Christopher's Feed
Nov 23, 2010
via Breakingviews

BP’s PR sludge keeps flowing with new book

BP may have felt the public relations tide was turning in its favor. Probes into its Gulf of Mexico spill have so far unearthed no direct proof that a culture of corner-cutting at BP caused the disaster and investigators have even spread part of the blame to the firm’s contractors. But the reprieve may be cut short by writer Loren Steffy’s deeply critical history: “Drowning in Oil: BP and the Reckless Pursuit of Profit.”

Like the financial crisis, BP’s record-breaking oil spill is sure to spawn a shelf full of books. Steffy’s readable account has surfaced before the release of much important evidence relating to BP’s greatest mishap. Still, the author makes a convincing case that the Macondo blunder can be traced to a longstanding BP culture of neglecting safety.

Oct 28, 2010
via Breakingviews

Will Halliburton have to shoulder 15 percent of BP’s mess?

Halliburton has been dragged further into the BP mess. The oil contractor lost $3 billion of market value on charges by a presidential commission that it did a shoddy job cementing the rig that cracked and led to the disastrous leak. That suggests investors expect Halliburton to pay a big slice of BP’s $20 billion cleanup fund. It’s possible—but don’t count on it.

Well blowups are seldom the result of a single blunder. And BP’s epic Gulf of Mexico spill is certainly no exception. So it should come as no surprise there were problems with the cement job done by Halliburton. Soon after, BP was quick to parcel out responsibility. Any confirming evidence will help provide BP’s public relations with some cover. Equally, any indication of Halliburton error will spread the reputational damage.
Yet it is too early to say that Halliburton will suffer such a substantial financial hit. The letter from the panel’s lead investigator was less damning than some initial press reports indicated. Halliburton shared test results with BP suggesting its cement had “failed to meet industry standards.” Had Halliburton failed to disclose material details this would look far worse. BP also had time to react and rectify the situation since the finding came more than a month before the blowup.

Oct 14, 2010
via Breakingviews

Occidental finally caps CEO pay gusher

U.S. oil group Occidental Petroleum is phasing out its $857 million man, Chief Executive Ray Irani. It’s hard to grudge him handsome pay over the years, given the company’s performance. But his board allowed it to get too generous. Shareholders should thank the activists who helped cap Irani’s rewards.

By any metric Irani has been lavishly rewarded for his 20-year stewardship of Occidental. His almost $900 million haul over a decade made him the third best paid U.S. chief executive over the period, according to a Wall Street Journal analysis published in July — ahead, for example, of Apple’s Steve Jobs.

Oct 7, 2010
via Breakingviews

Credit boom’s biggest casualty: U.S. lifestyles

America’s standard of living could be the main casualty of the debt crisis. For a decade the middle class made up for stagnant incomes by getting ever deeper into hock. Without housing wealth to tap, a bout of inflation is one of the few alternatives to a decade of austerity.

The right to a perpetually improving lifestyle is not in the U.S. Constitution. But as far as many Americans are concerned it may as well be. So when average family income failed to advance over the past 10 years, few took it lying down. With the median income of a working family sliding from $60,700 in 2000 to $55,800 in 2009, the favorite solution was to make up for the shortfall with large dollops of seemingly cheap credit.

Oct 6, 2010
via Breakingviews

Three reasons U.S. homeowners shouldn’t lose hope

American homeowners already depressed by the shrunken value of their biggest asset should skip the International Monetary Fund’s latest missive on the risk of a double dip in property prices. The fund’s grim outlook is hard to dispute. But three historic measures now suggest that homeowners can put down the revolver.

Buying property has been an emotional rollercoaster over recent years, carrying owners from the heights of smugness for their quick profits to the depths of despondency. Residential home prices fell close to a third between 2006 and 2009 leaving a trail of shell-shocked proprietors. And the IMF says the pain may not be over yet.

Sep 21, 2010
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Petrobras $79 bln capital hike relies on bull case

Petrobras seems to be banking on the bull case for buying its stock. Despite the investment risks, it has upsized its already huge offering to as much as $79 billion. The Brazilian oil giant is hoping enough investors really think it can deliver on its plans.

Over the past year Brazil’s government has given shareholders plenty of reason to view the glass as half empty. Brasilia foisted $74 billion of not very profitable refinery investment on Petrobras over the next five years. And the government is overcharging the company for 5 billion barrels of new oil reserves, in return for which it is collecting $43 billion of stock.

Sep 16, 2010
via Breakingviews

Oil supply shift is airline omen and chemical boon

A looming shift in oil supply heralds significant changes for two industries. Traditional crude output is forecast to plateau over the next five years with lighter liquids providing the bulk of supply growth instead. This should lower costs for chemical producers. It might also be a fresh ailment for just-recovering airlines.

Old-style oil is getting harder to find. Production growth should grind to a halt by 2015, according to Cambridge Energy Research Associates. From then, any extra supply will come from natural gas liquids and condensates, which were once discarded by oil producers.

Sep 16, 2010
via Breakingviews

Airgas vote puts goal in reach for Air Products

Airgas shareholders have decided whence the hot air was blowing. By voting for three directors nominated by predator Air Products, ousting the Airgas chief executive from the board and agreeing to move up the next shareholder meeting, they rebuffed fishy incumbent claims that the firm is worth more alone.

Directors may scramble to the courts but their moral authority has been undermined. With Airgas closer to its clutches, Air Products may be able to remain firmer on its $5.5 billion hostile bid.

Sep 14, 2010
via Breakingviews

Brazil’s oil windfall raises risk of Dutch disease

Petrobras’ planned $32 billion capital-raising is just the start of an influx of foreign cash that could over-inflate the Brazilian currency and strangle manufacturers. Soaring oil output will add to the problem. Chilean or Norwegian discipline is needed.

Rather than spurring economic development, resource windfalls have often sucked investment from other sectors and stunted industrialization — the so-called Dutch disease,  a term coined in the 1970s after revenue from large natural gas finds in the Netherlands ended up constraining the nation’s manufacturers. A resource bonanza also encourages politicians to lock in high government spending, sparking inflation and linking the nation’s fate to commodity prices.

Sep 10, 2010
via Breakingviews

Eike Batista has sweeter barrels than Petrobras

Eike Batista may soon be adding billions to his bank balance. Shares of energy group OGX — the flagship vehicle of Batista, Brazil’s richest man — value its 7 billion-odd shallow water oil reserves at roughly $5 a barrel. That looks a bargain against the $8.51 the government is extracting from Petrobras for deepwater crude. It’s no wonder China’s Sinopec Group and CNOOC are considering buying into assets owned by the company.

A $100 punt on OGX last September would now be worth $180, compared with a meager $80 in national champion Petrobras and $113 in Brazil’s Bovespa stock index. Yet OGX could still be good value for money — especially in the light of Petrobras’ recent deal with the government for new reserves.

    • About Christopher

      "I am a columnist at Thomson Reuters focusing on the energy industry and hedge funds. Prior to this I worked at Bloomberg and the Financial Times."
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