Awl Bidness

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BP’s Texas Refinery Sale Shows Volatile Industry’s Decay
By Bradley Olson
September 27, 2012

BP Plc may get less than half the $2.85 billion it planned for selling its Texas City refinery, the third-largest in the U.S., as values for U.S. plants haven’t kept pace with soaring profits.

The average price of U.S. refineries sold since 2009 indicates the plant should sell for $1 billion, data compiled by Bloomberg Industries show, a valuation that would be among the lowest in two decades. At a time when investors are enjoying the highest stock returns since 2007, BP would reap less than half of the $4.4 billion total value it estimated it would get when it put its Texas and Carson, California, plants up for sale last year, according to data compiled by Bloomberg.

Carl Icahn, Warren Buffett’s Berkshire Hathaway Inc. and hedge fund Appaloosa Management LP have reaped returns of as much as 96 percent so far this year by investing in refiners benefiting from cheap North American crude. Asset values have stagnated as buyers shy away from the sector’s volatile history and the prospect of competition from new refineries being built in Asia.

“BP wants to sell it and they want to sell it by the end of the year, so if you’re a buyer, you’re going to think you’re in a good position,” said John Auers, senior vice president at Turner Mason & Co., a Dallas-based energy consulting firm. “BP would be thrilled with $2 billion, but if you’re a buyer, why not try half that? Whatever they bid, they’re not going to pay full price.”

Viability Doubts
Surging profits haven’t quieted doubts about the long-term viability of an industry facing declining demand in the U.S. and Europe and steep up-down cycles, said Harold York, a vice president for Wood Mackenzie Ltd. in Houston.

“We’re in a boom, but they are fearing the bust and they don’t know when it’s going to happen,” York said. “Buyers see refineries are profitable today, but long term, they don’t want to be losing money with an asset they can’t dispose of.”

Buyers fear that competition from new refineries planned in China, India and the Middle East may depress domestic prices and damp a burgeoning U.S. export business. As new pipelines including TransCanada Corp. (TRP)’s Keystone XL are built to ship oil from Canada and North Dakota to the U.S. Gulf Coast, U.S. crude prices are likely to rise, diminishing a key cost advantage for U.S. refiners and shrinking profits, York said.

Potential Buyers
Valero Energy Corp., the largest independent processor of fuel in the U.S., has closely studied buying the refinery, according to a person familiar with the San Antonio-based company’s plans. Valero owns a 245,000 barrel-a-day refinery that is adjacent to the BP facility in Texas City. Combining the two plants would create the largest refinery in the U.S. The person spoke on a condition of anonymity as the talks aren’t public.

Valero and PBF Energy Inc., a private equity-backed independent refiner run by former Philipp Brothers trader and refining magnate Thomas O’Malley, are the two most likely buyers, said Christian O’Neill, a Bloomberg Industries energy analyst. Marathon Petroleum Corp., which also has a Texas City refinery, and Phillips 66, which abandoned plans to sell one of its plants in Louisiana, may also be suitors given a potentially lower price, O’Neill said.

The Texas City refinery might be more attractive to independent refiners if they could buy the asset for a bargain price, then cash in on improving profits.

Rising Shares
Bill Day, a spokesman for Valero, and Scott Dean, a spokesman for London-based BP, declined to comment.

Marathon, Phillips 66 and Icahn-backed CVR Energy Inc. surged to records this month as refiners continued to earn the highest profits since 2007, when the industry enjoyed a so- called “golden age” because of higher U.S. demand and fuel margins. Valero, which is up 48 percent this year, climbed on September 14 to its highest point in four years.

The rally has attracted investors such as David Tepper’s Appaloosa, which owned 2.3 million Valero shares as of June 30. Buffett’s Berkshire owned 27.1 million shares of Phillips, which has risen 41 percent since its April 30 spinoff from ConocoPhillips.

CVR Energy is up 96 percent after Icahn bought a stake in January and agitated for the company to put itself up for sale. Amid a proxy fight, he offered investors $30 a share and now holds an 82 percent stake in the company. CVR reached an all- time high of $37.66 on September 21 in New York.

Refining Renaissance
The latest refining renaissance has been spurred by growing supplies of cheap U.S. oil. Crude prices have dropped as producers tap into new fields in North Dakota and Texas, allowing refiners to save money on every barrel of oil they turn into gasoline, diesel or jet fuel.

The margin between U.S. oil costs and fuel prices reached an average of $28.98 from April to June, the highest-ever second-quarter price, according to data compiled by Bloomberg.

At the same time, the value of the plants that process the fuel has reached historic lows based on an industry yardstick that compares the price at which a plant sells with how much it would cost to replace it, according to an analysis by Bloomberg Industries.

Plants have sold for about 12 percent of their replacement cost since 2009, which would result in a price of $1 billion for the refinery. The historical average is between 20 percent and 30 percent, according to data compiled by Bloomberg.

Lower Price
Analysts also use price per barrel of refining capacity to evaluate plant sales. Since 2009, 11 refineries have sold for an average of $3,128 a barrel, according to transactional data compiled by Bloomberg. On that basis, the refinery may have a price tag of $1.5 billion, leaving the company about $1.72 billion short of its $4.4 billion goal for the two refineries. The lower price may force BP to put other assets on the block, said Brian Youngberg, an analyst at Edward Jones in St. Louis.

BP initially expected its refineries to sell for more than the 10-year average of $6,000 a barrel of refining capacity, Iain Conn, the company’s head of refining and marketing, said in February 2011.

Last month, BP announced an agreement to sell its refinery and related assets in Carson, California for $1.18 billion, or about $4,417 a barrel of processing capacity. To reach the $4.4 billion target for the two plants, BP’s Texas City refinery would have to sell for $3.2 billion, more than double the average since 2009.

The Carson refinery sale and BP’s $5.55 billion divestiture of its stakes in a group of Gulf of Mexico fields last week raised to $32 billion the company’s total asset sales since 2010. The company aims to raise $38 billion from divestitures by the end of 2013 after a 2010 explosion at its Macondo well in the Gulf killed 11 workers.

BP Pressure
“If BP does come up short, they’ll have to go farther down their list of assets to sell,” said Youngberg, who rates BP’s American Depository Receipts a hold and doesn’t own shares. “They’ve got to meet the guidance number they’ve provided for investors to get more comfortable.”

The history of BP’s Texas City plant, site of one of the most deadly refining accidents in 20 years, may be another deterrent to buyers, said Turner Mason’s Auers. BP pleaded guilty to a violation of the Clean Air Act and paid a $50 million fine. The company also paid $2.1 billion in settlements with blast victims. BP agreed in July to pay more than $13 million in additional fines and continues to negotiate with the U.S. Department of Labor about more than 20 remaining citations. BP spent $1 billion to upgrade production units and improve safety at the plant, the company has said.

“Refinery sales are challenging all over the world due to the economic slowdown we’re seeing in many markets,” said Gianna Bern, president of risk-management consultant Brookshire Advisory and Research, Inc. “This refinery is a tough sell for the associated liabilities that could go with it. That all manifests itself in a lackluster price tag.”



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Natural Gas Pipelines to Expand U.S. Supply Glut
By Naureen S. Malik
September 26, 2012

Natural gas pipelines coming into service by year end may boost deliveries from the Marcellus shale deposit in the U.S. Northeast by 30 percent, extending a supply glut that helped send prices to decade lows.

As much as 2 billion cubic feet of gas a day are set to flow from the lines in Pennsylvania, Ohio and West Virginia, bound for markets along the Eastern Seaboard, based on government and pipeline-company projections. About 1,000 Marcellus shale wells sit uncompleted, mainly because of a lack of pipeline infrastructure, according to the Energy Department.

Gas prices have dropped 60 percent since 2007 as producers used techniques such as hydraulic fracturing, or fracking, to reach supplies trapped deep in tight layers of shale. Gas futures tumbled to $1.902 per million British thermal units in April, the lowest price since 2002, as stockpiles ballooned during a mild winter and record U.S. production.

“There are new pipelines coming up and more Marcellus gas is going to flood storage going into winter,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said in a phone interview. “Unless you get a really cold winter, prices are going to be in the $2 range.”

Natural gas for October delivery rose 9.9 cents, or 3.4 percent, to settle at $3.023 per million British thermal units on the New York Mercantile Exchange. Prices have gained 1.1 percent this year.

The futures have averaged $2.679 since the April low after rising as high as $3.277. Prices may average $3.20 per million Btu during the first quarter of 2013, when demand peaks, based on the median of 18 analyst estimates compiled by Bloomberg.

Winter Demand
“Higher prices are all predicated on more normal space heating” this winter and demand from power generators burning gas instead of coal, Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a Sept. 21 interview. Viswanath expects first-quarter prices to average $3.60 per million Btu.

Cabot Oil & Gas Corp., which pumps gas from Marcellus deposits in Pennsylvania, has a break-even point that’s “probably below $2,” Chief Financial Officer Scott Schroeder said in a Sept. 14 interview from Houston.

About 4,525 miles of interstate gas pipelines serving consumers from Maine to Virginia have been put into service since 1996, Energy Department data show. About 693 miles of lines in the Marcellus, with a daily capacity of 8.06 billion cubic feet, are planned, under construction or already in service, according to Federal Energy Regulatory Commission data going back to 2006.

Fall Completions
New pipelines can quickly add 1 billion cubic feet a day of Marcellus gas to the market and as much as 2 billion, as projects with 3.5 billion cubic feet of additional pipeline capacity will be completed from September through December, Viswanath said. Marcellus gas output in May averaged 6.85 billion cubic feet a day, according to the most recent Energy Department data.

Shale gas has been key to the country’s move toward energy independence. Production gains helped the U.S. meet 81 percent of its energy demand in 2011, the highest level since 1992, according to U.S. Energy Department data compiled by Bloomberg.

Stockpiles in the week ended Sept. 14 totaled 3.496 billion cubic feet, 8.6 percent above the five-year average, the Energy Department said on Sept. 20. Supplies of gas may rise to a record 3.95 trillion by the end of October, before demand begins to rise with colder weather, according to department estimates.

Mid-Atlantic Lines
Spectra Energy Corp.’s Texas Eastern Transmission pipeline has a project that will go into service in November to carry 200,000 dekatherms (200 million cubic feet) a day from West Virginia to eastern Pennsylvania to connect to mid-Atlantic points, Brian McKerlie, vice president of business development at Spectra in Houston, said in a Sept. 19 interview.

Spectra is also building a pipeline to ship Marcellus gas to Manhattan by next November and is seeking customers to build a line to Florida, according to the company.

TransCanada Corp., based in Calgary, is reversing its Niagara pipeline to start moving Marcellus gas from West Virginia into southern Ontario in November, Karl Johannson, executive vice president of natural gas pipelines with TransCanada, said in a Sept. 19 interview.

“It’s a very large resource and it’s going to change the flow of gas in North America,” Johannson said.

Williams Cos. projected that more than half of its estimated $11.5 billion of capital investments from 2012 through 2014 is in the Marcellus region, according to a Sept. 5 presentation by the Tulsa, Oklahoma-based company.

Rising Production
Kinder Morgan Energy Partners LP’s Tennessee Gas Pipeline and a unit of Dominion Resources Inc. also have Marcellus projects under construction.

Marcellus will account for 22 percent of the 79 billion cubic feet a day of U.S. gas output in 2016, or about 17.4 billion a day, according to Goldman Sachs Group Inc. estimates. The region accounted for 5 percent of output last year and none in 2006, the bank’s data show.

Barclays Plc estimates that additional pipeline capacity may boost daily U.S. supplies by 1.8 billion cubic feet by the end of this year and by another 3.4 billion in 2013, the majority of it from Marcellus.

“We will be watching for evidence of a large uptick in production” in November, March and November 2013, Shiyang Wang, a Barclays analyst in New York, said in an Aug. 28 report.

Winter Demand
Laurent Key, a natural gas analyst with Societe Generale in New York, predicts that 900 million cubic feet a day of Marcellus production will come online in the fourth quarter, according to a Sept. 10 note to clients. Key’s first quarter price forecast is $3.07.

Demand for the fuel used by power plants and in home heating peaks in January and February, though last winter’s mildest weather since 2000 has helped keep inventory levels at seasonal records.

The movement of drilling rigs to the Eagle Ford shale in Texas from Haynesville in Louisiana will slow U.S. natural-gas output growth, David Greely, head of energy research at Goldman Sachs in New York, said in a Sept. 24 research report.

The additional capacity in Pennsylvania will cut pipeline costs, Richard Hunter, vice president of investor relations with Carrizo Oil & Gas Inc. in Houston, said in an Aug. 28 interview. Charges in Pennsylvania, where the company has wells, rose as high as $1.40 per thousand cubic feet recently, about double the rate before it started to run up in mid-2012, Hunter said.

“Starting in November of this year to December, that price is going to fall dramatically on new pipeline capacity,” to 50 or 75 cents per thousand cubic feet, he said.



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California Gas Stations Begin to Shut on Record-High Spot Prices
By Lynn Doan and Joshua Falk
October 3, 2012


Gasoline station owners in the Los Angeles area including Costco Wholesale Corp. are beginning to shut pumps because of supply shortages that have driven wholesale fuel prices to record highs.

Costco’s outlet in Simi Valley, 40 miles (64 kilometers) northwest of Los Angeles, ran out of regular gasoline yesterday and was selling premium fuel at the price of regular, Jeff Cole, Costco’s vice president of gasoline, said by telephone. The company hasn’t been able to find enough unbranded summer-grade gasoline to keep its stations supplied, he said.

The gasoline shortage “feels like a hurricane to me, but it’s the West Coast,” Cole said yesterday. “We’re obviously extremely disheartened that we are unable to do this, and we’re pulling fuel from all corners of California to fix this.”

Spot, or wholesale, gasoline in Los Angeles has surged 70 cents this week to a premium of $1.15 a gallon versus gasoline futures traded on the New York Mercantile Exchange, data compiled by Bloomberg show. That’s the highest level for the fuel since at least November 2007, when Bloomberg began publishing prices there. On an outright basis, the fuel jumped to $3.9495 a gallon.

Gasoline at the pump cost $4.232 a gallon in California on Oct. 2, according to AAA.com, 45 cents more than the national average of $3.782. In Los Angeles the price was $4.259. Gasoline futures for the front month on the Nymex sank to the lowest level in 10 weeks yesterday, settling at $2.7995 a gallon, down from $3.342 on Sept. 28. Retail price movements tend to lag behind those of futures.

‘Out of Gasoline’
Low-P, a gasoline station in Calabasas, California, 30 miles west of Los Angeles, stopped selling unleaded gasoline Oct. 2 and ran out of high-octane and medium-octane fuel yesterday, John Ravi, the station’s owner, said by phone yesterday. Ravi said he posted an “Out of Gasoline” sign on each pump and took down the prices outside his shop.

“I can get gas, but it’s going to cost me $4.90 a gallon, and I can’t sell it here for $5,” Ravi said. “If you come here right now, I’ve got some diesel left. That’s all. My market is open, but no gas.”

A Chevron Corp. oil pipeline shut down last month, an Oct. 1 power failure at Exxon Mobil Corp.’s Torrance refinery and units down at other plants have cut supplies in the market.

Spot California-blend gasoline, or Carbob, in San Francisco surged 26 cents to $1.10 a gallon over futures, also the highest level since at least 2007.

‘Not Worth It’
“We’re going to start shutting pumps Friday,” Sam Krikorian, owner of Quality Auto Repair in North Hollywood, said by phone yesterday. “Gas is costing me almost $4.75 a gallon with taxes. There’s no sense in staying open. The profit margins are so low it’s not worth it.”

Exxon’s 150,000-barrel-a-day Torrance refinery may flare gases for a week as it restores production after a power failure that shut some units and slowed output from others, Gesuina Paras, an Exxon spokeswoman in Torrance, said by e-mail Oct. 2.

Chevron’s Kettleman-Los Medanos pipeline, which carries crude from Kern County to Northern California refineries operated by Royal Dutch Shell Plc, Tesoro Corp. and Valero Energy Corp., remained shut after elevated levels of organic chloride were detected in the oil.

Phillips 66 is also scheduled to perform maintenance on process units at its Rodeo and Los Angeles refineries this month, people familiar with the schedules said.

Chevron’s 240,000-barrel-a-day Richmond plant, the largest refinery in Northern California, has been running at reduced capacity since a fire Aug. 6.

’Squeeze is On’
“The squeeze is on, and people are doing desperate things,” Bob van der Valk, an independent petroleum industry analyst in Terry, Montana, said by e-mail yesterday. “The mom- and-pop gas stations are having to close down from either not being able to obtain gasoline from their regular distributor or cannot afford the break-even price of almost $5 per gallon.”

Costco is working on a plan to alert its members as gasoline runs out at the company’s stores “so customers don’t have to guess where to go,” Cole said. The company will sell whatever premium gasoline it has stored for regular gasoline prices wherever supplies run out, he said.

“Costco is a membership warehouse club with a relationship based on trust,” he said. “We’re not delivering what the members asked us to deliver, and that’s not acceptable to us. So we’re doing whatever we can to fix it.”

Short-Term Problem
Van der Valk called the price surge a “a short-term problem.” Wholesale costs should start falling as Exxon’s refinery returns to normal operations and other plants finish maintenance.

The California Independent Oil Marketers Association, a Sacramento-based group that represents wholesale and retail fuel marketers, asked the state yesterday to expedite a waiver that would allow refiners to produce and sell winter-grade fuel, Jay McKeeman, a spokesman for the association, said by telephone yesterday.

“Everybody is concerned about what might happen,” he said. “The real question is: How long is this going to last and what can the state do?”

California’s summer-blend fuel requirements are in effect in Southern California until Oct. 31. The Reid Vapor Pressure, or RVP, limits are lifted in other areas of the state as early as Sept. 30.

‘Losing Money’
The independent gas station owners are typically the first to run out of fuel and shut their pumps when spot prices surge because they often lack long-term contracts to buy from fuel suppliers at set prices, McKeeman said.

Jim Li said yesterday that he may stop selling gasoline at his independent station, Best Auto Care, in San Francisco. He’s charging $4.59 a gallon for the fuel, “and I’m still losing money,” he said.

Wholesale prices are “going up so quick that there’s not even any margin to make any money at all,” he said by telephone.

California-grade, or CARB, diesel in Los Angeles climbed 0.25 cent to 16 cents a gallon above heating oil futures on the Nymex. The fuel in San Francisco gained 2 cents to a premium of 17 cents a gallon versus futures.



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BIG Deal



Rosneft surpasses ExxonMobil.




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Rosneft Buys BP’s TNK-BP Stake for $26 Billion in Cash, Shares
By Brian Swint
October 22, 2012

OAO Rosneft agreed to buy BP Plc’s half of the TNK-BP venture for about $26 billion in cash and shares in the biggest acquisition by a Russian company.

BP will sell its 50 percent stake in Russia’s third-largest oil producer for $17.1 billion in cash and 12.8 percent of Rosneft’s shares, according to a statement today. BP will reinvest $4.8 billion in the government’s shares of Rosneft, leaving it with $12.3 billion in cash, 19.75 percent of the state-backed company and two board seats.

The disposal, BP’s largest deal for 13 years, is Chief Executive Officer Bob Dudley’s boldest move yet to transform the company after the 2010 Gulf of Mexico oil spill. For Rosneft CEO Igor Sechin, who’s also set to buy the other half of the company from BP’s billionaire partners, absorbing TNK-BP would raise oil and gas production to about 4.5 million barrels a day, matching Exxon Mobil Corp.

“It’s a relief for BP that a deal is done,” said Peter Hutton, an analyst at RBC Capital Markets in London. “It’s also quite an achievement.”

Sechin met Russian President Vladimir Putin today to discuss the transaction. Rosneft also has an initial agreement to buy the other half of TNK-BP from a group of billionaires, according to the statement.

BP has sold about $33 billion in other assets since 2010 as it focuses on more profitable crude oil production following the Gulf spill that erased about a third of the company’s market value. Today’s deal releases BP from a difficult nine-year relationship with its billionaire partners in TNK-BP, which accounted for about a quarter of BP’s global output and returned $19 billion in dividends.

Aging Fields
While TNK-BP had focused on bolstering output from aging Siberian fields, BP sought to expand in Russian exploration last year, offering its drilling expertise to Rosneft to tap the country’s Arctic waters. BP’s TNK-BP partners, represented by the AAR holding vehicle, blocked that deal.

In 2008, Dudley was forced to resign as head of the venture and leave Russia after months of battling between the shareholders over strategy. Mikhail Fridman, one of the billionaires, quit as CEO of TNK-BP this year, saying the relationship with BP had run its course.

Fridman and his partners last year argued in court that BP was required to pursue all opportunities in Russia exclusively through TNK-BP. Exxon took BP’s place in the deal to explore the Kara Sea region, and also agreed to start drilling shale prospects in Siberia.

Cement Control
Rosneft is serving as a vehicle for Putin to cement state control over the world’s largest oil and gas industry, gaining more influence over energy revenue to underpin public spending as Russia’s economy slows. About half of Russian government revenue comes from the oil and gas industry. If Rosneft buys all of TNK-BP, its output alone would exceed that of every Middle Eastern country except Saudi Arabia.

Putin, who returned to the presidency this year following a term as prime minister, has invited foreign companies into Russia to keep oil output at a post-Soviet high of 10 million barrels a day. London-based BP already owns 1.25 percent of Rosneft, the country’s biggest producer, after buying about $1 billion of shares in its 2006 initial public offering.

Rosneft has relied on Sechin’s access to Putin as the state strengthened control over the energy industry. The two men have worked together for more than 20 years.

As board chairman from 2006 to 2011, Sechin helped transform Rosneft into Russia’s biggest crude producer with assets from bankrupt Yukos Oil Co., and gained preferred access to Arctic prospects.

That ascent has allowed Rosneft to eclipse Kremlin-backed OAO Gazprom, the world’s largest natural gas producer, as the dominant force in the Russian energy industry. Increasing production of shale gas in the U.S. has reduced North American import demand and prompted European customers to seek cheaper prices as well, dragging on Gazprom’s performance. It’s also been targeted by a European Commission antitrust probe of its pricing practices in central and eastern Europe.



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Food prices have this strange tendency to go up when you burn food as fuel.




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EPA Rejects Requests to Ease U.S. Corn-Based Ethanol Mandate
By Alan Bjerga and Mario Parker
November 16, 2012

Federal regulators rejected a request from the governors of eight U.S. states to waive requirements for blending corn-based ethanol into gasoline, a mandate they said was driving up food costs during the worst drought in a half century.

In an e-mailed statement today, the Environmental Protection Agency said it had found no evidence of “severe economic harm,” a determination needed to support granting the waiver. The governors of Arkansas, North Carolina, Maryland, Delaware, Georgia, Virginia, New Mexico and Texas made the request. The group included four Democrats and four Republicans.

“We recognize that this year’s drought has created hardship in some sectors of the economy, particularly for livestock producers,” said Gina McCarthy, assistant administrator for the EPA’s Office of Air and Radiation. “But our extensive analysis makes clear that congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact.”

Gasoline refiners will be required to blend 13.2 billion gallons of the biofuel this year, according to the 2007 energy law that established the national Renewable Fuels Standard. This year’s corn harvest is forecast at 10.725 billion bushels, the smallest in six years, because of the drought. About 4.5 billion bushels will be used to make ethanol in the year starting Sept. 1, or about 42 percent of the 2012 crop, the U.S. Department of Agriculture estimated on Nov. 9.

EPA Analyses
The EPA said an analysis conducted with the USDA showed that waiving the mandate would only reduce corn prices by about 1 percent. A review with the Energy Department indicated that a waiver would not affect household energy costs, the EPA said.

Ranchers needing livestock feed compete with ethanol producers including Archer-Daniels-Midland Co. for corn, with higher prices lowering profits for meatpackers including Tyson Foods Inc. Cattle-producing states, as well as food retailers with profits affected by higher food prices, are thus more hostile to ethanol.

The National Council of Chain Restaurants said that under the Renewable Fuels Standard, ethanol is forced to “commandeer a shrunken pool of available corn for food and livestock feed.”

Market ‘Distorted’
In an e-mailed statement, Rob Green, the executive director of the the group, said the law “unfairly distorts the market at the expense of chain restaurants, our consumers and everyone else involved in the food supply chain.” The organization represents companies including McDonald’s Corp., Denny’s Inc. and Cracker Barrel Old Country Store Inc.

“The government is picking winners and losers,” said Representative Robert Goodlatte, Republican of Virginia, a former chairman of the House Agriculture Committee and a backer of the waiver. “Livestock and food producers as well as consumers of these products are on the losing end,” said Goodlatte. The lawmaker said he supports legislation to change the biofuel requirements.

Biofuel industry groups and officials including Agriculture Secretary Tom Vilsack contend that the market has already rationed ethanol production. Output has fallen 14 percent this year to 824,000 barrels a day in the week ended Nov. 9, or 12.6 billion gallons on an annualized basis, Energy Department data show.

Poet, ADM
Jeff Lautt, chief executive officer of Sioux Falls, South Dakota-based Poet LLC, the world’s largest ethanol company, said in a statement that the EPA decision will allow the biofuels industry to “move forward with greater confidence.”

ADM said it welcomes the EPA ruling. “With the economic benefits of ethanol for consumers, the market rationalization taking place and the existing flexibility for compliance, we believe the Renewable Fuel Standard is working as it was designed to do,” Jackie Anderson, a spokeswoman for the Decatur, Illinois-based company, said in an e-mailed statement.

Denatured ethanol for December delivery rose 0.7 percent to $2.359 a gallon today on the Chicago Board of Trade. Prices have gained 4.9 percent this year.

Under the 2007 energy law, the EPA can suspend the mandate if it would severely harm the economy of a state, region or the U.S. The legislation calls for the U.S. to use 15 billion gallons of corn-based ethanol annually by 2015 and 36 billion gallons of biofuels by 2022. About half of that amount will have to come from “next generation” or cellulosic sources such as grasses and wood waste, and not from corn.

In 2008, when corn prices reached a then-record $7.9925 in June of that year, the EPA rejected similar requests to ease the mandate from Arizona Senator John McCain, then the Republican candidate for president, Texas Governor Rick Perry and other officials.




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$5 billion/.084= $59.52 billion




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ConocoPhillips to Sell Kashagan Stake for $5 Billion to ONGC
By Jim Polson
November 26, 2012

ConocoPhillips, the U.S. oil producer that’s shedding assets, intends to sell its 8.4 percent interest in Kazakhstan’s Kashagan project for about $5 billion to a unit of Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer.

ConocoPhillips and ONGC Videsh Ltd., the New Delhi-based company’s international arm, expect to close the deal for a stake in the North Caspian Sea Production Sharing Agreement in the first half of next year, according to a statement today. The Kazakh government and project partners including Exxon Mobil Corp. have the right of first refusal on the sale, according to the statement.

The sale will bring to about $7 billion proceeds raised by Houston-based ConocoPhillips, which has targeted as much as $10 billion of sales during 2012 to 2013, according to today’s statement. ONGC has been seeking additional stakes in Kazakhstan to replace production declines.

“The price they received was similar to expectations,” Douglas Terreson, a Fairhope, Alabama-based analyst for International Strategy & Investment Group, said today in an interview. He rates the shares a buy and owns none. “They’re divesting a low-return asset and redeploying funds into higher return areas.” ConocoPhillips expects a charge of about $400 million during the fourth quarter related to the sale.

Pre-Emption Rights
Remir Nigmatulin, a spokesman for state-owned KazMunaiGaz National Co., and Abzal Nurkasymov, a spokesman for Kazakh Oil and Gas ministry, weren’t available for comment when Bloomberg News called after working hours. KazMunaiGaz may be interested in purchasing the share in Kashagan, Lyazzat Kiinov, chief executive officer of the Astana-based KazMunaiGaz, told reporters last month.

North Caspian Sea Operating Co. BV operates Kashagan. Partners include Eni S.p.A. (PROINAK), Exxon Mobil, KazMunaiGaz, Royal Dutch Shell Plc. and Total SA, each with 16.8 percent, according to ConocoPhillips’ website.

After costing about $46 billion, almost double early estimates, and running eight years late, Kashagan output may start in March. The Caspian Sea field, a high-pressure reservoir with lethal levels of hydrogen sulfide lying 70 kilometers (44 miles) from shore, is one of the world’s biggest finds of the past four decades. Production from the first stage of the project is expected to reach 370,000 barrels a day.

Kazakhstan and Kashagan’s partners are considering a proposed second phase of the project, which would increase output to about 1 million barrels a day.



http://www.bloomberg.com/news/2012-...n-stake-for-5-billion-to-ongc.html?cmpid=yhoo
 


Jim Bob is the epitome of the "good ol' boy." I don't trust him as far as I can throw him. He's a fast talker— every bit as good at it as the New York slicksters.

He is a riverboat gambler (as long as it's OTHER PEOPLE'S MONEY) and he is extremely adept at getting fools to part with their money.

Do not believe press reports about this guy. The only person he's ever enriched (beside himself) are the investment bankers. For them, he's a dream come true. His investors? He views them as suckers.

This guy is bad news.

Q: How can you tell when Jim Bob is lying?
A: When he moves his lips (just like Hugh McColl and "Fast Eddie" Crutchfield).




________________

http://www.bloomberg.com/news/2012-...vy-jones-well-bet-tests-investors-energy.html



Wildcatter Moffett’s Davy Jones Well Bet Tests Investors
By Edward Klump and Ken Wells
November 27, 2012

“People call us pioneers. Well, that’s great, I guess, (though) some people say pioneers end up with arrows in their back.”

The speaker, in a tone that manages to be both self- deprecating and mildly defiant, is Jim Bob Moffett, chief executive officer of McMoRan Exploration Co.-- serial wildcatter, incurable prospector, a man with a huge appetite for risks and an uncanny record of extracting big paydays from taking them.

Louisiana born and a geologist by training, Moffett in his salad days helped discover the Grasberg gold and copper mine in the jungles of Indonesia, to this day the largest gold and copper find on earth by reserves. He eventually parlayed those riches to steer his once modest mining venture, Freeport-McMoRan Inc., into a 2007, $26 billion takeover of Phelps Dodge Corp. in one of the largest mining mergers ever.

His longtime Oil Patch buddy, billionaire T. Boone Pickens, says Moffett’s oilfield exploits rank him in “the top five of any list” of U.S. wildcatters. Others put him the same league as George Mitchell, the Texas nonagenarian credited with starting the shale-gas revolution. That’s some accolade considering where Moffett began: lugging pipe, unclogging pumps and digging ditches as a bottom-rung roustabout in the rough- and-tumble Louisiana oil fields.

He does better than that now. Last year, Moffett earned more than $35 million in total compensation through his various corporate roles, according to company filings.

Reassuring Analysts
Moffett made his arrows-in-the-back remark in the midst of a conference call with analysts to explain why his latest risk- taking venture, a drill-down-to-hell well in the near-shore waters of the Gulf of Mexico called Davy Jones, is going to be another pioneering move that pays off. Begun in June of 2009, Davy Jones No. 1 has plumbed virtually unchartered depths of 29,000 feet, probing for what he says is a Grasberg-scale equivalent natural gas field amid unprecedented temperatures of more than 400 degrees Fahrenheit and pressures that would crush a diving bell.

Moffett believes there could be trillions of cubic feet of gas down there. Investors and would-be production partners are waiting “with baited breath” to see if there is validation, he told analysts in the Oct. 19 call. “And when we do, all hell’s going to break loose.”

Hell Begins
Hell has begun to break loose, and not in the way Moffett had hoped. On Nov. 26, the company announced yet again that a flow test on the well meant to confirm vast reserves proved inconclusive, a report that carved away a third of the company’s market value in two days as shares plunged.

It’s one thing to find the gas. It’s another altogether to produce it with the heat and pressure generated at Davy Jones’s depth. The problem, according to the company, seems to be barite, a compound used to thicken drilling mud to keep pressure on the bore hole. The barite has clogged the well, making an accurate flow test impossible. So far, McMoRan’s efforts at high-pressure plumbing have failed. If the company can’t resolve the issue, the well may have to be written off.

It would be a costly failure. To date, McMoRan has poured almost a billion dollars into developing Davy Jones on a 20,000- acre lease about 12 miles off the Louisiana coast in 20 feet of water. Moffett’s geological thinking, according to his friend Pickens, borders on “profound.” He’s postulating that below the near-shore Gulf of Mexico -- one of the most explored oil and gas regions on earth -- that vast reserves lie untapped in formations 25,000 to 30,000 feet deep.

New Frontier
The drilling to date has been on wells 10,000 to 12,000 feet deep. Thus, Davy Jones, in lore the ghost of a sailor presiding over the riches of the salty deep, has the potential to unlock a whole other frontier of Gulf shelf exploration, said Leo Mariani, an analyst at RBC Capital Markets in Austin, Texas. A bust, however, likely puts the company in play.

As partners and investors grow restless, Moffett, who declined to be interviewed for this story, has maintained a buoyant public face, speaking in his Texas twang of his well as if it were a celebrity. “Everywhere I go people want to know about Davy Jones, people I know casually or even people I have never met before,” Moffett said in a March letter to shareholders. “Everyone asks, ‘How is Davy Jones?’”

His answer, even after repeated setbacks, is that Davy Jones will come out just fine.

Throwing Papers
James Robert Moffett didn’t have the kind of start in life that presaged a legendary rise through the world’s energy and mining ranks. Born in 1938 in Houma, Louisiana, a drowsy Cajun town inhabited by oyster fisherman and sugar cane farmers, Moffett was the son of an oilfield worker and stay-at-home mom. His parents divorced when he was a child and he moved to Houston with his mother and sister. Money was tight.

His mother took a job as a department store credit clerk and as soon as he could, Moffett went to work, bagging groceries, slinging newspapers, pumping gas and selling shoes, according to his biography on the website of the Horatio Alger Association of Distinguished Americans. He also found time to join the Boy Scouts.

As a student he showed great promise in science and math. His high school football skills and place on the rolls of the National Honor Society earned him a full football scholarship to the University of Texas, where he played for two years under the legendary Longhorn Coach Darrell Royal. Royal, who died earlier this month, would become a longtime mentor.

Longhorn Days
In a team photo from 1959, Moffett is a rangy man with a chiseled jaw, a lean, muscled physique, a crew cut and a look that makes you think he could hold his own in a bar fight. Ed Padgett, a Longhorn teammate, said he and Moffett played both sides of the ball, as tackles on offense and guards on defense.

Playing for Royal was “kind of like being in the Army,” he said, and he and Moffett bonded over the grueling practice regimen. Padgett lived across the hall from Moffett in an athletic dorm, and recalls even then how hooked Jim Bob was on geology. “I walked by his room many a time when the door was open,” recalls Padgett, “and he had all of his geology buddies in there, looking at maps and core samples and stuff.”

Moffett, who married his high-school sweetheart, Louise, graduated in 1961 with honors in geology. They lived in a garage apartment that rented for $75 a month, utilities included. “He wasn’t always flying high,” said Padgett. “He started out from the bottom and worked his way up.”

Creating McMoRan
By 1969, the wildcatting bug had bitten him and he formed an exploration company with two partners, W.K. McWilliams Jr., a geologist who had once worked for reclusive billionaire Howard Hughes, and B.M. Rankin Jr., who had managed oil and gas leases for the legendary oilman H.L. Hunt. They took the first two letters of each last named and called it the McMoRan Oil & Gas Co.

The company, trading on Moffett’s and McWilliams’ geology instincts and Rankin’s shrewd deal-making, quickly gained a reputation as a lean, aggressive explorer that could find lots of oil and gas and drill and develop the fields economically. One partner in these projects was Freeport Minerals Co. It had begun life as developer of a lucrative south Louisiana sulfur mine and later branched out into oil and gas, gold, copper and other mining efforts.

In 1981, Moffett merged McMoRan with Freeport to form Freeport-McMoRan Inc. with himself as chairman and CEO. It was around then that Freeport under Moffett began exploring in an area of Indonesia where the old Freeport Minerals Co. had developed a rich gold and copper mine in the 1960s.

Volcanic Gold
They struck pay dirt in 1988 with the Grasberg mine, which Moffett once described as “a volcano that’s been decapitated by nature, and we’re mining the esophagus, if you will.”

The smart money said Freeport could never develop the remote property, in the highlands of the rugged Sudirman Mountains, without bringing in a bigger mining partner -- or being forced, when it ran out of capital, to sell out.

“Everywhere we went, people said, ‘Well, it’s just a matter of time before somebody comes in here and takes you over,’” Moffett told analysts recently as he was explaining why people need to remain optimistic about McMoRan’s ability to bring in the Davy Jones well.

To date, Grasberg has produced more than 42 million ounces of gold and 26 billion pounds of copper. Five years ago, McMoRan, flush with Grasberg cash, bought out Phelps Dodge in the biggest mining industry acquisition to that time, forming Freeport-McMoRan Copper & Gold Inc. Moffett serves as chairman.

Bre-X Bust
In some quarters, Moffett is just as famous for the mine that didn’t work out. In early 1997, a small Canadian mining company called Bre-X electrified the world with an announcement that it had found a 50-million ounce Indonesian gold field with a pedigree similar to the Grasberg. Though many big mining companies were lining up, Freeport emerged as Bre-X’s pick for a partner to develop the mine, with Moffett himself flying in to close the deal.

Moffett flew to the region to oversee independent tests of the mine. The results showed no commercially developable gold in the field. By one account, Moffett phoned Toronto, where Bre-X officials were being celebrated for their discovery at a mining convention, and ordered them back to Indonesia to explain. Lead Bre-X geologist, Michael de Guzman, jumped to his apparent death from a helicopter over the jungle as he was heading for his meeting with Moffett.

Moffett later recounted his reaction in an interview with Fortune Magazine: “Man, it makes me sick every time I think about it. I’d had it with these guys. The thing that forced this thing out in the open was de Guzman jumping out of the goddamn helicopter.”

Familiar Controversy
A day after Moffett blew the whistle on the bust -- Bre-X’s ore samples, he concluded, were fraudulent -- Bre-X stock cratered, losing $6 billion in value.

People who know Moffett well tend to like him, though throughout most of his adult life, he and controversy have never been strangers. He’s famous for his sharp sense of humor and, more than once at parties, for breaking out into an Elvis imitation.

Back in the 1980s, in between trips to Indonesia, he’d hunt ducks with pals at a camp in Chauvin, Louisiana, south of his hometown of Houma. There Moffett was considered “just one of the guys,” said Marty J. Chabert, whose late father, Leonard Chabert owned the camp that Moffett frequented.

“He’d set out the decoys and pluck the ducks like everybody else,” recalls Chabert, who was present at a lot of these hunts. “Of course, we knew who he was. My dad would say, ‘this man works hard, give him some space.’”

Louisiana Refuge
Moffett, a good wing shot, would hunt in the morning and then retire upstairs in the afternoon to pore over mail special- delivered from his New Orleans office and practice a foreign language.

“Mostly, though, he was there for the camaraderie of the camp. That’s really what he loved,” said Chabert, a Baton Rouge businessman.

In New Orleans, an oil-friendly town where Moffett once headed a local business council and gives generously to the Boy Scouts, he is considered something of a folk hero -- and Davy Jones really is a celebrity. “In New Orleans, I think everybody with two nickels to rub together owns a little McMoRan” stock, said Peter Ricchiuti, a finance professor at Tulane University who has followed Moffett’s career. “You like the Saints and you got a little McMoRan for your kids.”

Moffett’s Mystique
This is partly about “the mystique of Jim Bob Moffett,” he said, and Moffett’s career-long penchant for taking big gambles and fooling experts who “routinely thought he’d lost his mind.” But then come the oil wells and gold mines that prove Moffett right. “The stock has become kind of a bet on Jim Bob,” said Ricchiuti.

Moffett understands he won’t be getting that kind of admiration everywhere. As he told The Wall Street Journal in 1998, “Am I ever going to be anything other than a geologist who is finding all these horrible mines, to the people who don’t want mines to be found? No!”

Grasberg, for all that it’s enriched the company, has been linked by the World Wildlife Fund and other green groups to deforestation and contamination of local rivers and lakes from mine tailings. Conflicts with indigenous people over pollution and lack of local jobs have been a staple of Grasberg’s history and, in fairness, a widespread criticism of the mining industry in general. Last year, a union strike paralyzed the mine for three months.

Economic Asset
Freeport-McMoRan says the Grasberg has been a major economic asset to Indonesia and that it operates the mine with appropriate environmental safeguards. Moffett, an inductee of the Horatio Alger Association whose members are honored for their achievements, says on the group’s website that Freeport Copper & Gold has been generous in its support of “educational, healthcare and social development programs worldwide.”

Even his giving has sometimes backfired. In the mid-1990s, Moffett donated $2 million to his Texas alma mater to go toward the building of a $28 million science center. A high-ranking University of Texas official, who happened to sit on Freeport’s board, convinced the school to honor Moffett and his wife. Long before the Louise and James Robert Moffett Molecular Biology Building opened in 1997, the naming had caused an uproar among faculty and students critical of Freeport’s Indonesian environmental record.

Building Clash
“There were quite a few of us pretty distressed that Jim Bob Moffett would be honored in any way on the UT campus,” said Karen Hadden, executive director of the Sustainable Energy and Economic Development Coalition in Austin.

The scorn over the science building lingers, in part because Moffett and Louise have since divorced even while their union remains enshrined in stone. His new wife, Lauree, is a native of Baton Rouge and they maintain a home in Austin, according to a biography on the website of a Texas non-profit organization for which Lauree Moffett serves as a board member.

Expensive as the Davy Jones project has been, its success would provide a prototype that would allow McMoRan to drill follow-up wells cheaper and faster. It already has drilled a second well that awaits testing. Profit margins are also better on gas produced a dozen miles from shore than on gas from deep- water drilling rigs more than 50 miles out in the Gulf.

Even a massive gas find, though, may not be the road to riches. Moffett’s friend Pickens, founder of investor group BP Capital, is concerned about a gas play in a nation already awash in the fuel, with U.S. prices about a third of what they were four years ago.

“I hate to see him make a big find and look at a $3 (per thousand cubic feet) gas market,” said Pickens. “He needs a better price for the gas.”

That said, Pickens has faith that Moffett’s wildcatter instincts are still intact.

“You judge a trapper by his pelts, and ole Jim Bob’s got a lot of pelts,” he said.




http://www.bloomberg.com/news/2012-...vy-jones-well-bet-tests-investors-energy.html
 


Jim Bob is the epitome of the "good ol' boy." I don't trust him as far as I can throw him. He's a fast talker— every bit as good at it as the New York slicksters.

He is a riverboat gambler (as long as it's OTHER PEOPLE'S MONEY) and he is extremely adept at getting fools to part with their money.

Do not believe press reports about this guy. The only person he's ever enriched (beside himself) are the investment bankers. For them, he's a dream come true. His investors? He views them as suckers.

This guy is bad news.

Q: How can you tell when Jim Bob is lying?
A: When he moves his lips (just like Hugh McColl and "Fast Eddie" Crutchfield).




________________

http://www.bloomberg.com/news/2012-...vy-jones-well-bet-tests-investors-energy.html



Wildcatter Moffett’s Davy Jones Well Bet Tests Investors
By Edward Klump and Ken Wells
November 27, 2012







Jim Bob Moffett is so crooked, he makes the Mississippi River look straight. He plays the media like a violin; they always fall for his tricks— I can't figure out whether they're simply stupid or they're just plain bought.




Freeport to Buy Plains, McMoRan for $9 Billion
By Brian Swint and Liezel Hill
December 5, 2012

http://www.bloomberg.com/news/2012-12-05/freeport-to-buy-plains-mcmoran-for-9-billion.html
 
http://www.bloomberg.com/news/2012-...it-for-processing-oil-sands-disappearing.html




Suncor Says Profit for Processing Oil-Sands Disappearing
By Liezel Hill and Jeremy van Loon
December 6, 2012

Suncor Energy Inc. Chief Executive Officer Steve Williams said the profit margin for processing bitumen from Canada’s oil sands is “disappearing” as the company reviews a joint project with partner Total SA.

Upgrading, a way to process bitumen into synthetic crude and diesel fuel, isn’t as attractive as it was a few years ago, Williams said at the Toronto Board of Trade today.

Williams said Dec. 3 the company has accelerated its review of the Voyageur project with Total and plans to make a decision by the end of March. Voyageur would be the third upgrader at Suncor’s oil-sands site in Fort McMurray, Alberta, and would be capable of processing 200,000 barrels a day.



http://www.bloomberg.com/news/2012-...it-for-processing-oil-sands-disappearing.html
 
http://www.bloomberg.com/news/2012-...at-gazprom-pays-for-putin-s-pipes-energy.html




World’s Largest Profit at Gazprom Pays for Putin’s Pipes
By Stephen Bierman and Anna Shiryaevskaya
December 12, 2012

The world’s most profitable energy company is being punished by investors who are concerned it’s also the biggest spendthrift.

OAO Gazprom, Russia’s natural-gas export monopoly, will beat Exxon Mobil Corp. to earn $37.9 billion in 2012, according to estimates compiled by Bloomberg. Yet its shares have fallen 18 percent this year as the state-run company uses its cash to finance the industry’s largest capital expenditure program, including an export terminal in the Far East and undersea pipelines to Europe, where demand is forecast to drop.

“Gazprom has a lot of spare capacity to transport its gas to Europe as is,” said Ivan Mazalov, who helps manage $4 billion at Prosperity Capital Management, including Gazprom shares. “If the project is too uncertain, it is better to return cash to shareholders instead of plowing it into capital expenditures. A lot of this expenditure is inefficient.”

Gazprom spent $53 billion on capital projects last year, more than PetroChina Co.’s $46 billion and $36.8 billion at Exxon, leaving just 7 percent of earnings to pay as dividends, the least of the world’s 10 largest energy companies. Investors are paying the tab for President Vladimir Putin’s political priorities, bypassing estranged Ukraine and developing Russia’s poorer regions, analysts at IFC Metropol and Sberbank CIB said.

South Stream
The Kremlin has backed a Gazprom-led venture to spend $21 billion building the South Stream pipeline to Europe even as Russia’s existing connections run at about 70 percent of their capacity. Europe’s gas consumption will drop 3.5 percent to 550 billion cubic meters in 2015 from 2010 levels before leveling off, according to International Energy Agency forecasts.

South Stream will benefit Gazprom because it cuts the amount paid to Ukraine in transit fees, Chief Executive Officer Alexey Miller said at a ceremony to mark the start of construction last week. Those fees will now stay with Gazprom, making the project profitable, he said.

At the other end of Russia, Putin in October blessed a $45 billion project to tap the remote Chayanda gas field in eastern Siberia. Gazprom will construct a 3,200-kilometer (2,000-mile) pipeline to the Pacific coast and build an LNG plant in the port of Vladivostok.

“There are indeed a lot of investments now, but we are creating new gas production centers and new transport corridors that will bear fruits in the future,” said Gazprom spokesman Sergei Kupriyanov.

Some analysts agreed that investment now makes sense to ensure market share for Russia gas in the years ahead.

“We think there will be growing support for gas demand over the long term, and Russia is investing in the right business model to pursue this,” Renaissance Capital analysts Brad Way and Artem Kvas said in a research note on Gazprom.

Investment Plan
Still, there’s an acknowledgment in Russia’s government that spending needs to be reined in. Gazprom, which owns Russia’s gas pipelines, will revise down investment plans for next year, deputy Economy Minister Andrei Klepach said on Dec. 10. The board will this month consider the 2013 investment plan, which will total $23 billion, according to a Gazprom official.

While spending may fall this year, Gazprom has a history of overshooting. Investment at its gas business overran targets by 25 percent this year and 56 percent in 2011 as it pushed ahead with projects.

Total spending, including the oil and power divisions, may drop to $35 billion this year, according to a Gazprom presentation to reporters on June 28. Capital expenditure in 2013 will probably remain at the same level as this year, Chief Financial Officer Andrei Kruglov said on Nov. 8.

Lowest Ratio
The forecasts haven’t reassured investors: Gazprom’s price- to-earnings ratio is the lowest among the world’s 300 biggest oil and gas producers by market value, according to Bloomberg data. The company paid just 7 percent of profit as dividends last year, based on international accounting standards. That compares with 23 percent at Exxon and 45 percent at PetroChina.

Gazprom and partners Eni SpA, BASF SE and Electricite de France SA last week welded the first seam of South Stream, to mark the ceremonial start of construction near Anapa, southern Russia. Work on the offshore link, running under the Black Sea to central and southern Europe, won’t begin until 2014, after environmental permits are granted, Sebastian Sass, spokesman for the South Stream Transport BV venture, said Nov. 21.

Pipeline Capacity
Russia’s pipeline capacity to Europe totals 223 billion cubic meters a year, while exports may not exceed 140 billion cubic meters this year, according to Alexander Burgansky and Roman Odarich, analysts at Otkritie Capital in Moscow.

While Gazprom expects to fill one-third of South Stream’s planned capacity with gas for new supply contracts, the rest will be for European supplies previously delivered via Ukraine. The link is designed to carry as much as 63 billion cubic meters a year in 2019.

Eni and the other minority partners reserve the right to exit South Stream, the Italian company said after signing the venture’s final investment decision on the project Nov. 14.

Ukraine can transport as much as 140 billion cubic meters a year of Russian gas to customers in the European Union. The route faces growing competition from transit shipments across Belarus, where Gazprom gained full control of the pipeline last year, and the Nord Stream link under the Baltic Sea directly to Germany.

Nord Stream, which doubled capacity to 55 billion cubic meters a year in October, is now operating at about a quarter of its potential. Gazprom also ships fuel to Turkey through the Blue Stream pipeline, which has never run at full annual capacity. Putin said on Dec. 3 the link, in which Eni is also a partner, may be expanded to allow exports to other countries.

Growing Competition
Gazprom is facing growing competition in Europe from U.S. coal supplies, liquefied natural gas and renewables.

While the outlook for Asian demand is more optimistic, Gazprom is planning its Far East investments without announcing contracts with customers. More than a decade of talks with China on piped supplies have stalled over prices.

“Our estimates suggest that it could be another black hole for Gazprom’s minority investors,” Sberbank analysts Oleg Maximov, Alex Fak and Valery Nesterov said in a research note. “It seems hard to justify a project that would develop a completely new field in Yakutia -- the middle of nowhere -- ship it 3,200 kilometers across the Russian hinterland shadowing the border with China then liquefy it only to sell the bulk of it, let’s face it, to China.”

State’s Strategy
The state’s strategy has a cost. Gazprom, which holds a monopoly on gas exports and the world’s largest reserves, trades at about 3.2 times earnings, compared with 12 for PetroChina and 11.3 for Exxon.

Exxon Mobil surpassed Gazprom by profit in the first half of this year as the Russian producer gave European customers price discounts to maintain demand for its fuel, according to data compiled by Bloomberg.

“The joke in my office is that they’re going to build a pipeline to the moon,” said Michael O’Flynn, managing director of UFG Asset Management. There’s no telling when Gazprom will get over the hump on big ticket projects because they never end, he said.




http://www.bloomberg.com/news/2012-...at-gazprom-pays-for-putin-s-pipes-energy.html
 
http://www.bloomberg.com/news/2012-...close-to-signing-28-billion-rosneft-pact.html




Rosneft Signs $28 Billion Deal With TNK-BP Billionaires
By Torrey Clark and Stephen Bierman
December 12, 2012

OAO Rosneft, Russia’s biggest oil producer, moved closer to its $55 billion acquisition of the TNK-BP oil venture, signing a binding agreement to buy out BP Plc’s billionaire partners.

AAR, which represents the billionaires, will get $28 billion in cash on closing, Chief Executive Officer Stan Polovets said by phone. The deal is set to close in the first half of 2013, Rosneft and AAR said today in a joint e-mailed statement.

The acquisition, the biggest in Russian history, will vault state-run Rosneft past Petrochina Co. to make it the largest publicly traded oil producer with more than 4 million barrels a day, based on third-quarter results.

“The agreements reached put us in the position to immediately begin preparing the integration process,” Chief Executive Officer Igor Sechin, a former deputy of Russian leader Vladimir Putin, said in the statement.

Rosneft reached a final accord last month to buy BP’s half of the 50:50 venture for $17 billion in cash and a 12.8 percent stake in the Russian oil producer, also set to close in mid-2013. BP also agreed to buy Rosneft stock from the government.

“This deal is irreversible,” Sechin told shareholders Nov. 30 in Khabarovsk city in Russia’s Far East.

‘Very Pleased’
BP said in June it was looking to sell its TNK-BP stake, dissolving a fractious decade-long relationship with AAR, which represents the interests of Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik. A shareholder battle in 2008 over control led to the ouster of Bob Dudley, now BP’s CEO, as head of TNK-BP. Last year, a planned alliance between the U.K. explorer and Rosneft collapsed under a legal challenge from AAR, which said the venture had the right to pursue new opportunities for BP in Russia.

“We are very pleased to have signed this agreement with Rosneft,” Fridman, chairman of Alfa Group, said in today’s statement. “I am confident that this deal benefits all stakeholders and is ultimately good for the future of the entire Russian oil and gas industry.”

Fridman resigned as TNK-BP’s CEO in May, saying the 50:50 ownership structure no longer met the interests of the shareholders.

Rosneft shares have gained 17 percent since the close of traded before announcing its preliminary agreements to buy out BP and AAR on Oct. 22. OAO TNK-BP Holding, the traded unit of the venture, has lost 27 percent in that period.

Rosneft has no obligations to minority shareholders in TNK- BP Holding and doesn’t plan to make any offers to them, Sechin said last month. Rosneft also won’t offer to buy out its own shareholders who may oppose deals with BP and AAR, structured separately, he said at the time.




http://www.bloomberg.com/news/2012-...close-to-signing-28-billion-rosneft-pact.html
 
http://www.bloomberg.com/news/2012-12-14/iraq-boom-hands-naimi-2013-oil-supply-challenge.html




Iraq Boom Hands Naimi 2013 Oil-Supply Challenge
By Grant Smith and Mark Shenk
December 14, 2012

Iraq’s biggest jump in oil production since 1998 is increasing the burden on Saudi Arabia to lower crude exports to prevent price declines next year.

The kingdom curbed crude output in November to a 13-month low, according to OPEC. Iraq plans next year to pump as much as it did when Saddam Hussein came to power three decades ago, its oil minister said Dec. 9. Supply will also rise in Libya and Nigeria while the U.S. experiences an oil shale bonanza.

“Saudi Arabia’s dilemma is that while it is the key OPEC player willing to cut back oil production in order to sustain prices at desired levels, it is also accommodating Iraq’s rising output and market share,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “Ultimately, there will need to be an agreement between the two as how to balance these ambitions.”

Saudi Arabian Oil Minister Ali Al-Naimi needs to keep prices high enough to fund social spending plans without incurring the wrath of consumers for hurting the global economy. Iraq, now the second-biggest supplier in the Organization of Petroleum Exporting Countries, has a different priority: to rebuild its industry after decades of war and sanctions.

Arab states are spending billions of dollars on housing and local projects to allay popular unrest after uprisings toppled leaders in Libya, Egypt and Tunisia and sparked a civil war in Syria. Saudi Arabia has committed more than $600 billion in social and infrastructure projects in coming years.

Iraq Surge
Iraq’s production surged 650,000 barrels a day this year to 3.35 million, the biggest annual gain in 14 years, according to data compiled by Bloomberg, amid assistance from foreign oil companies that are paid a fixed amount per barrel produced, regardless of international price levels.

The Middle Eastern state plans to boost output to an average 3.7 million barrels a day in 2013 and at some point in the year match the 1979 record of 3.8 million, Oil Minister Abdul Kareem Al-Luaibi told reporters in Vienna on Dec. 9.

The nation has been free of strict OPEC quotas since 1998 and the resumption of any allocation is a “sovereign issue” rather than a decision to be made by an organization, Falah al- Amri, Iraq’s governor on the OPEC board, said on Dec. 12.

Brent crude traded as high as $109.48 a barrel today on the ICE Futures Europe exchange. It may sink to $88 by June if OPEC fails to rein back supply, according to Leo Drollas, chief economist at the London-based Centre for Global Energy Studies, which was founded by former Saudi Oil Minister Sheikh Ahmad Zaki Yamani in 1990.

Iran Sanctions
Saudi Arabia’s task will become more difficult should Iran resolve its standoff with the international community over nuclear research and resume pumping oil at normal rates. Sanctions against the Islamic republic, once OPEC’s second- biggest producer, have cut its exports by 50 percent, according to the International Energy Agency.

While acknowledging its output will exceed customer needs in 2013, OPEC refrained from cutting its group target at a meeting in Vienna two days ago, judging prices were high enough for now. Iraq, Iran and Saudi Arabia also failed to agree on the appointment of a new OPEC secretary-general, opting instead to keep Abdalla El-Badri in the role for a further year.

Saudi Arabia reduced its output to 9.67 million barrels a day last month, according to a monthly report from OPEC that cited secondary sources for its data. In its own direct communication to OPEC, the kingdom said November production was even lower, at 9.49 million.

Minimum Level
The country can tolerate crude oil prices falling no lower than about $90 a barrel, according to Jamie Webster, a Singapore-based consultant at PFC Energy.

The CGES estimates that Saudi Arabia’s budget-balancing price is $95 a barrel, more than $10 below current levels. Arab Light, Saudi Arabia’s largest export grade, was at $107.22 today, according to data compiled by Bloomberg.

National Commercial Bank, the nation’s largest lender by assets, said in a Nov. 27 report that the kingdom’s budgeted oil price for next year is $65.

Demand for OPEC’s crude will shrink to 29.7 million barrels a day in 2013, the organization’s secretariat said in a statement at the end of its meeting in Vienna. That’s 300,000 barrels a day less than its official target and 1.1 million a day below November’s actual output, OPEC data show.

Iran Slump
Iranian oil production, which slumped to 2.65 million barrels a day in October, the lowest level since February 1990, may climb if a new government can come to an agreement with Western nations, according to JBC Energy GmbH.

The country pumped as much as 6 million barrels a day in the 1970s before the Islamic revolution, which was followed by U.S. sanctions and the 1980-1988 Iran-Iraq War. Iran’s insistence on atomic research led to a toughening of sanctions this year, including an embargo by the European Union and reduced insurance cover for supertankers carrying its oil. An Iranian presidential vote is scheduled for June.

Libya, rebuilding its oil industry after last year’s uprising against Muammar Qaddafi, plans to raise output to 1.7 million barrels a day next year from about 1.5 million a day this month, Oil Minister Abdulbari Al-Arusi said in Vienna.

Nigeria, Africa’s largest producer, expects output to reach normal levels in the first quarter, Oil Minister Diezani Alison- Madueke said after the Vienna meeting. Output was hampered in the past months by floods, theft and pipeline leaks that forced several producers, including Exxon Mobil Corp., Royal Dutch Shell Plc, Total SA and Eni SpA, to halt pumping, curbing national production by as much as 500,000 barrels a day.

Outside of OPEC, the U.S. is producing oil at the fastest rate in almost two decades, using horizontal drilling and hydraulic fracturing, known as fracking, to unlock shale resources in North Dakota, Texas and Oklahoma. The nation pumped 6.85 million barrels a day in the week to Dec. 7, the most since January 1994, and met 83 percent of its energy needs in the first eight months of 2012, the Energy Department said.

Al-Naimi, Al-Luaibi and other OPEC ministers plan to meet next on May 31, by which time the group will have a better notion of how economic growth and supply are affecting 2013 prices.

OPEC has “rolled over the whole discussion you need to have about the Iraqis, on how to bring in production,” PFC’s Webster said in Vienna. “The timing of the discussion is going to be dictated by the market.”



http://www.bloomberg.com/news/2012-12-14/iraq-boom-hands-naimi-2013-oil-supply-challenge.html
 
http://en.rian.ru/russia/20121220/178289695.html



Khodorkovsky, Lebedev to Walk Free in 2014

MOSCOW, December 20
(RIA Novosti)

Moscow City Court slashed on Thursday prison sentences for former Yukos bosses Mikhail Khodorkovsky and Platon Lebedev, who are now set to walk out in 2014, not 2016.

The judge upheld the guilty verdict, but cited a recent liberalization of legislation on economic crimes for which the two businessmen were jailed, a court spokeswoman said.

The judge also dropped the charge of laundering 2.5 billion rubles ($81 million) that Khodorkovsky and Lebedev were accused of embezzling.

The businessmen were convicted by a district court in Moscow in 2010 of embezzling 200 million tons of oil and laundering the profits. They appealed the verdict, asking to be cleared of all charges.

Lebedev is now expected to walk out on July 2, 2014, and Khodorkovsky on October 25, 2014.

Lebedev earlier appealed the verdict in a court in Arkhangelsk Region, where he is serving his prison term. A district court slashed his prison term in two subsequent trials, but a higher court ordered retrials each time, the second still pending a hearing date.

Supporters of the jailed businessmen claimed their case is retribution from President Vladimir Putin for Khodorkovsky’s support of political opposition. Putin reiterated his dismissal of the allegations on Thursday.

“There is no personal persecution here. Nothing that some try to present as a political case. Did he try to go into politics? Was he a lawmaker, did he create a party? The case is entirely economic,” Putin said about Khodorkovsky at a press conference in Moscow.

Khodorkovsky said six months before his arrest in 2003 that he would use his fortune, estimated by Forbes magazine at $8 billion at the time, to support liberal oppositional parties Yabloko and Union of Right Forces.



http://en.rian.ru/russia/20121220/178289695.html


http://www.bloomberg.com/news/2012-...ed-in-2014-after-russian-court-cuts-term.html


Putin Wishes Khodorkovsky ‘Good Health’ After Sentence Cut
By Olga Tanas and Henry Meyer
December 20, 2012

Mikhail Khodorkovsky, once Russia’s richest man, will be freed from prison in 2014 after a Moscow court reduced his second sentence for fraud and tax evasion by two years.

President Vladimir Putin today wished Khodorkovsky “good health” after his release and said he hadn’t influenced the courts on the former billionaire Yukos Oil Co. owner’s case. Khodorkovsky and his business partner, Platon Lebedev, had their terms cut to 11 years from 13 years by the Moscow City Court.

While Putin has called for improved laws to safeguard property rights and stem capital flight, investors have cited the Khodorkovsky case as an example of Russia’s failure to respect the rule of law. Khodorkovsky, 49, says he was targeted for financing opposition parties, an accusation the Kremlin denies. Yukos was sold in pieces, mostly to state-run OAO Rosneft (ROSN), to cover tens of billions of dollars in back taxes.

“There has been no personal persecution,” Putin told a press conference in Moscow. “Everyone tries to tie it to politics,” he said. “There was no such thing. This was purely about an economic crime.”

Putin said at a call-in news conference two years ago that Khodorkovsky has blood on his hands and that “thieves should sit in jail.” Khodorkovsky has said he’s not guilty.

Today’s decision may be appealed to the Supreme Court, Anna Usacheva, a spokeswoman for the Moscow City court, said by text message.

Putin Rule
Khodorkovsky and Lebedev, 56, were sentenced to eight-year terms in 2005 and convicted again on new charges in December 2010. The sentences include time served: Lebedev was detained on July 2, 2003, and Khodorkovsky was arrested on the tarmac of a Siberian airport on Oct. 25 of that year.

Khodorkovsky had been due for release in September 2016. Putin, who extended his 12-year rule in March presidential elections, will serve as head of state until May 2018 and could run for re-election for one more six-year term.

Putin last week threw his support behind an initiative to repatriate as much as $1 trillion in capital held by companies and politicians abroad. Russia may have net capital outflow of $67 billion this year after $80.5 billion last year, central bank Chairman Sergey Ignatiev said Dec. 19.

The president today urged the billionaire shareholders of TNK-BP, which Rosneft plans to acquire in the first half of next year, to bring back to Russia the $28 billion they’ll get for their 50 percent of the venture.

TNK-BP Proceeds
“I would very much like for them to invest the proceeds or a significant part in Russia’s economy,” Putin said.

Rosneft agreed this year to buy TNK-BP in Russia’s biggest- ever acquisition from BP Plc and AAR, which represents Mikhail Fridman, German Khan, Len Blavatnik and Viktor Vekselberg.

Fridman, like Khodorkovsky, was one of the “seven bankers” group of oligarchs who helped bankroll Boris Yeltsin’s re-election in 1996, after gaining assets in state sales.

BP will get $17 billion and 12.8 percent of Rosneft, while pledging to buy $4.8 billion more of the Russian oil producer’s stock from the state. AAR offshore vehicles are set to get $28 billion in cash.



http://www.bloomberg.com/news/2012-...ed-in-2014-after-russian-court-cuts-term.html
 
http://www.bloomberg.com/news/2012-...-s-alaska-rig-ready-for-drilling-in-2013.html



Noble Sees Shell's Alaska Rig Ready for Drilling in 2013
By Jim Polson
December 27, 2012

Noble Corp. expects to have its Noble Discoverer rig ready for Royal Dutch Shell Plc to resume drilling in Alaska’s Chukchi Sea next year, after fixing issues raised during a U.S. Coast Guard inspection.

The Coast Guard determined the ship’s propulsion and safety management systems need attention, the Zug, Switzerland-based company said in a statement today. Noble expects to resolve the problems before the limited Arctic drilling season begins when sea ice clears in six months or so, said John Breed, a company spokesman in Sugar Land, Texas.

Shell invested $4.5 billion in offshore leases and equipment and fought at least 50 lawsuits from environmental groups to begin drilling in the Chukchi, the first wells in the Arctic waters in about 20 years. The Hague-based company is operating the rig under a two-year contract at a rate of $240,000 a day, according to a Dec. 6 Noble report.

The Coast Guard is “looking at the vessel from a performance standpoint and they’re asking us to look into this further,” Breed said. “We’re developing a hit list of items they want us to address.”

Noble’s review found that the ship may have improperly discharged on-board water when it wasn’t drilling. The Coast Guard inspection, begun last month, continues.

After six years of preparation, Shell began drilling in September off the northwest coast of Alaska, two months later than planned. A day later, drilling was halted and the rig was moved to avoid encroaching sea ice.

Shallow Wells
The Arctic operations suffered another setback days later when a containment dome designed to cap a potential spill was damaged. Shell decided it wouldn’t have time this year to drill deep enough to reach oil in the Chukchi. Instead, it drilled a series of shallow exploratory wells and plans to go deeper in 2013, Marvin Odum, president of Shell’s U.S. unit, told reporters on Nov. 29.

Noble Discoverer was inspected by the U.S. Coast Guard in July after it slipped its moorings and drifted toward shore in the Aleutian Islands. The ship, now docked at Seward, Alaska, will move to Vigor Industrial LLC’s shipyard in Seattle for service and maintenance, Breed said.

“It’s advantageous that the drilling season is behind us,” Breed said. “We have a long period during which we can do this sort of maintenance. The rig was scheduled to be down for maintenance anyway.”



http://www.bloomberg.com/news/2012-...-s-alaska-rig-ready-for-drilling-in-2013.html
 


The guy puts his money where his mouth is. He now owns more than 20% of a company which has hydrocarbon reserves that are roughly the equivalent of ExxonMobil's.



PRESS-RELEASE
20.12.2012
TOP MANAGERS INCREASE STAKES IN LUKOIL SHARE CAPITAL



President Vagit Alekperov and Vice-president Leonid Fedun of OAO LUKOIL made significant acquisitions in Company stock in the amount of 2,100,175 shares and 1,900,120 shares at market price, which amounted to USD 136.4 million and USD 123.8 million, respectively.

As a result of the transactions, Vagit Alekperov’s stake in LUKOIL share capital inclusive of beneficial ownership reached 20.87%, while the stake of Leonid Fedun came to 9.5%. The shares were purchased from counterparties not connected with LUKOIL.

“I am using all my free funds to purchase LUKOIL shares, because I believe in their growth potential. I am constantly increasing my stake, because I think this is the best way to invest," Mr. Alekperov commented.
 
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