China disrupts the oil and gas industry–again
You wouldn’t think that anybody, especially an anybody as savvy as ExxonMobil (XOM), could overlook China.
But that may be exactly what ExxonMobil did in formulating its plan to pin the company’s growth on natural gas—and in particular on liquefied natural gas (LNG).
According to U.K. oil and gas consulting company Wood Mackenzie, China looks like it will need only half as much additional liquefied natural gas in the decade beginning in 2020 than big oil companies such as Royal Dutch Shell (RDS), BP (BP), Chevron (CVX), and, yes, ExxonMobil had projected.
Projects such as ExxonMobil’s Qatargas Trains 4 and 5, RasGas, Al Khaleej Gas, the South Hook liquefied natural gas terminal, and the Golden Pass LNG terminal—and this is only a partial list of ExxonMobil’s planned investments in LNG in 2009 and 2010–that made investment sense when it looked like China would be importing an additional 16 million tons of LNG annually in the coming decade now face a scenario in which China will need to add only half as much to its annual imports.
That will hit all the international oil companies hard but it will hit ExxonMobil especially strongly because the company has based its investing strategy on natural gas in general and liquefied natural gas in particular.
What’s changed since, say, March 2010 when ExxonMobil announced that it will increase capital spending by 4% in 2010 to almost $28 billion in a big bet on natural gas on top of its purchase of U.S. natural gas producer XTO Energy for $28 billion?
Deciding which company pays what in the Gulf disaster just got a little harder
A setback today for Anadarko Petroleum (APC) in its efforts to get out from under the costs of the Deepwater Horizon disaster. The company is a 25% partner with majority stakeholder BP (BP) and minority partner Mitsui (10%) in the Macondo well that continues to spew oil into the waters of the Gulf of Mexico.
Anadarko will be on the hook for a share of the costs proportionate to its ownership in the project—unless a court finds BP guilty of gross negligence in the design and/or operation of the well. With BP putting $20 billion into escrow to cover claims, the negligence/no negligence question is of intense interest to the $18 billion (market capitalization) Anadarko and its investors.
The distribution of costs will also have a huge effect on which companies can afford to keep exploring in the Gulf. If Anadarko winds up picking up its 25% share of the costs, it will deter smaller oil companies from operating in the region. And that will mean that the globe’s biggest oil companies will be able to buy assets in the Gulf at very reasonable prices. (For more on how the Deepwater Horizon disaster will reshuffle oil assets in the Gulf see my post http://jubakpicks.com/2010/06/24/oil-company-buyers-and-sellers-in-the-deepwater-gulf-of-mexico-after-bp/ )
The task of winning a finding of gross negligence against BP got a little harder today, June 30, when both BP and Anadarko confirmed to the Financial Times that Anadarko was aware of the design choices that contributed so much to the disaster.
Oil company buyers and sellers in the deepwater Gulf of Mexico after BP
$20 billion is a chunk of change even for BP (BP).
You can bet that a lot of oil company CEOs are trying to figure out if they can afford to keep drilling in the Gulf of Mexico (whenever that’s possible again.)
If the $20 billion fund that BP has agreed to put aside for the Deepwater Horizon disaster is the new size of an oil company’s potential minimum liability for a spill in the Gulf, you can bet that a lot of those CEOs are going to decide they can’t play.
And that becomes even more likely now that insurers are cutting back on their coverage for spills in Gulf waters. In written testimony John Lloyd, chief executive of Lloyd & Partners, told the U.S. Senate on May 11 that available insurance coverage could drop by as much as 30%. Premiums have already climbed by 50% for deep water rigs.
That’s likely to leave some oil companies faced with an alternative of coughing up extra cash for insurance (if they can get it), self-insuring (if they can afford it), or selling out of drilling leases and projects (if they can find a buyer).
Update Transocean (RIG)
The best you can say about Transocean (RIG) is that it has a tin ear for public opinion.
The company’s public response to the Deepwater Horizon disaster in April has been to say 1) It wasn’t our fault and 2) We’re not on the hook for very much money.
Even if true, and there’s a good chance both statements are true, this isn’t exactly how a company that gives a damn responds to what is on a clear path to being the biggest oil spill and oil-related environmental disaster in U.S. history.
And to continue the company’s sure-footed response (if sticking your foot in your mouth is sure-footed, that is), Transocean declared a $1 billion dividend to shareholders as the environmental disaster was still unfolding.
Predictably the dividend payout has raised the wrath of U.S. politicians. Senator Ron Wyden (D.-OR) and 17 colleagues have asked the Department of Justice to launch an investigation into Transocean’s financial transactions casting the dividend payment as an attempt by the company to avoid paying claims arising from the spill. The logic of the Senators’ letter escapes me: If Transocean is found liable for a big payout from the disaster, its $1 billion dividend payout certainly won’t change the size of the judgment. Transocean generated more than $5 billion in cash from operations in 2009 and could raise billions more in the capital markets to pay any conceivable judgment.
The stock dropped $5.28 or almost 9% today on news of the request for an investigation by Justice.
Political grandstanding aside, Wall Street is busy at work trying to figure out how big a hit the company will take from the Deepwater Horizon disaster.
Sell Statoil (STO)
I’m selling Statoil (STO) on today’s bounce because the euro debt crisis has changed the medium-term fundamentals for this Norwegian oil company. As I wrote in my 12:30 May 21 post http://jubakpicks.com/2010/05/21/sell-sure-but-try-to-do-it-on-the-fundamentals-and-not-in-panic/ as hard as it is I think investors should try not to get caught up in panic selling during this market drop.
But on the other hand that doesn’t mean they shouldn’t sell anything.
