Fallen: BP’s share price has suffered through the Deepwater Horizon disaster

By Rob Davies
Last updated at 10:45 PM on 7th July 2010

BP is set to defy demands by the US Department of Justice to provide it with advance notice of key business decisions, setting the oil major on a collision course with the American authorities.

The DoJ wrote to BP’s lawyers last month, calling on the company to inform it at least 30 days in advance of any asset sales, restructuring, acquisitions or mergers.

But BP (up 16.55p to 362.1p) will refuse point blank to hand over market sensitive information before boardroom decisions are made public.

The oil major is updating the DoJ on its financial strength and the progress of its response to the spill.

But it does not believe that the DoJ has any legal right to make such intrusive demands on its business decisions.

PROTEST BY SHELL EMPLOYEES IN MOROCCO OVER SHELL PLANS TO EXIT 21 AFRICAN COUNTRIES WITHOUT SEVERANCE OR COMPENSATION PAYMENTS

Business Daily (Nairobi)

Benson Wambugu 2 July 2010

More than 180 employees of Kenya Shell have successfully blocked the oil marketer from selling its business to Oil Libya Holding Company until their statutory dues are settled.

Oilibya is said to have made a Sh160 billion offer for the downstream African operations of the Anglo-Dutch transnational.

An injunction was on Thursday issued by the Industrial Court restraining the oil giant from selling or transferring its assets to Oilibya before receiving written consent that the employees were agreeable to the transition.

Alternatively, the employees want Shell to declare them redundant and settle all their redundancy benefits and accruing claims before it exits.

The court also blocked Shell from applying for any change of ownership in its shares or altering its status with the Registrar of Companies pending the determination of the dispute.

The employees were also granted orders stopping the company from continuing to conduct business in Kenya under any other name, form or arrangement, other than the Royal Dutch Shell-its Hague-based parent company.

The group has announced its exit from 21 African countries to shed downstream operations of the Anglo-Dutch transnational assets and focus on more lucrative oil and gas production.

Constructive dismissal

Through the law firm of Okoth and Kiplagat, the 184 employees submitted in court that Shell intended to divest from Kenya and transfer it business and ownership to a third party.

In their application, the staffers argued that the transfer of the business of Shell to Oilibya “amounts to a constructive dismissal of all the claimants without due regard to the provisions of the applicable statues.”

A sworn statement by Mr Joseph Kahuko Mwangi on behalf of 183 employees, termed the company’s actions as discriminative adding that unless prohibition orders were made on the oil firm, it would exit without paying the staffers their statutory dues.

Before moving to court, the employees claimed the company kept secret its intended divestiture and has declined to provide any official communication and “we only came to know about the intended sale through the media.”

While seeking to know their fate, the employee’s says Shell indicated to them that they had no right to know or decide on whether or not to transit to the new owner.

The staffers argued that the divestiture to a party unknown to them and the re-branding of the business operations amounted to their dismissal.

The employees have also termed the purported sale of the company as a going concern a “legal fiction” saying the new owner would neither carry on business under the Shell brand nor uphold the firm’s standards but will superimpose the buyer’s peculiar culture and values.

Lawyer, Ken Kiplagat, for the employees told the court that the action by Shell to divest in the manner contemplated amounted to the alteration of the implied contractual and equitable obligations owed by the company to its staffers.

Disposable servitudes

The lawyer further submitted that the “going-concern” deception had previously been laid bare by Shell’s own treatment to former employees of Agip Kenya Ltd when it took over its assets.

Court papers indicates that soon after Shell acquired Agip (K) Ltd, it declared more that 90 per cent of the employees redundant even after having been promised continued employment in the new structure.

“Shell employees are likely to be treated and considered as mere disposable servitudes,” submitted Mr Kiplagat, citing the Agip (K) Ltd precedence.

The employees also complained that Standard Chartered Bank had suspended offering unsecured personal loans and demanded additional guarantees from both the company and the employees.

Mr Kiplagat said the staff recognise and accept Shell is at liberty to sell its local business on a going concern, but the transaction would result in rationalisation and redundancies.

“The intended divestiture amounts to constructive redundancies entitling our clients to activate the necessary and applicable statutory safeguards,” said the lawyer.

Shell’s employees want an exit offer that affords them an option to transit to the new owner or a buy-out of employment contracts.

It is based on the argument that workers had not contemplated their continued future employment could be with another party.

SOURCE ARTICLE

By Aaron Smith, CNNMoney.com staff writerJuly 1, 2010: 12:20 PM ET

NEW YORK (CNNMoney.com) — BP’s stock price has fallen far enough for the oil company to become an attractive takeover target for its biggest rivals, according to industry analysts.

BP’s (BP) stock finished at $28.88 Wednesday, a plunge of more than 50% from its close of $60.09 on April 19, the day before its leased oil rig, the Deepwater Horizon, exploded and sank in the Gulf of Mexico.

Fred Lucas of JPMorgan believes that investors have overdone it, making the stock an attractive value for buyers — including other companies.

“In theory, either Exxon Mobil or RD Shell could consider a bid for BP,” wrote Lucas in a note to investors. “We focus on these two names because they have similar business models and similar global asset structures. They also bear the lowest political risk to a potential combination with BP.”

Lucas said that his idea of a proposed takeover of BP was “prompted by the gap between the current market value of BP and the intrinsic value that we see in BP.”

Another oil industry analyst, Douglas Youngson of Arbuthnot Securities, told CNNMoney last month that if BP’s stock dropped below $30 a share, it would become an attractive takeover target.

“If the share price continues to fall, other companies may see this for the bargain it will be,” said Youngson on June 2, when BP’s stock closed at $37.66.

Of the various big players in the oil industry — including Gazprom and PetroChina (PTR) — Lucas believes that ExxonMobil (XOM, Fortune 500) is in the best position to be the acquirer.

He wrote that Exxon Mobil “has the largest rating advantage and strongest balance sheet,” providing it with enough cash to handle the deal.

“Exxon Mobil has also proven its ability to integrate a very large transaction successfully — its merger with Mobil was a resounding success,” added Lucas. “RD Shell has no large-scale merger integration experience.”

Gazprom wouldn’t be a contender because of a “low stock market rating,” he said, while PetroChina “would encounter major political barriers given its controlling shareholder – the Chinese government.”

BP has been purging itself of cash to try and fix the environmental and economic aftermath of the disaster.

The company said it has paid out $2.65 billion for the clean-up, and another $130 million on 41,000 claims from workers and business owners who lost their livelihoods in the wake of the spill. More than 80,000 claims have been submitted so far. Bowing to pressure from the U.S. government, BP has put $20 billion in escrow to cover damages.

Lucas figures that the leak will stop sometime in July, meaning a finite cap to the liabilities. So this might be a good time for Exxon Mobil to swoop in, especially since the oil giant has had its own experiences with catastrophic oil spills.

Before BP’s environmental disaster in the Gulf, Exxon had the dubious distinction of causing the nation’s worst oil spill, when the Exxon Valdez oil tanker ran aground off the coast of Alaska in 1989.

“In many respects, an accurate valuation of BP today depends less on a valuation of its assets, but more on an accurate value of its potential liabilities,” wrote Lucas. “Who knows better how to price potential clean-up costs and associated civil claims than Exxon Mobil?”

Spokesmen for BP and RD Shell declined to comment on this story. Exxon Mobil did not respond to messages from CNNMoney.com.

SOURCE ARTICLE

• Voser says rising demand forces search for new sites
• Storm threatens clean-up operation of BP’s Gulf spill

Graeme Wearden: Sunday 27 June 2010 19.09 BST

A heavily-oiled bird is rescued from the waters of Barataria Bay, which are laden with oil from the Deepwater Horizon spill. Photograph: Gerald Herbert/AP

Royal Dutch Shell’s boss, Peter Voser, insisted that today it was not possible to satisfy the world’s growing energy demands without drilling for oil in deep-water reserves, despite the ongoing environmental disaster in the Gulf of Mexico.

At a conference in South Africa, Voser defended the oil industry’s push into deeper oil reserves and said Shell would continue to play its part, even as a tropical storm threatened to disrupt BP’s efforts to clean up oil off the coast of Louisiana.

“Given the rise in the population and the rise in the developing world of energy needs, we will have to develop those resources in deep waters, so my expectation is that we will go forward with it, but it will need some changes,” Voser told the Fortune Global Forum in Cape Town.

It is now 68 days since the Deep-water Horizon rig exploded in the Gulf of Mexico, triggering a devastating leak on the seabed in which 100,000 barrels of oil have spewed into the water. BP’s failure to cap the leak has put the oil industry’s safety record under fierce scrutiny, with environmental campaigners demanding that deep-water drilling is banned until safety measures have been improved.

Voser, though, implied that the Macondo well would not have erupted with such devastating consequences if Shell, rather than BP, had been in charge.

“We would not have drilled the well in the same way. We have got other safety procedures across the globe. But I think for some companies there will be some learning from this as well,” Voser said.

The future of deep-water drilling remains uncertain, after a US judge overturned a six-month ban imposed by President Barack Obama. The US is appealing against the ruling but may have to rewrite the moratorium if it is to prevent new wells being drilled in the Gulf this year.

It appears BP will be given the go-ahead to drill in deep-water sites off the coast of north Africa. The head of Libya’s National Oil Company said today that the “accident” in the Gulf of Mexico would not mean that BP lost its contract to drill for oil in the Mediterranean Sea.

“Accidents happen all the time. If an air crash takes place, we don’t stop air traffic,” said Shokri Ghanem. “So we have to continue but we take this step to learn more lessons.”

BP’s shares plunged 6.5% to a new 14-year low of 298p last Friday, meaning that more than £60bn has been wiped off its market capitalisation since 20 April.

Weather experts warned today that Tropical Storm Alex could hamper the clean-up operation in the Gulf. Although Alex is not expected to cross over the area of the spill directly, it could generate high waves that would make it harder to collect some of the leaking oil or prevent the spill reaching land.

The UK continues to argue that BP should not be forced to pay excessive levels of compensation that would endanger its future as a company. Speaking at the G20 summit, chancellor George Osborne said David Cameron had reminded Obama that BP was an international company.

“We have stressed that BP is an important global business. It has many investors in the US, it is the largest oil company in the US and it is both in the US interest and the UK interest that BP has a strong future,” said Osborne.

BP has put $20bn (£13bn) into a compensation fund, but faces the prospect of claims from tens of thousands of people indirectly affected by the spill. Last Friday, a top New Orleans chef, Susan Spicer, sued the company over the loss of valuable local seafood.

SOURCE ARTICLE

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

REUTERS

* A victory for drillers, White House to challenge ruling

* Interior Dept to issue new order for moratorium

* Offshore operators say they await appeal outcome

By Mary Rickard

NEW ORLEANS, June 22 (Reuters) – A U.S. judge ruled on Tuesday against the six-month moratorium that President Barack Obama’s administration imposed on deepwater drilling over the Gulf of Mexico oil spill, prompting officials to vow to appeal and retool the ban.

The order, in a New Orleans federal court, was a blow to the White House which had insisted a ban on offshore drilling below 500 feet (152 meters) would allow enough time to ensure other exploratory drilling was proceeding safely.

The White House swiftly pledged to appeal the ruling to the U.S. Court of Appeals for the Fifth Circuit in New Orleans and Interior Secretary Ken Salazar said he would quickly issue a new order for a moratorium.

“Continuing to drill at these depths without knowing what happened does not make any sense, and puts the safety of those involved … at a danger that the president does not believe we can afford,” said White House spokesman Robert Gibbs.

The ruling in the case, the oil industry’s first challenge to a moratorium that had halted operations of 33 offshore rigs, was a victory for big offshore energy producers like BP Plc. (BP.L)(BP.N), Chevron Corp (CVX.N) and Royal Dutch Shell (RDSa.L). They have considered relocating their giant drilling rigs to other basins like Brazil.

A suit was filed by Louisiana-based Hornbeck Offshore Services LLC (HOS.N) and was joined by more than a dozen companies involved in offshore drilling operations to reverse the drilling ban imposed by the U.S. Department of Interior.

The April 20 explosion of the Transocean LtdRIGN.S(RIG.N) Deepwater Horizon rig killed 11 people and caused the worst oil spill in U.S. history. The well is majority-owned by BP.

Deepwater drilling, newer than shallow-water drilling, is also riskier because the bit must bore through many more layers of rock and salt under more extreme pressures and temperatures.

“We see clear evidence every day, as oil spills from BP’s well, of the need for a pause on deepwater drilling,” Salazar said in a statement. “I will issue a new order in the coming days that eliminates any doubt that a moratorium is needed, appropriate, and within our authorities.”

That likely means more litigation and uncertainty for the industry, which could roil investors.

APPEAL AWAITED

Federal Judge Martin Feldman, appointed by former President Ronald Reagan in 1983, granted the drillers’ request for a preliminary injunction that prevents the ban from taking effect, saying that they would likely succeed in showing that the suspension was “arbitrary and capricious”.

“The court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium,” the judge wrote a day after hearing arguments in the case.

Environmental groups lambasted Feldman’s decision as a gift to Big Oil. “To open more drilling now would be to invite a second disaster of the same magnitude, or a third,” said Sierra Club executive director Michael Brune.

The Center for American Progress, headed by former President Bill Clinton’s White House chief of staff John Podesta, circulated public documents showing that he held shares in offshore rig owner Transocean Ltd in 2008.

The American Petroleum Institute, an oil industry lobbying group, applauded the ruling and said it means that “our industry and its people can get back to work.”

But big offshore operators like Shell said they would wait until the outcome of the appeal by the Obama administration before they restart drilling operations.

“We need to understand what the lower court’s decision was, and we’ll await the outcome of the appeal,” said Shell spokesman Bill Tanner.

“It would be very difficult to see someone start up an ultra deepwater operation with just one court’s ruling because there is so much at stake,” said Pierre Conner, an analyst with Capital One Southcoast in New Orleans.

Standard & Poor’s Equity Research analysts said legal battles over the moratorium are far from over and they “anticipate some rigs to leave the U.S. Gulf for international drilling regions given elevated domestic uncertainty.”

The moratorium on drilling in deep waters does not affect existing producing platforms but halts new development plans by the oil industry.

Wood Mackenzie, an energy consulting agency, previously estimated a six-month ban would delay 80,000 barrels a day in U.S. oil production that was expected in 2011. (Additional reporting by Patricia Zengerle, James Vicini, Jeremy Pelofsky and Deborah Zabarenko in Washington and Kristen Hays in Houston. Writing by Chris Baltimore; editing by Howard Goller and Chris Wilson)

SOURCE ARTICLE

By Tim Catts and John Detrixhe

June 22 (Bloomberg) — Royal Dutch Shell Plc was penalized by the bond market in a $2.75 billion debt offering and Anadarko Petroleum Corp. notes tumbled on concern the worst oil spill in U.S. history will depress profits across the industry.

Investors demanded an extra 110 basis points in yield over U.S. Treasuries to buy the five-year notes from Shell, compared with 89 basis points for existing debt of similar maturity from the company, which is based in The Hague. Debt of Anadarko, owner of a 25 percent stake in BP Plc’s leaking well in the Gulf of Mexico, fell the most since June 9.

Shell, with the most Gulf rigs affected by a ban on deep- water drilling, and Anadarko face higher yield spreads as investors wager that added government regulation may raise the cost of finding oil. The explosion of BP’s Deepwater Horizon oil rig two months ago is rippling across petroleum companies, said Brookfield Investment Management Inc.’s Joel Levington.

“It could delay the timing of projects or possibly eliminate them,” said Levington, managing director of corporate credit at Brookfield in New York, with $24 billion in assets under management. “It could require additional monitoring and maintenance, all of which could hurt earnings, cash flows and returns on invested capital.”

Energy bonds have lost 0.34 percent this month, compared with a gain of 0.56 percent for U.S. investment-grade bonds, according to Bank of America Merrill Lynch index data. Shell bonds have gained 0.09 percent in June.

One Bryant Park

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 2 basis points to 194 basis points, or 1.94 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.08 percent.

Bank of America Corp. and JPMorgan Chase & Co. plan to sell $650 million of 10-year bonds tied to debt on a midtown Manhattan office tower in the third sale of commercial mortgage- backed securities this year.

The notes are backed by loan payments on One Bryant Park, which houses the main office in New York for Charlotte, North Carolina-based Bank of America, according to a person familiar with the transaction, who declined to be identified because terms aren’t public.

The offering will bring total sales of commercial mortgage- backed securities in 2010 to about $1.67 billion, according to data compiled by Bloomberg.

Wrigley Proceeds

Wm. Wrigley Jr. Co., acquired by Mars Inc. in 2008, sold $1.8 billion of bonds in a four-part offering to repay debt, a person familiar with the transaction said. The world’s largest maker of chewing gum also obtained $700 million of secured loans to refinance debt, according to Moody’s Investors Service.

Andy Pharoah, a spokesman for Chicago-based Wrigley, declined to comment in an e-mail.

A benchmark indicator of credit risk in Europe fell to the lowest in almost five weeks. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings declined 4.1 basis points to a mid-price of 112.9 basis points, the lowest since May 18, according to Markit Group Ltd.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, fell 2.2 basis points to a mid- price of 107.8, Markit prices show.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan advanced 3 basis points to 121 basis points as of 8:30 a.m. in Singapore, Barclays Plc prices show.

The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Emerging Markets

In emerging markets, the extra yield investors demand to own bonds relative to government debt declined to the lowest since May 17. Spreads fell 5 basis points to 304 basis points, according to JPMorgan’s Emerging Market BP Bond index.

International pension and sovereign wealth funds are increasing demand for local Brazilian government bonds, lured by interest rates above 10 percent and a stable economy, Deputy Treasury Secretary Paulo Valle said in an interview at Bloomberg headquarters in New York.

Foreign investors hold 8.7 percent of Brazil’s domestic debt, compared with almost zero in 2006, Valle said. Investors from European and Asian nations such as South Korea and China are showing more interest, he said.

Demand has grown since Brazil earned an investment grade rating from Moody’s in September, putting it one level above junk at all three major ratings companies, and the economy expanded an annual 9 percent in the first quarter.

‘Costly’ Moratorium

Shell has five exploratory wells among 33 in deep Gulf waters that were set to halt drilling under a moratorium from the Obama administration following the BP accident, an official of the Minerals Management Service, who asked not to be identified discussing the specific companies, said May 28.

“The offshore drilling moratorium will be costly for producers, which will need an extended period to ramp back to pre-accident levels once the ban is lifted,” Ken Austin, a Moody’s senior credit officer in New York, wrote in a report dated yesterday. “These companies also face significant questions over whether they will be able to cancel or reduce the costly commitments under their rig and service contracts.”

The spread on Shell’s $1 billion of six-year notes issued in September widened to 103.4 basis points yesterday from 89.3 basis points as of June 10, the last trade before news of the offering, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Shell Bonds

Shell’s $1.75 billion of 3.1 percent notes due in June 2015 yield 3.115 percent, Bloomberg data show. Its $1 billion of floating-rate debt yields 35 basis points more than the three- month London interbank offered rate, a borrowing benchmark.

“The all-in yields are still pretty attractive from a treasurer’s perspective, but obviously they’re paying for their association with the oil-and-gas business,” said Jason Brady, a money manager who oversees $4 billion in fixed-income assets at Thornburg Investment Management in Santa Fe, New Mexico.

Shell spokeswoman Kirsten Smart declined to comment on the sale.

Total SA, Europe’s third-largest oil company, sold $2.5 billion of bonds on June 17 in a two-part offering. The Paris- based company’s 3 percent, five-year notes priced to yield 110 basis points more than similar-maturity Treasuries, Bloomberg data show.

Rating Cut

Bonds from Anadarko, based in The Woodlands, Texas, fell after Moody’s cut its credit rating one level to Ba1, a step below investment grade, after the close of trading on June 18.

Anadarko’s 5.95 percent securities due in 2016 declined 2.7 cents to 88.1 cents on the dollar to yield 8.45 percent, or 642 basis points more than similar-maturity Treasuries, Trace data show. The notes traded at 110.9 cents on April 19, the day before the oil spill.

“I think the credit markets have downgraded all of the spill companies by several notches,” said Brookfield’s Levington. “The rating agencies are trying to catch up with what the markets have already done.”

The downgrade “is very disappointing and surprising in light of Anadarko’s limited role as a non-operating investor in the Macondo well,” Robert Gwin, chief financial officer of the company, said June 18 in a statement.

–With assistance from Sarah Mulholland, Emre Peker, Craig Trudell, Katie Evans and Fabiola Moura in New York and Jeff Plungis in Washington, Ed Johnson in Sydney and Katrina Nicholas in Singapore. Editors: Alan Goldstein, Michael Weiss

To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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Beset by another delay in its planned exploration, Shell officials say the company intends to keep its Alaska offices open and its staff of about 70 intact and working toward a 2011 drilling program.

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