Energy, Energy Service, Natural Gas &amp; Oil Sectors

Utility seeking to lower rates for natural gas

Top 600. Jul 25, 2001 4:30 PM

» JenL_2 - Re: NG decline rates

In response to message posted by lcha:

Good Find Lcha - the article is well illustrated with nice charts and tables. Sounds like a pretty dire NG shortage is in the offing.....but then there's this in today's Seattle Times:

With wholesale natural-gas prices dropping, Puget Sound Energy has filed a request with state regulators to lower bills an average of 8.3 percent over 12 months for all its natural-gas customers.

The request, filed with the state Utilities and Transportation Commission, would bring residential customers' bills down an average of 7 percent over a year, or about $5 a month.

Currently, natural-gas rates are double what they were a year ago.

Commercial and industrial customers would see similar reductions. The utilities commission will consider the rate reductions Aug. 29.

The proposed lower rates are a result of greater natural-gas supplies from increased production, more natural gas held in storage and lower nationwide demand this summer due to moderate temperatures compared to a year ago.

When will we ever learn?.....Jen

-- posted by JenL_2

Energy Sector Shows Promising Vital Signs

Top 601. Jul 26, 2001 7:18 AM

» JenL_2 - Promising Vital Signs?

This from 7/26 TSC:

By Christopher Edmonds

The rally in the energy sector Wednesday offered some overdue relief for a downtrodden sector. The first good news in nearly two months sparked renewed interest in the sector, but energy stocks still need to heal before they can power forward in a healthy way.

First, the Good News

Both Schlumberger (SLB) and Halliburton (HAL), two energy-service giants, reported solid earnings. They exceeded expectations in the second quarter and, more importantly, didn't express the level of pessimism that many investors expected. In fact, Halliburton admonished analysts that third-quarter estimates were about 20% too low. And both companies suggested North American natural gas weakness could be offset by the growth in international demand from oil drilling. So far, with the exception of ExxonMobil (XOM), energy earnings have generally exceeded expectations, and the third-quarter outlook -- while not wildly optimistic -- is certainly far from moribund.

The American Gas Association noted a lower-than-expected increase in natural gas storage last week: 84 billion cubic feet vs. estimates of nearly 100 billion cubic feet. While one week doesn't make a trend, natural gas prices reacted to the news, suggesting demand still exists for natural gas. A pattern of shrinking storage over the next several weeks would be key to supporting a rally.

OPEC's decision to cut oil production by a million barrels a day beginning in September indicates that the cartel is serious about keeping oil at or above its $25 per-barrel target price. The current prices of many of the exploration and production, or E&P, and energy-service stocks suggest investors think crude oil prices will be much lower than the cartel's $25 price target in the coming months. The American Petroleum Institute report Tuesday, which showed crude stocks tightening in the past week, and the additional OPEC cut should support prices at or above the $25 target.

The Federal Energy Regulatory Commission's decision Wednesday to accept the judge's recommendation that a hearing be held on refund calculations in the California power debacle brings the issue a step closer to closure. The FERC appears to agree with the judge that refunds due are in the hundreds of millions -- as opposed to California's claim of nearly $9 billion -- and that's a positive for the independent generators, which were trampled earlier this week on news of a Salomon Smith Barney downgrade.

Can the Rally Last?

With a series of good data points, an overly depressed market rallies. That's not unusual. And, frankly, it's not unusual for that type of rally to quickly slip away as the excitement of the moment dissipates.

In a recent missive, I penned a checklist of possible signs of a turn in the energy markets. Key among them were earnings, which appear solid with decent outlooks, and natural gas and oil-storage data, which are not yet conclusive or trend-setting but provided some hope for investors this week.

Yet, a number of E&P companies are still slated to report, including Apache (APA) Thursday morning as well as Devon (DVN) and EOG Resources (EOG) in the coming week. They should all exceed estimates, but their outlook for the natural gas markets and any adjustments to their capital budgets will be watched closely. EOG's report could be particularly telling, as it started the year with little of its gas exposure hedged, meaning that falling gas prices could have a more significant impact on the company's earnings and cash flow.

Among the power producers, Calpine (CPN) reports Thursday. Given the quick correction in power prices, especially in California, its second-half outlook will be carefully watched.

With the psychology of the sector so fragile, one slip would quickly erase the unsteady base of confidence that began to develop Wednesday.

It's too early to suggest that a firm bottom is in place, but Wednesday's news is a start. A return to recent lows is a buying opportunity, and a further spike up is likely a trading opportunity. However, for longer-term investors, Wednesday's rally suggests that it's time to think about establishing a core group of positions in the sector. Absent a major economic debacle, they should provide nice returns as demand and commodity prices stabilize and heat up as winter approaches.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, Edmonds' firm was long Apache, EOG and Calpine, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

.....Jen

-- posted by JenL_2

Top 602. Jul 26, 2001 7:33 PM

» JenL_2 - How much oil left in the the ground?

This post copied from the "Politics" thread:

Author: Mark_J
Date: July 26, 2001 9:17 AM
Subject: How much oil left in the the ground?

The big talk this summer is about energy, both oil and electricity. We've seen oil prices fall recently, while OPEC is again planning on cutting production to raise prices back up. W has opened up more areas in the gulf for drilling, and Congress will take on drilling in ANWR soon. The Senate (controlled by democrats) are likely to sit-on and postpone anything regarding ANWR.
I was reading from the web, and saw that on API's site (American Petroleum Institute), they estimate 60-90 years of production.

Others have said oil will run out sometime around 2035. Or that it won't be economically feasible to product it at that time, because it's too deep or difficult to reach with current technolgoy, in protected lands, etc.

Any thoughts?

-- posted by JenL_2

Top 603. Jul 28, 2001 7:03 AM

» lcha - Re: How much oil left in the the ground?

In response to message posted by JenL_2:

I just got back from a 2 day dive trip to the Flower Gardens Marine Sanctuary in the Gulf of Mexico. Surrounded by oil rigs, the diving was great. Saw my first giant manta ray! I like seeing how oil drilling and pristine underwater reefs CAN co-exist.

The world is FAR from running out of oil. The problem is, where is this oil located. BY far the largest proven oil reserves are located in Saudi Arabia, Iran and Iraq. We know how these countries love us. Do we want to be dependent on these countries for our energy future? That is the route we are heading. Do we want to fight future oil wars. We'll have no choice if we become 80% dependent on the middle east for our oil.

The environmental angle of this is all the oil we export from the middle east must be transported by SHIP to the U.S.. How many more oil ships do we want sailing our seas. Each one is a potential ecological disaster in the making.

Outside of the middle east there is plenty of oil but it is getting harder and more expensive to find. If it's more expensive to find it will be more expensive to buy. Except for the times we let Saudi Arabia open up the oil spigots to sink our domestic oil industry, we'll just have to get used to higher oil prices.

-- posted by lcha

Flower Garden Banks National Marine Sanctuary

Top 604. Jul 28, 2001 7:36 AM

» JenL_2 - Re: How much oil left in the the ground?

In response to message posted by lcha:

Lcha - You said...

Wow - sounds like a wonderful trip!

<img src="/files/mysites/jen2/mantaray.jpg" width=217 height=309>
Manta Ray Manta birostris

Here's their website:

It's nice to see that Oil Rigs and a marine sanctuary can coexist. From the website it seems that the exploration, development and production of oil & gas, or on any other use of the sanctuary area is highly regulated.

http://www.flowergarden.nos.noaa.gov/reg...

......Jen

-- posted by JenL_2

Top 605. Jul 28, 2001 8:35 AM

» mdorsey - Bad news for oil stocks.

Over a barrel?
Commentary: With every cut, OPEC's power wanes

By Dr. Irwin Kellner, CBS.MarketWatch.com
Last Update: 9:56 AM ET July 27, 2001

NEW YORK (CBS.MW) -- The Organization of Petroleum Exporting Countries is once again prepared to reduce oil production in an effort to shore up prices. (See full story.) Some people never learn.

http://cbs.marketwatch.com/news/story.as...

-- posted by mdorsey

Top 606. Jul 29, 2001 8:28 AM

» lcha - Tale of 2 States CA/TX

July 29, 2001, 12:17AM

Two states love to hate each other
Texas, California see back-and-forth moves
Associated Press

SAN FRANCISCO -- California's governor has declared "war" against Texas energy companies, and Golden State voters rejected the former Lone Star governor -- George W. Bush -- last November. For their part, some Texans laugh that California can't even keep its lights on.

What could these boastful states possibly share, other than insults? The answer, it turns out, is people.

No state sent more new residents to California than Texas in the 1990s, and no state sent more new residents to Texas than California. More than 210,000 Texans moved to California from 1992 through 1999, while 351,000 moved from California to Texas, according to statistics from the Internal Revenue Service.

"I think this cultural exchange program should continue until the two great states come to understand each other better," says famously Texan and liberal syndicated columnist Molly Ivins, who, incidentally, was born in Monterey, Calif.

It may seem obvious that the two most populous states would swap so many people. But it's not that simple. After all, New York, the third-biggest state in population, sent relatively few people to either California or Texas.

So why does Texas win this vote-of-the-feet?

For one thing, the information superhighway connects Silicon Valley to its smaller, more affordable cousin -- Austin's Silicon Hills, says William H. Frey, a demographer at the Milken Institute in Southern California. Also, he says, the trek of blacks from Texas to California shipyards during World War II began reversing in the late 1980s, in part because black culture has deeper roots in Texas.

Affordability is a huge factor. Texas has no state income tax and a lower cost of living. A 15-acre spread with a new three-bedroom house in Frisco, Texas, just north of Dallas, sells for $229,000. The median home price in San Francisco -- $524,000 -- buys just two bedrooms on a postage-stamp lot.

Some Californians find the Texas swagger a lot like home.

"There's a benefit being around people who are really proud of their state," says Josh Silverman, who moved from Berkeley in January to work in Laredo, Texas, along the Mexican border.

Hollywood-born Sarah Cotton Nelson, who left with her Volvo in 1998 and now works for the Dallas Women's Foundation, says Texans often see Californians as quirky.

"No matter what I said seriously, people would say, `Oh, Sarah, you're so funny,' " says Nelson, whose mother grew up in the Texas Panhandle.

Lee Sullivan, a Web editor who is proud to be Texan and happy to have moved to San Francisco in 1996, says that when Californians address a Texan, "it's always like they're talking to a little child."

The patronizing comments and even hostility have gotten worse since California's energy crisis, Sullivan says.

He hangs a Texas flag in his home office, but now draws the shade so it doesn't attract attention. And he isn't amused by the San Francisco Chronicle Web site, which allows users to flip a switch and send a blackout rolling over an image of the Austin skyline.

-- posted by lcha

Top 607. Jul 29, 2001 8:35 AM

» Rande - Re: Tale of 2 States CA/TX

In response to message posted by lcha:

Icha,

I caught that piece awhile back and had to smile at the "love/hate" relationship. Looks like Texas is ahead in the emigration contest. Still, not bad when you consider those Texans are giving up a 0% state tax rate for a 9.3% rate. You know what they say here in California -- "It's not Texas, it's Taxes." smile

-- posted by Rande

Top 608. Jul 30, 2001 6:01 AM

» lcha - Oil Giants Struggle to Spend

Oil Giants Struggle to Spend Profits Amid Shortage of Exploration Sites

By CHRISTOPHER COOPER and THADDEUS HERRICK Staff Reporters of THE WALL STREET JOURNAL

In May, reporting on the first quarter of what may ultimately be its most successful year ever, Royal Dutch/Shell Group said it was pumping out about $1.5 million in profit an hour and sitting on more than $11 billion in the bank.

It's a big problem.

Shell, like other major oil companies, faces an odd predicament. While energy prices have eased somewhat recently, the sustained surge of the past two years has brought piles of cash and pressure from shareholders to put it to good use.

But spending money isn't easy for big players in the oil industry these days. Shell has used some of its bounty to trim debt and buy back stock. It has tried to acquire other companies, with limited success.

The major oil companies would love to put the ready cash into developing elephantine oil fields, but few of those remain. With about 90% of the world's oil supply controlled by government-owned entities, publicly traded companies are finding it hard to expand their energy reserves. Economic sanctions ban U.S. companies from some of the world's biggest oil states, such as Libya, Iraq and Iran.

From Dry Holes to Tap Water

Meanwhile, oil production in established areas, such as the U.S. and the North Sea, is in a sustained decline. Less mature discoveries in Indonesia and Nigeria lie in hotbeds of political turmoil. Relatively new areas of exploration, including the Caspian Sea and offshore Brazil, have so far offered more challenges than rewards. And some older regions -- Venezuela, China and the former Soviet Union -- continue to fall short of expectations.

So Shell is preparing to pour billions into a project that is as much about producing tap water as it is about energy.

In June, Shell joined six other oil companies including Exxon Mobil Corp. and BP PLC in signing on to a $30 billion project to build a series of water, electricity and petrochemical plants in Saudi Arabia, the world's most productive oil state. Not only is the project contrary to these companies' underlying business, but if they happen to find oil, they have agreed to give it to the Saudi government. Though natural-gas exploration constitutes a modest slice of the project, the companies can't export what they discover.

Questioning the Profits

That companies in the business of producing energy would agree to such restrictions says much about the oddly depleted and barren nature of the modern oil industry, even as it chalks up record profits. Though the companies involved say they hope to make at least a 15% profit in the Saudi kingdom, that hasn't been guaranteed, and the payoff will be a long time coming. Some observers say they don't see profits at all, given the nature of the job.

Even if profits don't materialize, the projects do offer one attractive opportunity: A place to shove billions in cash before shareholders start complaining about cash reserves. The Petroleum Finance Co., a Washington, D.C., consulting firm, says the industry is sitting on nearly $40 billion in cash, and the figure is likely to balloon in coming months.

Though energy reserves are rising world-wide, the big oil companies have been hard-pressed in recent years to increase their business substantially the old-fashioned way, by scouring the earth for new discoveries. Despite technological advances, companies in recent years just haven't been able to find many large, profitable fields. "If the industry had the projects, this money would be spent," says Larry Andersen, a vice president for Texaco Inc., which is based in White Plains, N.Y., and is in the process of being acquired by Chevron Corp. "But there's not a lot of opportunity."

No Impulse Shopping

Still, investors may be gratified to hear oil companies aren't duplicating the moves of boom times past. Go back to the mid-1970s when the price of oil skyrocketed and companies were swimming in cash. Mobil Corp., before its merger with Exxon, purchased the now-defunct retailer Montgomery Ward & Co. Occidental Petroleum Corp. bought Iowa Beef Processors Inc. and went into the meat-packing business. Gulf Oil Co. -- subsumed long ago by Chevron -- made a pass at buying a circus. Even conservative Exxon embarked on a $500 million scheme to produce office machines -- and took a pounding. All of them received a tongue-lashing from Wall Street for straying from their area of expertise.

With the good times rolling again, companies say they are focused on their core businesses and committed to capital discipline. Shell, for one, says its capital projects will work even if oil prices drop to $14 a barrel, or about half of what they are today. Exploration budgets, which tend to swell during times of plenty, are growing, but slowly. This year, Exxon Mobil plans to spend about 20% more than the $11.1 billion it spent last year on capital projects. Typically, oil exploration accounts for a majority of this spending.

Instead of spending wildly, the majors have turned to buying back their stock. Exxon Mobil spent $2.35 billion to buy 54 million shares in 2000 and spent a further $1.44 billion buying back 35 million shares in the first quarter of this year. It barely made a dent in the cash hoard: As of this month, Exxon Mobil has $9.3 billion on hand. Similarly, Shell spent a record $4 billion in just the first quarter buying its own stock, yet when the quarter ended the company was sitting on $11.68 billion in cash, 182% more than a year earlier.

Stephen Hodge, Shell's finance director, says the cash stockpile isn't a cause for concern. "The reality is that this is a hugely cyclical business," Mr. Hodge says. "At the top of the cycle, it throws off money like there is no tomorrow." Mr. Hodge said Shell will maintain spending discipline, though he notes that "we also don't want to miss opportunities that won't come back." He calls the stock buybacks a "safety valve" that prevents too much cash from building up.

'Production Replacement'

At a recent stockholder meeting, Exxon Mobil Chairman and Chief Executive Lee Raymond noted how tough it is to find exploration projects big enough to expand reserves. Indeed, Exxon Mobil needs to find 1.6 billion barrels of oil a year -- the equivalent of three world-class fields -- just to make up for what it takes from the ground. "The challenge is production replacement," says Harry Longwell, Exxon Mobil senior vice president for exploration and production. "That's becoming more difficult."

Though the company found more oil than it sold, Exxon Mobil's natural-gas reserves fell 5% last year. Shell had a harder time of it: Both its oil and natural-gas reserves fell slightly last year.

The easiest way to boost reserves is by acquiring other oil companies, as Exxon did when it bought Mobil in 1999 for $81 billion. Similarly, BP underwent dramatic change after buying American companies Amoco Corp. and Atlantic Richfield Co. around the same time. Those deals made BP almost the size of Shell, which three years ago was by far the largest publicly held oil company in the world. Shell, whose corporate structure makes stock acquisitions difficult, sat out much of the recent industry consolidation. It's now smaller than Exxon Mobil, which is based in Irving, Texas.

This year, Shell failed to clinch a $1.8 billion hostile takeover of Barrett Resources Corp. Subsequently, Shell failed to win Australian government approval to buy Woodside Petroleum Ltd. for about $5 billion.

An easier target for Shell's cash may be the Saudi project, though it will probably cost as much as Barrett and Woodside combined. The project's size and location offer prestige. And the companies hope it also offers entree into the kingdom's oil reserves -- though this may be wishful thinking. With the cheapest production costs in the business and ample spare capacity, the Saudis clearly don't need any help getting their oil to market -- and have told the companies as much.

The Saudi project offers one further attraction: It appears to dovetail with the oil companies' core business in a way that catalog stores and circuses never did. When pressed, though, companies such as Occidental concede that the project is more about civil engineering than energy exploration.

Nonetheless, "anybody who says he doesn't want to be included in this project isn't telling the truth," says Ray Irani, chief executive of Los Angeles-based Occidental. Status alone, says Mr. Irani, is reason to be in the kingdom. Like the others involved, he holds out hope for bigger Saudi oil and gas payoffs down the road.

But this enthusiasm about doing business in the world's premier oil province may be clouding the judgment of the companies that are piling in, says Amy Myers Jaffe, senior energy analyst at the Baker Institute, a think tank at Rice University in Houston. She says that even at its best, the project doesn't carry the sort of returns that a monster oil well would.

"Look at these companies: They're already in the Caspian, they're taking a bath in Russia and now they're going into another place where they may not see a payoff for decades, if ever," Ms. Jaffe says. "How can anyone think that tying up this sort of capital on nonperforming projects won't hurt the profits of even the biggest companies?"

Clearly, these projects represent a boon to the Saudis. A few years ago, the Saudi government faced staggering deficits when oil hit historic lows. The experience has made the kingdom reluctant to embark on expensive public-works projects. Even in flush times and despite numerous attempts to diversify its economy, Saudi Arabia remains plagued by high unemployment, and the kingdom has stressed that it expects these projects to create tens of thousands of jobs for its citizens. Moreover, harnessing natural gas in Saudi Arabia will free up even more oil capacity, since the kingdom currently uses petroleum to fire most of its electric generators.

Fuzzy Fundamentals

Less clear is what the projects mean for the companies. Despite the staggering cost of the Saudi project, companies involved have offered few details and concede that fundamentals, such as profits and ownership of assets, remain fuzzy. The project is broken into three segments. The largest, led by Exxon Mobil, with Shell, BP and Phillips Petroleum Co. as partners, is estimated to cost at least $16 billion. It includes building a large natural-gas processing plant and probably will provide for some natural-gas exploration to feed a petrochemical operation and a string of power and water plants.

The second venture, also led by Exxon Mobil, with Houston-based USX-Marathon Group and Occidental as partners, includes some onshore and offshore natural-gas exploration in the northern Red Sea area and a price tag of $5 billion to $10 billion. According to Occidental, the project also includes the development of two existing gas fields and the construction of a pipeline and petrochemical, electric and water plants. Occidental spokesman Larry Meriage says his company is more interested in exploration but has been told that it must share equally in the construction of water and power plants.

"That's not what our expertise is," Mr. Meriage says, "but that's what the project is." Occidental plans to sink an initial $1 billion into the Saudi project -- slightly more than what it spent companywide on capital projects last year.

Shell will operate the third segment with Houston-based Conoco Inc. and France's TotalFinaElf SA, developing natural gas from two existing oil fields, constructing a pipeline and developing electric, water and petrochemical plants. That phase is also expected to cost between $5 billion and $10 billion. Shell, which is expected to invest at least $6 billion in the projects, declined to discuss its plans.

Though final agreements won't be signed until the end of the year, the participants insist they will make money. Generally, oil companies do not make public the returns they receive on individual projects, but Exxon Mobil's Mr. Longwell says, "We expect total return on investment to be something in the high teens," in line with what the company expects from projects world-wide. Exxon Mobil is expected to invest a minimum of $8.5 billion in the projects, or about what it plans to spend world-wide on oil and gas exploration this year.

Typically, investments in projects such as pipelines and utility plants return about 10% profit annually, industry officials say, while the yield on gusher oil fields can easily be double that. An investment banker familiar with both the projects and the companies thinks 15% profit projections are optimistic. "This is no bonanza," he says. "They're targeting 15% returns, but right now that target is pretty far off." The banker says the companies are playing for a future crack at the Saudi oil fields. "They'll bid down the rate of return in an effort to put up the ante," the banker says. "It's just the entrance fee for the poker game."

Regardless of their motivations, it may be that companies simply can't afford to pass up a project in the world's richest oil state, even if it is to build water plants. "If you're Shell or Exxon and you're not in Saudi, why should you be anywhere?" says Fareed Mohamadi, Saudi specialist at Petroleum Finance. "They have to be there. They have no choice."

Folks, these are the U.S. elite oil and NG producers and they are having a hard time finding large projects to explore. This is VERY bad news as it means more reserves will be in government controlled hands in the future. And not OUR government but politically unstable and hostile governments. We are slowly losing control of our energy future.

-- posted by lcha