Christopher's Feed
May 20, 2010
via Breakingviews

U.S. nuclear hopes choked by low emission costs

Nuclear power advocates in the United States may see their hopes choked by low emissions costs. The latest moves in the U.S. Congress involve expanding the hodgepodge of available subsidies. But these will be hard pressed to overcome the cost advantages of fossil fuels — especially with natural gas prices so low.

As global warming has climbed the political agenda, lawmakers have tried hard to rouse the nuclear industry from a multi-decade slumber. Just to maintain its existing 20 percent market share, the nuclear industry would need around 25 new reactors by 2035, according to the U.S. Energy Department, assuming electricity demand increases as forecast. Yet no new reactor projects have made it past the drawing board since the Three Mile Island accident in 1979.

Apr 29, 2010
via Breakingviews

Lifting of refining curse allows Big Oil to shine

The doubling of crude prices since last year isn’t the only thing giving a healthy glow to Big Oil’s earnings. The refining sector, which splattered the accounts of ExxonMobil and ConocoPhillips  in red ink last year, is finally looking less bloody. Exploration and production profits are finally able to take center stage.

At the end of 2009 refining was every oilman’s nightmare. Crack spreads — the margin refiners are paid to turn crude into useable fuel — had slimmed to anorexic proportions. From $14 in 2007, the spread between WTI and gasoline had shrunk to $3.21 by November.

Apr 28, 2010
via Breakingviews

Cape Cod wind farm is a losing battle for greens

Apparent victory in a nine-year battle to win federal approval for a wind farm off Cape Cod is not the end of the story. Wealthy denizens of Massachusetts’ coastal mansions may still scupper the project. Given the poor economics of offshore wind, environmental advocates should choose a more promising battle ground.

The political obstacles to the project remain formidable. Offshore wind splits the environmental movement. While many are enticed by greenhouse-gas free electricity, others fret about damage to wildlife. Rampant not in my back yard-ism is a long-standing obstacle for wind. Even in the bleak Texas panhandle residents object that wind turbines would interfere with the mating rituals of prairie chickens. The affluent locals of Cape Cod are an even more formidable lobbying force. After all, the wind farm would be visible from the Kennedy family compound in Hyannisport.

Apr 14, 2010
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Oil’s scarcity has become Wall Street’s gain

Wall Street has always loved the fees generated by deal-crazy oilmen. But the recent flurry of energy industry hook-ups — $130 billion so far this year and counting — is once again making them the most valuable clients for the world’s merger advisers. Bankers in the oil patch are likely to remain in high demand even if energy prices stumble.

Oil and gas producers often jostle with financial services firms for the top sector spot in merger activity. Pricey oil, at over $80 a barrel today, may be helping give the energy sector the edge by boosting valuations. So far this year the industry spawned 46 transactions worth $500 million or above, racing past financials with just 31 deals, according to Thomson Reuters. But resurgent energy prices are only part of the story. After all, natural gas — which has been at the epicenter of much deal-making — still languishes at less than a third its 2005 peak.

Apr 12, 2010
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IMF faces whole new kettle of fish in Greece

The International Monetary Fund is back at the peak of its power and relevance. But with Greece it has taken on a novel challenge — helping to repair a sovereign government’s finances with neither a default nor currency devaluation. No bailout in modern history has managed such a feat. It’s hard to believe Greece will be the first.

With 30 billion euros pledged by Greece’s partners, and up to 15 billion more expected from the IMF, this would be a monster package — equivalent to almost 20 percent of Greece’s economic output. Even this may not be enough.

Mar 15, 2010
via Breakingviews

Consol gas buy could be wrong deal at right price

Consol Energy is joining the shale gas party. And its $3.5 billion deal to buy assets from Dominion Resources looks like a bargain. But the investors who knocked Consol’s share price are rightly skeptical. By hedging its energy bets, the coal company risks confusing investors and sealing in a conglomerate discount.

Consol should at least feel happy with its negotiating prowess. True, it has paid slightly over the odds for proven gas reserves. When ExxonMobil bought XTO late last year it stumped up just $2.96 per thousand cubic feet. Consol is paying about 15 percent more. But Dominion’s territory on the Marcellus shale is largely virgin land. Consol should be able to triple production over the next five years.

Mar 11, 2010
via Breakingviews

Brazil’s richest man offers risky but alluring IPO

A $5.6 billion IPO of a firm with no profit harkens back to the internet-bubble era. But OSX Brasil is a chance for investors to bet on Brazil’s burgeoning reserves and Eike Batista, the fastest riser on the Forbes rich list. The combination makes it sound more Amazon than

A first glance at the company’s financials gives reason for pause. It posted an operating loss of $19.6 million. But it hardly reflects the promise. Even if Brazil’s oil reserves fail to justify the hype, there is likely to be a need for OSX’s ships and drilling rigs to find out. Batista’s oil and gas company, OGX, has a $4 billion budget to sink into exploration and production.

Feb 23, 2010
via Breakingviews

Schlumberger’s got some explaining to do on Smith

Schlumberger’s shareholders have been freaking out since news leaked last week of the company’s bid for oil field services rival Smith International. Skeptical investors have now stripped almost $7 billion from the value of the industry leader — a powerful slap in the face to Schlumberger’s chief Andrew Gould. Such punishment appears excessive.

True, Gould hasn’t secured a steal. By Schlumberger’s own account, cost savings from Smith will be just $320 million a year by 2012. Taxed and capitalized, these would be worth around $2 billion to shareholders. So, by offering a $3 billion premium, at $45.84 a share, Schlumberger looks to be destroying around $1 billion of value.

Feb 17, 2010
via Breakingviews

Exxon’s new barrels not as tasty as the old

With oil majors being given the cold shoulder in many developing countries, it is no mean feat that Exxon Mobil  managed to replace 100 percent of production last year with new reserves. Even so, not all barrels of oil are born equal. By necessity, the stuff Exxon is using to fill its pipeline will be harder to extract or of lower value to investors.

That said, Exxon deserves applause for replenishing its supplies. The 100 percent figure arguably understates Exxon’s achievement, since it is based on restrictive Securities and Exchange Commission assumptions about oil prices. The oil giant’s own figures give a replacement ratio of 133 percent — beating its own 10-year average of 112 percent.

Jan 6, 2010
via Breakingviews

Hedge fund investors need clearer picture

Only foolhardy parents would allow their children to reveal just the grades on their report cards they were happy with. Yet hedge funds are given this luxury in reporting their performance to compilers of sector-wide performance indices. The result is that while a single fund’s track record is clear enough, hedge fund index returns still flatter the average fund. Investors would be smart to call for a clean-up.

Taken at face value, historic index figures suggest that even a very average hedgie can easily beat the stock market while taking less risk. Since 1990, a weighted index of hedge funds has returned around 12 percent annually — about 4 percentage points more than the S&P 500 — with just half the volatility, according to Hedge Fund Research.

    • 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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