Shell’s oil facilities in the Niger Delta have suffered from a number of criminal and militant attacks, leading Peter Voser, chief executive officer, to declare that the country is no longer a key area for growth.

February 21, 2010, 07:10 PM EST

By Eduard Gismatullin and Marianne Stigset

Feb. 22 (Bloomberg) — BP Plc and Royal Dutch Shell Plc may falter in their campaigns to save billions in oil and gas project costs as a resurgence in drilling and demand for engineers threaten to revive inflation in the industry.

Crude prices doubled in the past year, prompting producers to resume projects put on hold during the recession. Oil and gas industry spending will rise 11 percent this year to $439 billion, according to Barclays Capital.

“Oil price inflation and cost inflation are highly correlated, albeit with some delay,” said Paul Wheeler, a London-based managing director in the oil and gas group at investment bank Jefferies International Ltd. “The oil industry is always people constrained. It’s one of the biggest challenges: a lack of young engineers and geologists.”

BP Chief Executive Officer Tony Hayward said Europe’s largest oil company will try to cut costs further this year after saving $4 billion in 2009. Shell’s Peter Voser aims to trim expenses by $1 billion. The respite the economic crisis brought on costs may prove temporary as producers are forced to spend more to recover oil from deepwater reserves, tar sands and gas-bearing rocks.

While the major oil companies may face difficulty holding costs down, the beneficiaries of increased drilling will be oil services companies like Schlumberger Ltd., Baker Hughes Inc. and Petrofac Ltd., hired to work on production projects.

Investor Outlook

Investors prefer the outlook for service companies to oil producers. Shares of Schlumberger, which yesterday agreed to buy drilling lubricants provider Smith International Inc. for about $11.3 billion, have gained 82 percent in the last year. Petrofac has more than doubled. In the same period BP has gained 28 percent and Shell is up 11 percent.

“All the service sector is going to be busy again,” Ayman Asfari, CEO of Petrofac, the U.K.’s biggest oil contractor by market value, said in an interview in London. “All the majors now are realizing they cannot stop investing and they are all coming back.”

Aside from salaries, prices for raw materials such as steel, are the biggest contributor to project costs. World steel prices have recovered 19 percent since reaching a three- year low in May as the global economy returns to growth, according to a tracker index from Steel Business Briefing. That will push up the prices of piping and sheet metal needed to build rigs and processing plants.

‘Log Jam’

“Cost pressures on oil services are bottoming out and the next move is up,” Keith Morris, an analyst at London-based Evolution Securities Ltd., said in a note earlier this month. A “log-jam of projects postponed from 2009 will lead to a scramble for oil services. Spare capacity will get booked up, quickly leading to return of cost inflation.”

London-based BP will invest $20 billion this year, little changed from 2009, as it works on projects in Alaska, Trinidad & Tobago and the Gulf of Mexico. Shell, based in The Hague, expects to spend $28 billion this year and Paris-based Total plans $18 billion.

“We are definitely seeing costs recover slightly,” Total CEO Christophe de Margerie told reporters in London this month.

The trend toward deepwater drilling, liquefied natural gas plants and other high-technology projects is adding to pressure on contractor capacity, de Margerie said.

“The costs of developing assets today are significantly higher than they were five years ago and there is no way we are going back to those levels,” Petrofac’s Asfari said in London. “There is nothing you can do about the underlying costs, like human resources.”

Skilled Workers

In Australia, where San Ramon, California-based Chevron Corp.’s $40 billion Gorgon project is among more than a dozen LNG ventures under development, cost pressures are already starting to show in salaries for skilled workers. Woodside Petroleum Ltd. said in November the cost of its $12 billion Pluto project may surge as much as $1 billion, partly because of labor expenses.

Pressure on skilled oil industry professionals may increase in other parts of the world as projects get up to speed, recruitment consultants said.

“We’re still far away from the pre-financial crisis levels, but there has been an increase in demand for engineers,” said Geir Doelvik, managing director of Manpower Professional Engineering AS, an Oslo-based recruiter for the oil industry. “We haven’t seen salaries increase yet, but we’re going into wage negotiations, so we’ll see what happens then.”

Charges for hiring drilling rigs may rebound after more units were pressed into service in recent months. The number of rigs in use worldwide has risen 40 percent from May’s six- year low, according to data from Baker Hughes.

Talks with producers to cut prices “are behind us,” Andrew Gould, CEO of Schlumberger, the world’s largest oilfield-services provider, said in an interview in Oslo this month. “The danger is that if oil prices accelerate then in the supply industry, certain shortages will appear quite quickly.”

–With additional reporting by Brian Swint in London. Editors: Will Kennedy, Amanda Jordan.

To contact the reporter on this story: Eduard Gismatullin in London at +44-20-7673-2268 or egismatullin@bloomberg.net; Marianne Stigset in Oslo at +47-22-99-6109 or mstigset@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at +44-20-7073-3603 or wkennedy3@bloomberg.net.

BLOOMBERG/BUSINESS WEEK ARTICLE

THE NEW YORK TIMES

Energy companies are on the prowl again.

After a two-year slowdown in mergers and acquisitions in the industry, companies are once again looking for ways to use their checkbooks to expand their reserves, buy new technology or snap up promising oil and gas fields.

Unlike the round of mergers that created today’s behemoths in the late 1990s, the current round is not expected to form new giant companies like Exxon Mobil or ConocoPhillips. This time, companies are focused on buying fast-growing small companies, or on acquisitions that expand their reserves in an era when it is hard for them to find new places to drill.

The targets include companies that own new fields in nations like Ghana and Sierra Leone, independent gas producers in the United States, and companies that control fields in the deep waters of the Gulf of Mexico.

“In this industry, where you’re in the business of increasing your reserves, there are two ways to do so — to drill or to acquire,” said Christopher W. Sheehan, director for mergers and acquisitions research at IHS Herold. “There is an intense competition for access to resources through mergers.”

This latest wave of consolidation comes amid fresh enthusiasm for natural gas production, especially in the United States, where new technology has significantly expanded the nation’s reserves. The huge potential of new gas fields has driven most mergers in the North American energy sector in recent months, with more to come this year, according to bankers and analysts.

Buying interest is particularly strong among the international oil majors, which had sold off many of their onshore assets in the United States over the last decade and are now eager to come back. Anthony B. Hayward, the chief executive of BP, said last month at the World Economic Forum in Davos, Switzerland, that the gas being extracted from beds of shale was “a complete game-changer. It probably transforms the U.S. energy outlook for the next 100 years.”

The biggest deal in that sector was announced in December, when Exxon Mobil said it would buy XTO Energy for $31 billion. Shortly after, Total of France said it would pay $800 million for a minority share in Chesapeake Energy’s Barnett shale gas portfolio. Chesapeake has raised about $11 billion from joint ventures for its shale gas assets in the last two years; BP and Royal Dutch Shell have struck similar agreements in recent months.

In a humorous note to investors, Bernstein Research analysts quipped recently: “Frankly, you can virtually plan your gym sessions around these deals, they are becoming so regular. Thinking about it, isn’t it about time for another Statoil deal?”

Statoil, the Norwegian national oil company, recently struck a deal with ConocoPhillips to trade some of its assets in the Gulf of Mexico for acreage that Conoco holds in the Chukchi Sea of Alaska; in November, Statoil agreed to pay $3.4 billion for a 32.5 percent stake in Chesapeake’s assets in the Marcellus shale formation in the Appalachian region.

“The growth opportunities from shale gas are something we haven’t seen in the United States for decades,” said Roger D. Read, managing director and senior energy analyst at Natixis Bleichroeder in Houston. “The United States, which had been a static market, now has the chance to grow its production.”

Bankers and energy consultants expect deals to pick up this year after a two-year lull. There were 244 deals in the global oil and gas industry last year, down from 285 in 2008, and 336 at the peak in 2007, according to data from IHS Herold, a consulting and advisory firm.

While the number of transactions was down, the size of the Exxon-XTO transaction helped raise the total value of last year’s mergers to $144 billion, up from $104 billion in 2008. (Merger values peaked at $200 billion in 1998, a year when many of today’s giant companies were created.)

Analysts point to a wide range of companies that are potentially on the market, including EOG Resources, Southwestern Energy, PetroHawk Energy, the Encana Corporation, Chesapeake Energy, Devon Energy and Anadarko Petroleum.

“There will be a shakeout there. It will be eat, or be eaten,” said James Bogues, who leads Accenture’s North America energy mergers and acquisition unit. “Given Exxon’s reputation as a very deliberate, cautious company, the fact they made such a bold move with XTO will no doubt inspire others that a price has been set for shale gas assets and technology.”

Outside of the United States, the pace of mergers has also picked up. Suncor Energy of Canada bought Petro-Canada in a deal valued at $18 billion at the time to form a national giant and stave off possible bids from foreign buyers, particularly Chinese companies. In West Africa, Exxon has offered $4 billion for a stake in an offshore field in Ghana, though that deal could fall through given the government’s threat to block the transaction; international firms, including Eni of Italy, are battling over some prospective fields in Uganda.

Chinese companies have also been particularly active. In August, Sinopec, one of China’s biggest oil companies, closed a $9 billion acquisition, buying Addax Petroleum, a Geneva-based oil explorer that is most active in Nigeria, Gabon and the Kurdistan region of Iraq.

Sinopec, formally known as the China Petroleum and Chemical Corporation, said the deal “represents the largest successful acquisition of overseas oil and gas assets by a Chinese company.”

The interest of national oil companies, like Sinopec, could prove a powerful and lasting driver for merger deals in the energy sector.

“The mandate of national oil companies is to go and find reserves around the world,” said Jon McCarter, the oil and gas transactions leader for the Americas at Ernst & Young. “They have been very active and very aggressive.”

NYT ARTICLE

By John Donovan

If anyone would like a free copy of the Shell database containing the names, location, phone numbers etc of over 100,000 Shell employees/contractors, please feel free to apply via john@shellnews.net

The information would only be provided if we are convinced that it would be used for legitimate purposes e.g. poaching Shell employees (and without putting any Shell employee at risk).

For example, Exxon, BP, Chevron, ConocoPhillips or Total might each like a copy of this commercially valuable information? Prime up to date intelligence.

Don’t worry Mr Wiseman. We are only having some more fun at Shell’s expense.

The serious point is that the information is in circulation. We are not the only party with a copy of the Directory. There are many and other parties may not be as responsible as we are.

Shell has stated that its employees are at risk. If this is correct (and we accept that it is) then this is a potentially dangerous situation for which Shell as a company is ultimately responsible. The Directory could spread around the Internet in a matter of hours.

The genie is out of the bottle.

Houston, we have a problem.

REUTERS

* Shale gas is “global and necessary” -Royal Dutch Shell

* Iraq could produce 10 mln barrels oil per day by 2020

* BP CEO expects $60-80 oil price through 2010

By Gerard Wynn and Ben Hirschler

DAVOS, Switzerland, Jan 28 (Reuters) – New technologies to extract gas from shale rock have altered the U.S. energy outlook for the next 100 years, Tony Hayward, chief executive of BP (BP.L), said on Thursday.

Energy chiefs speaking at the World Economic Forum differed about the prospects for future oil supplies — with Iraq placed to account for up to 10 percent of that — but agreed new “unconventional gas” would be a huge fillip.

Unconventional gas includes natural gas extracted from shale and methane reserves in coal mines, which together are set to play a huge role in satisfying rising global energy demand.

“(It’s) a complete game-changer in the U.S. It probably transforms the U.S. energy outlook for the next 100 years,” said Hayward.

Peter Voser, chief executive of Royal Dutch Shell (RDSa.L), said such new reserves were “global and necessary”.

IRAQ OIL

BP’s Hayward also expected Iraq to play a major role in filling energy demand.

“We are cautiously optimistic about the potential that Iraq can play in providing a new source of supply to global oil markets,” he said.

“The reality is, absent any unforeseen political events … the resources there are relatively easy to bring on-stream and there is no reason to believe that Iraq can’t be producing 10 million barrels per day by 2020 or so.”

That would require massive investment, however, Voser cautioned.

“According to official estimates, we will need $27 trillion to get to the point Tony described,” he said. “This money needs to be earned … Iraq can bring some stability (to markets) but it needs to be developed and the money needs to be earned, so we can actually finance these $27 trillion over the next 20 years.”

Thierry Desmarest, chief executive of French group Total (TOTF.PA), agreed Iraq would play a key role but he too said investments in the country needed to deliver an adequate return.

“We have seen a lot of excitement in the industry on these projects. We are a bit less enthusiastic — our priority is to bring returns to shareholders in line with their expectations,” Desmarest said.

Hayward told Reuters he expected oil to trade within a range of $60 to $80 per barrel through the remainder of 2010.

“I think that OPEC have done a very good job in balancing the market — demand for oil has fallen 2 million barrels per day since 2007, they’ve taken around 3 million bpd off the market, they’ve brought supply and demand back into balance,” he said.

Hayward felt that long-term declining oil product demand in developed countries would be offset by emerging economies.

“None of us will sell more gasoline than we sold in 2007 (to developed markets). That’s, however, being offset by very strong … markets of the East and particularly China (where) last year 13 million cars were sold.”

(Writing by Gerard Wynn, Editing by Mike Peacock)

REUTERS ARTICLE

REUTERS

* Perdido can produce up to 100,000 bpd crude oil

* MMS sees Shell’s Perdido project starting by February

* No immediate comment from Shell

By Robert Campbell

HOUSTON, Jan 27 (Reuters) – Royal Dutch Shell Plc’s (RDSa.L) Perdido oil and gas project in the Gulf of Mexico will start up soon, perhaps as early as the end of January, the U.S. Minerals Management Service said on Wednesday.

The government agency, which oversees oil and gas production in U.S. federal waters, did not say how much it expected the project to produce initially. The Perdido platform is capable of producing 100,000 barrels per day of oil and 200 million cubic feet per day of natural gas.

“It’s planned to go into production most likely by the end of the month, by February,” Mike Prendergast, the chief of staff of the MMS’s Gulf of Mexico region, said at an industry conference.

Shell is operator of the Perdido project with a 35 percent interest, partnered by Chevron (CVX.N) with 37.5 percent and BP Plc (BP.L) with 27.5 percent. Shell representatives were not immediately available to comment.

Perdido is designed to gather oil and gas from several deepwater fields near the U.S. border with Mexico.

The MMS also said it expected the Petrobras-operated Cascade project, which is rated at 80,000 bpd, to begin production in the second half of 2010.

Petrobras (PETR4.SA) said on Tuesday it would exercise its right of first refusal to buy Devon Energy Corp’s (DVN.N) stake in the Cascade field.

The Cascade production facility, which will be the first floating production, storage and offloading vessel deployed in the U.S. Gulf of Mexico, will also produce oil and gas from the nearby Chinook field.

Petrobras, the operator of Chinook, is partnered by Total SA (TOTF.PA), which holds a one-third stake in the field.

(Editing by Walter Bagley)

REUTERS ARTICLE

THE WALL STREET JOURNAL

January 14, 2010 6:01 P.M. ET

Depressed Demand for Fuel Causes Headaches Even as Crude Prices Firm

By GUY CHAZAN

The global refining industry is turning into a major headache for big Western oil companies, putting a drag on earnings even as rising oil prices improve the prospects for other parts of the oil business.

Refining has been hit as the global recession depressed demand for industrial and transportation fuels, especially in Europe, just as additional capacity is coming onstream in China, India and the Middle East.

Meanwhile, prices for oil products like gasoline and diesel have failed to keep pace with the rising price of crude, putting intense pressure on profit margins for refining—the difference in value between the products a refinery makes and the crude oil used to produce them.

The result is a paradox for the oil majors. As oil prices rise, they are earning big bucks from their upstream operations—the business of finding and pumping crude. But they’re seeing profits plummet in downstream operations, which consist of refining and marketing.

That disconnect is becoming problematic for the largest oil companies, says Olivier Abadie, a Paris-based refining analyst at Cambridge Energy Research Associates. “To resolve this situation I wouldn’t be surprised if they’re thinking about splitting off their downstream divisions, as they did with petrochemicals,” he says.

Analysts have focused on Royal Dutch Shell PLC, because it is more exposed to refining than some peers. On Wednesday, a clutch of analysts cut their fourth-quarter earnings forecasts for Shell to reflect the impact of weak refining margins.

Shell declined to comment for this article.

RBS cut its estimate for Shell’s fourth-quarter earnings by 19% to $2.9 billion and said it expects its refining and marketing divisions to post a loss of $0.2 billion. Brokerage Evolution Securities also cut its earnings forecast for Shell. Shell will release results early next month.

Shell isn’t the only major to suffer. In an update released Monday, Chevron Corp said fourth-quarter downstream results are expected to be sharply lower, because refining margins had declined to the “lowest levels of the year.”

Chevron said the sharpest drops took place in Singapore, where margins slid 46% from the third quarter to just $2.46 a barrel. U.S. West Coast margins fell 27% to $11.83 a barrel.

Exxon Mobil Corp. hasn’t issued a fourth-quarter update, but its downstream earnings fell 90% in the third quarter from a year earlier, a much sharper decline than its overall earnings slide of 68%.

Demand for oil products has declined by 2.1 million barrels a day over the last two years, or 2.4%, according to Cambridge Energy’s Mr. Abadie. Yet the world keeps building more oil refineries. Nearly nine million barrels a day of new capacity will have been added between 2008 and 2014, according to the International Energy Agency, mostly in China and the Mideast.

Western companies have responded by cutting their operations. Shell plans to sell off about 600,000 barrels a day of its global refining capacity, about 15%, over the next three years. It is in discussions with Essar Oil Ltd. of India to sell assets in the U.K. and Germany. Earlier this month it said it will turn its Montreal East refinery in Canada into a fuel terminal, after failing to find a buyer.

Yet the sales aren’t happening fast enough to restore balance. According to Bernstein Research estimates, only five refineries were permanently closed last year, representing some 200,000 barrels a day of upgrading capacity. Yet one million barrels a day of new capacity came onstream last year.

Total SA’s efforts to rationalize its downstream division has hit resistance from its work force. Total workers protested Thursday at two of its French refineries—Flanders, in the north, and La Mede, in the south—over fears the company is planning to shutter Flanders. The plant has been closed since September due to “poor market conditions.” Total has also reduced capacity at its Normandy refinery.

Mr. Abadie says he doesn’t expect refining margins to recover any time soon. “In the normal course of events, they won’t get back to the comfort zone for several years,” he says.

WSJ Article

Jan. 12 (Bloomberg) — Nigerian gunmen kidnapped three Britons and a Colombian working for Royal Dutch Shell Plc during an ambush at Obehi, near the West African nation’s oil hub of Port Harcourt, police said.

“Their police escort was shot dead and the driver was shot and injured,” Rita Inoma-Abbey, a police spokeswoman, said in a telephone interview today from Port Harcourt. “We’ve sent our men after them.”

A 2 million naira ($13,250) reward is being offered for information that will assist police with the rescue of the expatriates and arrest of the criminals, she said. The driver is in a critical condition following the attack, which happened at 7:15 a.m. local time while the four were on their way to work, Inoma-Abbey said. No ransom has yet been demanded.

David Williams, a spokesman at The Hague-based Shell, said he couldn’t immediately comment on the abductions. Violence by armed groups, including those seeking more local control of oil wealth, has cut more than 20 percent of Nigeria’s oil exports since 2006 and deterred fresh investments in the country, which vies with Angola as Africa’s leading oil exporter.

Thousands of fighters and their leaders accepted an amnesty offer by President Umaru Yar’Adua last year after the government promised to rehabilitate the fighters and address the grievances of local communities. Shell, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA operate joint ventures for the state-owned Nigerian National Petroleum Corp. in the region.

To contact the reporter on this story: Dulue Mbachu in Lagos at dmbachu@bloomberg.net; Tony Tamuno in Port Harcourt via Johannesburg on vwessels@bloomberg.net

Last Updated: January 12, 2010 07:58 EST

REUTERS

BAGHDAD, Dec 11 (Reuters) – Royal Dutch Shell (RDSa.L) and partner Petronas of Malaysia won a deal to develop Iraq’s super-giant Majnoon oilfield on Friday, said Oil Minister Hussain al-Shahristani, in the country’s second bidding round since the 2003 U.S. invasion.

The companies proposed a per-barrel fee of $1.39 and a plateau production target of 1.8 million barrels per day, (bpd) compared to a current level of 46,000 bpd.

France’s Total (TOTF.PA) had also bid for the Majnoon field, which has estimated reserves of 12.6 billion barrels of oil.

(Reporting by Missy Ryan and Ahmed Rasheed; Editing by Ayla Jean Yackley)

REUTERS ARTICLE

Three British companies — BP, Cairn Energy and BG Group — are among the bidders, alongside companies such as Royal Dutch Shell, Total and Gazprom. Competition is expected to be fierce and the groups were reluctant to reveal which fields they wanted.