GLG News by Mr. Robert Hinkel, Chief Operating Officer
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
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Iraq's Tough Fiscal Terms for Oilfields Rejected by the Industry - Except BP
July 1, 2009
Oil Companies Reject Iraq's Contract Terms | online.wsj.com
The "service contracts" recently offered by the Iraqi government for oil companies to develop their huge resources represent some of the most difficult issues for the global oil companies to face. The fact that BP accepted the contract, despite only taking a $2/bbl margin that is oblivious to oil price changes, suggests that they are taking a long-term view of the Iraqi opportunities for the fact is that a project like this, no matter what the size, cannot compete on a profitability basis in BP's global opportunity portfolio. In fact, oil companies have always feared and resisted these types of contracts since they do not allow the oil companies to book reserves under the normal regulatory and financial systems in the US and elsewhere.
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Exxon in Indonesia - A Sign of the Changing Political Fortunes of a US Super-Major
April 20, 2009
Indonesia says Exxon halts Cepu oil output | www.reuters.com
Exxon's almost insignificant production in Indonesia was stopped this week; ostensibly because the company had not properly permitted their pipeline with the local gov't officials. However, the only reason that Exxon was producing any oil at all at this point in time was at the request of the central government in Jakarta. What this show again is the weakness of Exxon's historical strategy of dealing with central governments. This strategy will have to adapt as the company faces increasing competition from national and independent oil companies who are better positioned to deal with local issues.
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Domestic Natural Gas Remains the Key to the OPEC Importation and the Global Warming Issues
March 9, 2009
Pickens vs Geithner on Energy Policy | www.thestreet.com
With the Obama administration treating oil and gas in the same fashion for tax purposes, there will almost certainly be a further downturn in domestic rig count and a severe depression in earnings for the likes of Chesapeake, EOG, St Mary's, XTO, and EOG...not to mention BP, CoP, and RDS. With Henry Hub gas prices at 6+ year lows, the length and breadth of the downturn in US domestic drilling depends heavily on whether or not Geithner "gets it" in terms of the value of domestic gas production.
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New LNG Combined with already ample supplies could keep domestic prices low for 2 yrs or more.
March 6, 2009
New LNG Imports Could Further Slam US Natural Gas Prices | www.rigzone.com
With gas prices already low and pipelines full, the question now is how much further prices could fall if new LNG enters the supply scene. This LNG will have to be unloaded and, unlike oil, there is no place for storage of these volumes. So, as they hit the market, the question is what gas supplies will be pushed out of the market and may need to be shut it. And, at what price and what time frame will the situation change.
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Why Does the Bakrie Group need more commitments now?
January 12, 2009
Indonesia's Bumi buys mining operator stake for $218 mln | www.reuters.com
The Bakrie Group's Bumi Resources announced 2 major acquisitions last week totally well over $400 million. The question is how and why Bakrie feels compelled to do these deals at a time when the company (and the family) is recovering from major downward slides in share price, commodity prices, and liquidity. The deals have been structured so that the major payments will occur several years in the future, so, ostensibly the company can "afford" the terms. However, these resources come at a significantly higher price than the valuation of Bumi's current resources and they don't seem to complement the company's current asset mix.
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January 9, 2009
Oil, gas shale players seen benefiting from new US SEC rules | www.platts.com
Currently, the SEC defines oil and gas reserves in terms of economic producibility. These reserves make up the majority of the asset values for all oil and gas companies. The effect of the drop in oil price will undoubtedly effect those values to a very significant degree resulting in major write-downs in Q1 of this year. The SEC rules are also look to be set for wholesale change as the result of a December 30 announcement. If implemented, these new rules will open the industry to a host of valuation issues and potential problems.
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Keppel's "Loss of Work" will not effect their bottom line in the near term
December 1, 2008
Keppel Offshore in line to lose orders worth $871 m | www.lloydslist.com
The fact that negotiations have started with contractors wishing to delay or defer projects that have not yet started is fully expected and is a part of the normal business for any major construction yard. These negotiations are still being taken in good faith and involve projects that were not due to even start until dates from 2009 through 2012. With Keppel already fully booked for the near term, it is unlikely that these early deferrals or cancellations will effect Keppel's bottom line for the forseable future.
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Nothing will be Easy for the Arctic Gas Line
April 16, 2008
BP, ConocoPhillips join to build $20 billion Denali gas line | www.ogj.com
BP and CoP seem to be making an early commitment to build the Arctic Gas Line. However, when all of the underlying issues and politics are analyzed, the impartial observer has to ask if this is a "real" alternative to the other options that have been put forward or is it competitive positioning for these companies to avoid the spectre of outside control of their resources.
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March 17, 2008
Natural Gas Rises as Inventories Decline, Crude Climbs to $111 | www.bloomberg.com
The simple fact is that the world is no where near running out of oil and/or natural gas. Former Aramco Chief Engineer and spokesperson Nansen Saleri has spoken with uncommon clarity on this issue; most recently in a Wall St. Journal Article on March 4th titled “The World Has Plenty of Oil.” The technical aspect of Peak Oil theory has now been effectively debunked by the industry. However, the underlying causes of the current price spike are deeper than a “few ‘ol boys on Wall St trying to make some money on a slow day…” as a major oil company CEO once commented in the 80’s. While the world has plenty of oil and gas, the extraction, processing, and transportation of those commodities will require greater capital, more human resources, higher technology, and (most importantly) assurances of sustained higher prices to justify the increased investment cost and risks.
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The Bloom is Off the Rose: Cheniere Energy Considers Sale of Their New LNG Terminal
February 29, 2008
Cheniere Energy May Sell Massive LNG Terminal | www.forbes.com
LNG has long been considered a panacea for US gas demand and a price-dampener in the near term. However, the fact remains that there is simply not enough LNG supply available at competitive prices to meet any significant new demand from recently-built or in-progress US LNG terminals. Any new supply that has come on-line from the Far East and Middle East has been quickly absorbed by the Japanese and Koreans who are heavily dependent on declining supplies from Indonesia the world's erstwhile largest supplier. With the Chinese striking long-term contracts for new gas from Tangguh (Indonesia) and the Middle East, the gap between demand for LNG into the US and suppliers for that gas will likely last for at least several years; thus underpinning rising US gas prices.
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February 6, 2008
BP Plans Job Cuts as Net Rises | online.wsj.com
The idea of cutting jobs to reduce costs has been the bane of the energy industry since the price crash of the mid-1980's resulting in enormous job losses and set the stage for today's vast shortage of personnel and human resources. Despite such a vivid object lesson, both BP and Shell appear poised to repeat the mistakes of the previous 2 decades. The real question then is whether or not they can recover from such cuts if they end up losing the wrong people and/or cannot deliver their current key projects on time.
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Who's a Better Bet: The National Oil Companies, or BP/Exxon, or...the Energy Service Companies
January 30, 2008
Statism Beats Capitalism; Gazprom Squeezes Exxon, BP (Update2) | www.bloomberg.com
The Bloomberg article presents the view that the largest of the international oil companies will increasing find their access to major projects compromised by the intrusion and involvement of well-funded and frequently publicly traded National Oil Companies such as Petrobras, Gazprom, and PetroChina. In this view, the "end-game for the IOC's becomes the role of a middle man or utility company who buys and sells commodities to feed their downstream processing and sales/marketing outlets. In the long run, this role is one that has proven far less lucrative to companies who went that route (e.g. Sun Oil Company) than those who added value by finding, developing, and producing oil and gas fields around the world.
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The New Paradigm in the Energy Industry - National Oil Companies who compete globally
January 25, 2008
PFC Top 50: Top 50 of World's Energy Companies Led by Six Nationals | www.pfcenergy.com
For over 100 years, the Western international oil and gas companies (IOC's) have dominated the global oil and gas scene. However, their technology and personnel ranks were decimated by the layoffs of the 1980's and 90's. Now, the national oil companies (NOC's) are becoming increasingly tough global competitors starting with the universal availability of new technology from the leading service companies and major capital from their largely protected home markets.
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January 24, 2008
Allis-Chalmers to acquire Bronco Drilling for $437.8 mln | www.reuters.com
Allis-Chalmers announced their intended buy-out of Bronco Drilling at a price that is significantly above the company's last closing price, but still at about a 20% discount to Bronco's 52 week high. Just as importantly, ALY is using their own beaten-down stock to underpin about 30% of the purchase price. What this means to the energy services market as a whole is yet to be seen; however, with the Oil Service Index down over 20% in the past month, there are a number of equities that look pretty cheap at these prices.
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Can BP and Shell both be wrong in their cost cutting (or what is Exxon thinking/doing?)
January 23, 2008
Shell Plans Cost Cutting as Profit is Threatened | online.wsj.com
The manpower shortage in the oil and gas sector has reached legendary proportions with one major oil company reporting that up to 70% of their technical workforce could retire in the next 7 years. In the meantime, oil prices remain at record high levels as do profits and investment. Given all of these scenarios, how can both BP and Shell, the largest of the European energy companies, possibly feel that cutting staff makes good long-term sense to their future growth and well-being.
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What the Saudi's say in public is not always what they do in practice
January 21, 2008
Bush Asks Saudi King to Open Oil Spigots | www.abcnews.go.com
This week President Bush made a widely reported entreaty to the Saudis to increase their oil production. Their public reaction, as gleefully reported by the mainstream media, was almost dimissive; however, the Saudi's have many key "constituents" to please and do not always do in practice what they say they will do in public. The greatest example of this is when President Reagan helped to convince the Saudi's in the mid-1980's that the high prices that were attributed to them as the world's swing producer, were neither sustainable nor good for them in the long run. This actually echoed the rather unpopular view of the Saudi Oil Minister at the time; however, his viewpoint had been overrun by other, louder local voices - mostly from the Iranians and Iraquis.
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January 17, 2008
Lower Tertiary Trend: A Study in the Impact of Advancing Technology | www.spe.org
The prevalent view of the technology naysayers in today's world seems to be that: 1. Drilling in particularly difficult areas presents potentially unsolvable problems for the oil and gas industry and 2. The value of these resources may well be exceeded by the cost of their finding, development, production, and processing. In fact, the oil and gas industry has faced these fears throughout its history dating back to the 1800's. In each case, the industry has continually managed to overcome these challenges and meet the rising demand for oil and gas. This article, written over a year ago, presents the strong case that the current twin challenges of ultra-deep water and very deep producing horizons are already being overcome. Lesser challenges such as sub-salt drilling and production, were already met in the last decade and have now become more or less routine.
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Increased Taxes on US Oil and Gas Assets and Companies - The Dems #1 Issue
August 10, 2007
House Approves $16 Billion In Taxes On Oil Companies | online.wsj.com
Let there be no doubt that the recently passed House bill to extract US$16bn in new taxes is just a harbinger of things to come - especially if the Dems win the White House next year as they seem likely to do. Ms. Clinton is going to make the O&G industry the new symbol of corporate excess. What the energy companies and investors need to consider NOW is how these punitive taxes will effect US production, reserves, and profitability.
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Two unique companies combine to keep out competition in Ultra-Deep Water
July 26, 2007
Drilling For Deals | blogs.wsj.com
1. The combination of these two unique and innovative competitors in a very limited market is a one-of transaction. 2. The companies themselves are operating at their historical highs and have all the capital and opportunities they need to grow independently. 3. So...the only rationale for the merger is to be able to distance themselves technically and financially from all rivals - particularly in the ultra-deepwater (ultra-expensive, ultra-technical, ultra-risky). 4. Expect there to be significant anti-trust challenges from the major and super-major oil and gas companies; particularly XOM and CVX as well as Devon and others with significant investments in ultra-deepwater.
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