Contributing Member of the Energy & Industrials Councils

All News Analyses by this Author

BP Steals a March on Competitors in Iraq

July 3, 2009

Analysis of:Few Bidders to Develop Iraqi Oil and Gas Fields | www.nytimes.com

BP's bid for the Rumaila oil field has been approved by Iraq's cabinet.  Bids were rejected on 6 other fields, and the 8th contract (Mansuriyah gas field) saw no bids.  Iraq presents the classic oil industry case of IOC knowledge and money combining with an NOC's access to reserves to secure production.  The fee based contract for the Rumaila oil field is reported at $2/bbl and will probably require capital investment by the BP group.  Details of the contract are scarce, but there is probably no provision for BP to book reserves.  Other western IOCs (Exxon, ConocoPhillips, ENI) walked away from the auction empty handed - siting low fees as the problem.  Many NOCs (ONGC, CNOOC, Sinopec, Kogas, Lukoil, Gazprom) were involved in failed bids.  Why did BP take this low offer while the rest of the industry rejected it?

Venezuela - Another Step on the Road to Ruin

May 15, 2009

Analysis of:Chávez Seizes Assets of Oil Contractors | www.nytimes.com

The New York Times reports this week that President Hugo Chávez of Venezuela has asserted greater control over the country’s oil and gas industry by seizing the assets of some foreign and domestic oil service contractors.   The expropriation is one part of a broad assault by Chávez against the private sector.  Assets have been nationalized in the electricity, telecommunications, cement, agriculture and food distribution sectors and the government intends to take control of the Bank of Venezuela, a subsidiary of Spain's Santander.  This round of oil and gas expropriations is also significant because it took place in Zulia, a bastion of opposition to Chávez.  At a stroke, therefore, Chávez has furthered his stated aim to stamp out capitalism in Venezuela and exerted greater political control in a region of known opposition.

Suncor and Petro-Canada - A Sign of Things to Come?

April 2, 2009

Analysis of:Suncor's Petro-Canada bid may spur more deals | www.reuters.com

Suncor Energy's acquisition of Petro-Canada in a $15.9B all share deal will create North America's fifth largest oil and gas producer and give added impetus to consolidation in Alberta's oil sands.  It is the largest M&A deal in the oil and gas industry for several years.  Clearly the deal was driven by the respective company's complimentary assets in the Canadian oil sands, but observers are asking whether this is a sign of a much broader consolidation to come.  Much of recent M&A activity has been in uncoventionals (oil sands, shale gas and coal bed methane) as these offer the greatest areas for cost reduction.  However, conditions are ripe for further consolidation given the fall in oil price, fall in stock prices and a general difficulty in raising finance.  Any further mega deals will be in stock - only ExxonMobil and some of the large NOCs could do cash deals.  Consolidation amongst super majors is unlikely due to competition concerns and NOCs are also likely to be active.

OPEC Learning The Lesson Of Its Past?

December 31, 2008

Analysis of:UPDATE 1-Venezuela tells India's ONGC it must cut output | www.reuters.com

Venezuela has signalled its willingness to comply with December's round of OPEC production cuts by informing ONGC that it will have to reduce output from the San Cristobal field.  This is significant as Venezuela (along with Iran) has a poor record in meeting its OPEC production quotas - it has been a persistent quota buster the years.  OPEC, as a whole, has a poor record in responding to weaker economic conditions.  In the past it has been slow to cut production as economic growth slows or turns negative, leading to ever decreasing oil prices.  Venezuela's action, along with preemptive cuts in production by Saudi Arabia and the UAE, demonstrates a new determination by OPEC to get ahead of the game.  All eyes will now be on Venezuela to see if it means what it says.

Oil Price: Heading for Further Lows - Or will the Super-Cycle Continue?

December 11, 2008

Analysis of:Crude oil prices swing up | www.upi.com

Ten years ago today Brent closed at an historic low of $9.64/bbl.  At the time, most in the industry expected the oil price to fall further - indeed The Economist called for $5/bbl oil.  Given the recent precipitous collapse in oil price, industry executives, investors and observers are again asking whether we are now in the throes of a bust in the usual boom-bust cycle, or if a return to rising prices is possible over the medium term.  The next year or so promises lower prices (and falling) with the prospect of a return to $100/bbl oil minimal.  In the medium term, much will depend on the rate of large, new discoveries.  Absent these, then the next period of strong, global economic growth is likely to be met with strained supplies once again, and therefore a return to high prices.

Rich Pickings for Majors Amongst Smaller Oil Co.s

December 9, 2008

Analysis of:Funding for Small Oil Cos in ’09 Scarce, Costly | www.rigzone.com

Start up oil companies typically fund exploration through issuing equity, and fund development through issuing debt.  Now that the debt (and most of the equity) markets have dried up, small companies are suffering.  Particularly at risk are those with portfolios that are high in exploration assets (prospects) but low in discoveries and producing assets.  Those companies with assets in high risk areas (technically and politically) may find that the recent collapse in oil price (and the growing perception in the market that it will stay lower for some time) has removed all the upside that justified the original investment in the first place.  Such companies are vulnerable as their "cash burn rate" is eating up current financing and there is little prospect for immediate refinancing or generating revenues.  In this scenario, cash rich, larger oil firms can pick up assets (or whole companies) on the cheap.

BP Has Upper Hand in TNK-BP Saga

July 29, 2008

Analysis of:The retreat from Moscow | www.guardian.co.uk

The Guardian's analysis of the TNK-BP saga on 26 July is superficial, ignores the realities of the international oil business, and draws conclusions that are not based in fact. The fact is that BP has turned TNK-BP into the best performing of Russia's domestic oil businesses.  In doing so it has profited handsomely, achieving payback on its initial investment in 4 years - something other international investors are not even close to doing.  Russia contributes to a large share of BP's production, but a low share of its profits.  A trade sale by BP of its share in TNK-BP would raise between $16b and $20b, according to two independent western observers (surely Russia is not considering expropriation in this case?).  These funds could be more usefully reinvested elsewhere.  Talk of a merger with Shell is old news and preceded the Texas City incident.  BP's environmental and safety performance is at least as good as its peers.  None of this leaves the firm susceptible to takeover.

Increasing Oil Supplies: Are NOCs Up To The Task At Hand?

July 24, 2008

Analysis of:IEA rolls out 2009 supply and demand forecast | www.ogj.com

Attention will now shift to the supply side, and in particular the recent under performance of NOCs and countries with nationalist oil policies in growing oil production.  We are coming to a point where NOCs may be forced to return to IOCs for assistance in increasing supplies.  That it is in their interests to do so cannot be in doubt.  For some NOCs this will be a political nonstarter.  For other, more enlightened NOCs, new partnerships with IOCs will prove very fruitful.

BP and Russia Play a High Stakes Poker Game

June 13, 2008

Analysis of:Russian partners sue BP as talks collapse | www.iht.com

BP and Russia are playing a high stakes poker game over TNK-BP, which neither can afford to lose.  BP identified years ago that if you want to be a growing oil major then you need to be in 2 locations:  the Middle East and Russia.  The company backed it's judgment with the biggest foreign investment in any industry sector in Russia through the joint venture with TNK.  The deal was blessed by both Blair and Putin.  The TNK deal, BP's largest Russian investment, was followed by others, notably a stake in Rosneft.  Other Western oil majors have followed.  The key feature of the TNK spat is that this time it is local oligarchs that are corrupting the judicial and political processes to achieve their aims, rather than central gov't.  Putin and his side-kick Medvedev must be looking on in horror (if not, they should be).  If BP fails then Russian foreign investment will collapse.  Other majors that may take satisfaction at BP's suffering, but they are wrong:  they need to be in Russia too.

The Comedy of Oil Price Politics

June 13, 2008

Analysis of:Oil expert says 3 countries control prices | www.charleston.net

Three weeks ago we witnessed the comedy of politicians in Congress (the Senate Judiciary Committee - who else?) hauling executives from the majors to stand to account.  They duely handed out a very public whipping over high oil prices.  This ritual takes place every time we enter a period of high prices, and the story line goes something like this:  oil prices increase to high levels; there is public outcry over gasoline price; politicians feel the need to be seen to do something; oil executives face a barrage of seemingly tough questions by uninformed politicians who then send them home with their tales between their legs, but take little action.  Now, to add to the political furore over the state of the oil industry, we have a light weight article from a light weight Professor of Engineering.  Anyone seeking insight into why the world is facing record high oil prices need not look here.  Turn instead to BP's Tony Hayward, who published a very enlightening article in yesterday's FT.

Crude Oil Price to Continue to Rise - Despite Threat of U.S. Recession

April 23, 2008

Analysis of:U.S. Oil Consumption Declines | www.oilvoice.com

Recent data shows that 1Q08 U.S. oil consumption was 475mbd lower than the same quarter last year.  The Energy Information Administration (a U.S. government agency) suggests that oil demand in January dropped 2.2%, the lowest demand in any month since April 2005.  Data such as this, however, is unlikely to move the oil markets much in the short term.  The U.S. has seen declining oil consumption for some time now, but this has been overwhelmed by worldwide supply-demand factors.  Add in a great deal of speculative trading activity around oil and the recipe is set for higher dollar oil prices still.

The IOC Response to the Government/NOC Competitive Threat

February 1, 2008

Analysis of:Statism Beats Capitalism; Gazprom Squeezes Exxon, BP (Update2) | www.bloomberg.com

I have written many times on the rise of the NOC and the potential decline of the IOC (here on GLG and elsewhere). My focus has been to highlight the new competitive edge of government backed NOCs and the reduced competitiveness of the IOCs. The latter's traditional advantages of capital, technology and access to markets are much reduced today. The NOCs have plenty of capital, and much of the technology resides with service companies. Some NOCs also have gained access to the downstream markets of the major consuming nations. The longer the period of high oil prices lasts, the stronger the NOCs become. The issue is, at last, receiving public recognition by the IOCs.  There has been the public letter from Shell's CEO and acknowledgement from Total that a part of its future will be in nuclear.  BP's Tony Hayward in December's Petroleum Review addresses the issue head on. Below I have highlighted the potential nature of the IOC response, drawing on my earlier articles and Hayward's speech.

Governments Provide the Real Competition to ExxonMobil, Total, Shell, BP and Others

January 4, 2008

Analysis of:Kazakh government seeks to double its stake in Eni-led oil project | www.iht.com

Another day, another IOC (International Oil Company) feels the heat of an host government/NOC (National Oil Company) presence.  Historically, IOCs have brought capital and technology to the oil and gas party.  These seem no longer relevant in today's oil and gas industry.  NOCs have plenty of capital, and much of the technology resides with engineering contractors and service companies (who, in partnership with NOCs, are just as well placed as IOCs to invest in R&D to develop new technologies).  NOCs are clawing back resources in their home countries and are scouring the planet in search of new resources.  In the natural resource industries, one clear competitive advantage is access to the resources, and here the NOCs are building an unassailable lead.  The longer the period of high oil prices lasts, the stronger NOCs get, and less dependent on IOCs they become.  What is to be the response of IOCs?

Should OPEC Dump the U.S. Dollar?

November 27, 2007

Analysis of:Venezuela, Iran argue for dollar alternative | www.platts.com

Mention of the U.S. dollar's weakness was conspicuous by its absence from the joint declaration of the recent summit of OPEC's heads of state (Nov 18). Iran and Venezuela (the main protagonists) failed in this endeavor, but continue to push to move oil sales to a stronger currency.  Saudi Arabia, and others, sited a concern that mentioning the decline of the dollar may precipitate further falls.  The summit agreed to direct oil ministers to study the issue.  A wholesale change by OPEC (and other oil producers) to the currency of oil sales is both impracticable and unlikely in the short term.  In any event, changing the currency of trade for oil probably has limited direct impact on price at any given time.  The motivation for a move is political (Iran, Venezuela) and reflects a desire to further weaken the dollar.  If this is so, oil exporters are playing with fire:  the U.S. is the biggest oil importer and price increases add to the pressure to conserve and find energy alternatives.

BP Learns Crisis Management in the U.S. the Hard Way

October 17, 2007

Analysis of:BP outlines reorganization to cut costs | www.iht.com

It's been a torrid time for BP in the U.S. these last few years.  Well publicized (and well debated) safety and environmental incidents and alleged misdemeanors (mainly in the trading division) have kept the company on the front pages for all the wrong reasons.  BP lost control over the public relations aspects of its business in the U.S. some time ago, only adding fuel to the fire for many there who are already suspicious of foreign run businesses.  The debacle probably contributed to the demise of John Browne, BP's former CEO and arguably the most gifted oil leader of his generation.  Tony Hayward, on the other hand, has just given his predecessor a valuable lesson in crisis management.  He understands that in crises it's perceptions that matter and that operating reality is of no consequence.  He has seized the moment to establish his agenda on the company.  Never mind that in actual fact the safety and environmental performance of BP is at least as good as its peers.

China Succumbs to the Market over LNG

September 14, 2007

Analysis of:In China, a Domestic Shift Spurs New Approach on Natural Gas | online.wsj.com

The key significance of these two deals are the prices agreed by PetroChina with Woodside and Shell for the import of LNG to China.  The implied prices for the deals are in the range $10-12/MMBtu (according to publicly released data and various commentaries).  This is far in excess of the Chinese National Development and Reform Commission (NDRC) sanctioned price for gas imports to China of approximately $5.30/MMBtu, and much closer to the range of prices agreed by Japan, Korea, Taiwan and others in the region for import of LNG.  Either the NDRC is now willing to sanction higher price imports, or PetroChina is betting that the "free market" sector of the Chinese gas industry will be strong in the years to come.

China and the U.S. on a Collision Course over Energy

August 29, 2007

Analysis of:Europe and China Energy: A Light-Hearted Energy Relationship | www.energytribune.com

Friction between the U.S. and China on matters energy has been evident for some time.  The reasons for this are numerous, and some are not unique to the U.S. - China relationship.  But the problem for both countries is that on most issues that pertain to the energy debate they are diametrically opposed.  We can therefore look forward to more confrontation in the coming years.  In the meantime, oil and gas firms from outside the U.S. will continue to stretch their lead over their U.S. based counterparts in China.

Pemex - Caught between a Rock and a Hard Place

July 20, 2007

Analysis of:Somber outlook at Pemex | www.offshore-mag.com

Mexico makes for a rather sorrowful case study in the history of natural resource extraction.  The country is rich in oil and gas, and yet due to mismanagement it is importing large quantities of gas from the U.S. by pipeline and from elsewhere via LNG.  If the current rate of oil production decline and economic growth are maintained, it will not be that long before Mexico will have to import oil as well.  Pemex remains one of the very few remaining, traditional "resource protector" national oil companies.  It is over taxed, carrying a high debt burden and does not have the technical nor project management know how to take advantage of the potential that deep water Gulf of Mexico (for example) offers.  As Pemex struggles to make the most of a dire situation, there is no sign of the necessary political intervention that Mexico needs.  Absent of an economic or political crises to spur change, such intervention seems as far away as ever.

IOCs - an Endangered Species?

July 12, 2007

Analysis of:Oil supplies are down and alternatives not yet available | www.ft.com

The traditional IOC competitive advantages of capital and technology are no longer relevant in today's oil and gas industry.  NOCs have plenty of capital, and much of the technology resides with engineering contractors and service companies (who, in partnership with NOCs, are just as well placed as IOCs to invest in R&D to develop new technologies).  In the natural resource industries, one clear competitive advantage is access to the resources, and here the NOCs have an unassailable lead.  The longer the period of high oil prices lasts, the stronger NOCs get, and less dependent on IOCs they become.  What is to be the response of IOCs?

Expect Increased Oil Price Volatility in the Current Environment

July 9, 2007

Analysis of:Global oil demand to outstrip supply | money.cnn.com

Oil price movements are driven by the perception of traders and news flow in the market place.  A number of factors on both the supply and demand sides are contributing to increased uncertainty and we can therefore expect increased oil price volatility over the coming months.  This will present opportunities for:  (a) traders in oil; (b) investors in small explorers (whose stock price performance is driven by exploration success); and (c) investors in alternative energy.  Investors in the majors are likely to see a strong underpinning of their stock also (as much of the news flow will be generally supportive of oil prices).

Page : 1 2 Next1 to 20 of 35