas development will continue.

“Those countries who choose to go on a very punitive path at the end will suffer the negative consequences themselves,” said Saleri, who is a former reservoir-management chief at Saudi Arabia’s state oil company.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net

To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net; Dale Crofts at dcrofts@bloomberg.net

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December 22, 2011, 11:33 AM EST

By Joe Carroll and Juan Pablo Spinetto

Dec. 22 (Bloomberg) — Chevron Corp., the operator of the Brazilian offshore well that triggered oil leaks, and rig owner Transocean Ltd. will defend executives threatened with criminal indictments in the South American nation.

Chevron learned that Brazil’s federal police intend to indict employees involved in the drilling that led to the Nov. 7 leaks from seafloor fissures near the $3.6 billion Frade development, Kurt Glaubitz, a spokesman for the San Ramon, California-based company, said in a statement late yesterday. Transocean, in a separate statement late yesterday, said it will “vigorously defend the company and its collaborators.”

Chevron, the second-largest U.S. energy company by market value, has been fined 50 million reais ($26.9 million) and ordered to halt all drilling and crude production off Brazil’s coast after discovering the leaks last month. Chevron estimated the volume of the seeps at 3,000 barrels during the eight days it took for the company to locate and halt the leaks.

Chevron and other offshore oil explorers are facing increased scrutiny of their drilling practices in the wake of BP Plc’s 2010 blowout of a well in the Gulf of Mexico that killed 11 workers and led to the worst U.S. offshore crude spill.

In Brazil, the concerns have been compounded as the coastal city Rio de Janeiro prepares to host the 2014 World Cup and the Olympic Games two years later. Chevron’s Frade oil field is about 230 miles (370 kilometers) northeast of Rio in a region of the Atlantic Ocean known as the Campos Basin.

Employees Indicted

Chevron underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, president of Chevron’s Brazilian subsidiary, said on Nov. 20. Buck was among 17 Chevron and Transocean employees targeted for indictments, the Folha de S. Paulo newspaper reported yesterday. Glaubitz declined to identify the employees targeted for indictment. George wasn’t available to comment, the spokesman said.

Anthony Dovkants, a spokesman for Vernier, Switzerland- based Transocean, said in an e-mailed statement that the allegations were without merit.

Chevron rose 47 cents to $105.90 at 10:30 a.m. in New York trading. Transocean rose 1.3 percent to $40.39.

BP has booked more than $40 billion in losses related to last year’s Gulf disaster that sank Transocean’s Deepwater Horizon rig and spilled an estimated 4.9 million barrels of crude. The London-based oil producer also faces hundreds of lawsuits by fishermen, hoteliers and property owners in coastal areas where crude washed ashore.

Other Oil Spills

ConocoPhillips, the third-largest U.S. oil company, said yesterday it’s taking responsibility for two oil spills in China’s Bohai Bay in June and is setting up compensation funds to support environmental research and affected communities.

Royal Dutch Shell Plc, Europe’s largest oil company, shut its 200,000 barrel-a-day Bonga field off Nigeria after a leak during a tanker loading caused what may be the country’s worst offshore spill in more than a decade. The Bonga deep-water discovery produces almost 10 percent of Nigeria’s crude.

Exxon Mobil Corp. of Irving, Texas, is the biggest U.S. energy company by market value.

–Editors: Jasmina Kelemen, Tina Davis

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Tina Davis at tinadavis@bloomberg.net

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By Pierre Bertrand | December 22, 2011 2:07 AM GMT

Alaskan environmentalists are sounding the alarm bells this week, responding to two major oil industry victories in a state that has been a recurring flash point between environmental groups, legislators and the giants of petroleum exploration.

By Katarzyna Klimasinska – Dec 7, 2011 11:08 PM GMT

Repsol YPF SA (REP), Royal Dutch Shell Plc (RDSA) and ConocoPhillips (COP) are among the high bidders for oil leases offered by the State of Alaska.

The state Department of Natural Resources sold leases today for 281,095 acres in the Beaufort Sea and 335,289 acres on the North Slope, to boost oil exploration and production and push more crude through the Trans Alaska Pipeline.

Repsol of Madrid, Spain’s largest oil company, bid $2.6 million for North Slope tracts and $376,256 for Beaufort leases. Shell of The Hague offered $2.6 million for access to the Beaufort Sea, where it has holdings purchased from the federal government in 2005. Conoco, based in Houston, will pay $2.7 million for access to North Slope lands, according to an interim sale report from the state.

“Shell’s participation in today’s lease sale underscores our ambition to be a long-term partner with the State of Alaska,” Pete Slaiby, Shell Alaska vice president, said in an e-mailed statement.

The U.S. Bureau of Land Management, which auctioned 3 million acres in the National Petroleum Reserve, will release results later today.

To contact the reporter on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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Alex DeMarban | Dec 07, 2011

State officials called Alaska’s much-awaited oil and gas lease sale a qualified success on Wednesday, noting that 19 groups spent $21 million.

Still, the state must keep working to roughly double the flow of oil in the trans-Alaska pipeline and meet Gov. Sean Parnell’s goal of 1 million barrels a day, said Dan Sullivan, Natural Resources commissioner.

According to Sullivan, good news from Wednesday’s state lease sale includes:

• Shell Oil snatched up 80,000 acres in state waters of the Beaufort Sea, some 60 miles west of their closest federal lease. If commercial quantities of oil and gas are found in that area in Harrison Bay, Shell might be able to build “synergies” by developing both state and federal areas, said Curtis Smith, spokesman for the oil giant in Alaska.

• Tracts on the North Slope generated $14 million in lease sales, the sixth-largest amount ever for that area.

• Some bidding groups faced competition, and some tracts leased for up to $900 an acre.

• New companies leased tracts that could lead to shale-oil development in the southern portion of the North Slope, where Great Bear Petroleum is exploring this winter. Royale Energy Inc. of California was among the new firms.

• ConocoPhillips expanded its holdings to the east.

For its annual lease sale, the state’s Division of Oil and Gas offered 14.7 million acres of state land in three areas — the North Slope, the North Slope foothills, and in state waters along the Beaufort Sea.

A federal lease sale was held a few hours after the state sale for the National Petroleum Reserve-Alaska. That sale earned $3.6 million.

As for the state sale, no tracts were leased in the foothills, a hard-to-access area with terrain that could be costly to develop with gravel roads and other infrastructure.

Lois Epstein, Arctic program director for The Wilderness Society’s Alaska office, said Shell’s new interest in Harrison Bay is a worry, given the company’s limited ability to respond to an oil spill in the area, the lack of response infrastructure on the North Slope, and the limited understanding of the area’s ecology.

“How are you going to have a cleanup when booms will be destroyed by ice? When you have skimmer systems that won’t work well if you have any significant ice? Spill cleanup is not something that can be done well even in temperate conditions, but when you’re talking about Alaska Arctic conditions, it adds another level of difficulty,” she said.

“I’m not saying we should not do any (development), but if we’re going to protect these areas, let’s not move forward until we’re ready,” she said.

Shell hopes to begin exploring its federal leases in the Beaufort Sea starting next year.

Smith said Shell has a long history of drilling in remote areas and spent hundreds of millions of dollars to assemble an unprecedented offshore spill-response fleet because it cannot call on the U.S. Coast Guard, which has no Arctic base, to help in the event of a spill. That includes spending $350 million on two new icebreakers and a capping and containment system modeled after the technology that stopped the Macondo blowout in the Gulf of Mexico last year, Smith said.

“Shell will track in real time every inch of every well drilled at our real-time operations centers in Houston, New Orleans and Anchorage. This real-time data will also be available via satellite to anyone in the world who has access,” Smith said in an email to Alaska Dispatch.

Smith said Shell’s Alaska experience has largely occurred in state waters, rather than federal waters, including pioneering development in Cook Inlet, one of the top oil provinces in the U.S. decades ago.

For Epstein, the sale confirmed strong interest in oil development on state land, which is not as fragile as federal areas like the potentially oil-rich but environmentally sensitive Teshukpuk Lake region in the National Petroleum Reserve-Alaska.

The Department of Natural Resources called the lease sale the largest since a $37 million sale in 2008.

The increased bidding in the Alaska sale comes in part because the state has taken “relentless” steps to generate interest in Alaska petroleum opportunities, including making “cold calls” to companies to provide them with engineering data and other information, Sullivan said.

On the down side, some companies the state expected to show did not. Sullivan would not identify the companies. Their lack of interest may be related to concerns about the cost of development, including the state’s high marginal tax rate, said Sullivan. Or perhaps the state didn’t pitch the opportunities to these companies quickly enough, he added.

The North Slope is estimated to contain as much as 40 billion barrels of conventional oil and 236 trillion cubic feet of conventional gas. That estimate by federal agencies does not include billions of barrels of what’s considered unconventional oil, such as that found in shale.

The state plans to release preliminary results of the lease sale later this week on the division’s website.

Here’s a list of the successful bidders in the state sale:

William Crawford; Sam Cade; Daniel Donkel (25  percent) and Sam Cade (75 percent); Andrew Bachner (90 percent) and Keith Forsgren (10 percent); CPAI (50 percent) and Exxon (50 percent); Conoco-Phillips Alaska; North-South Connections; AVCG LLC; Pioneer Natural Resources Alaska; Repsol E&P USA; Alfred Fairbanks; Shell Offshore Inc.; NordAq Energy; Woodstone Resources; Royale Energy, Inc.; Alaska LLC (50 percent) and Paul Gavora (50 percent); Great Bear Petroleum LLC; 70 & 148 LLC; Savant Alaska.

Three of those bidders, ConocoPhillips, 70 & 148 LLC of Colorado, and Woodstone Resources of Houston, were also successful bidders in the federal sale.

[Update: Nineteen groups succesfully bid on tracts, not 17 as the Dispatch originally published. Also, a statement published in an earlier version of this article, that a North Slope lease sale hasn’t netted more than $10 million since 2006, was incorrect.]

Contact Alex DeMarban at alex(at)alaskadispatch.com

SOURCE ARTICLE

Curtis Smith, spokesman for Shell in Alaska, said the company continues to concentrate on its exploration plans in federal waters of the Beaufort and Chukchi Seas but is seeking to diversify its offshore operations.