Christopher's Feed
Jul 8, 2010
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Exxon’s carbon tax hedge is way out of the money

Exxon Mobil’s $31 billion hedge is way out of the money. Gas prices have tumbled since the U.S. oil giant agreed to pay that amount for the gas producer XTO. That doesn’t make the deal a bust. A carbon tax might make the XTO purchase look smart — but Exxon benefits for as long as Congress twiddles its thumbs.

To his credit, Exxon Chief Executive Rex Tillerson has made little attempt to mask the grim economics of the natural gas market. If anything, these have worsened since December when Exxon broke a decade-long deal fast and gobbled up XTO. Since then, the already depressed gas price has fallen nearly another 20 percent. The very technical success of drillers uncovering ever larger quantities of shale gas is proving their financial undoing.

Jun 28, 2010
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Drilling deals dive past oil-spill calamity

Crisis? What crisis? The oil industry showed no signs on Monday of being cowed by BP’s ongoing woes and the resulting Gulf of Mexico drilling freeze. Noble Corp’s $4 billion rig rental deal with Royal Dutch Shell and its $2.2 billion all-cash acquisition of Frontier Drilling look like ballsy but not reckless votes of confidence in deepwater exploration.

Oil executives are generally hard to intimidate. Even so, their relatively sanguine response to the ongoing Macondo disaster looks surprising. Noble’s announcement is the clearest sign yet of the mentality. Of course, the company wanted to find some use for $850 million of cash burning a hole in its pocket. But rather than return it to shareholders, Noble is doubling up its bet on deep-sea drilling with Frontier, or FDR Holdings, whose flagship assets are two spanking new ultra-deepwater rigs due to be finished this year. They’ll be able to drill at twice the depth of BP’s ill-fated well.

Jun 21, 2010
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Anadarko is binary option on BP incompetence

Rival oilmen have every reason to cast BP as a rogue. But none more so than Anadarko, its silent partner in the leaking Macondo well. If BP is proven grossly negligent, Anadarko is absolved of liability. If that doesn’t happen, it could face crippling costs.

Anadarko only invested in the Macondo well in December 2009 after drilling had already started. It had not a soul on the doomed rig and had not been consulted about the well design. Yet its 25 percent stake has ensured the drubbing of a lifetime. Even after accounting for the slide in peers’ valuations, investors have sliced close to an extra $13 billion off Anadarko’s market capitalization, leaving it worth some $22 billion.

Jun 14, 2010
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BP’s U.S. political risk goes well beyond rhetoric

BP’s name is so besmirched in DC that restoring its old Anglo-Iranian Oil Company moniker could hardly worsen things. It’s partly political posturing, but there’s a real threat too. Venezuelan-style expropriation may be a stretch, but Uncle Sam could still hurt the British oil giant badly.

The typically even-tempered President Barack Obama has talked about finding some “ass to kick,” and BP investors, who have sold off the company’s shares sharply, are right to worry. Among the latest ideas aired by U.S. officials are making BP pay oil workers laid off as a result of the broad drilling moratorium imposed by the government, and forcing the company to suspend dividend payments. Some of these proposals test the limits of the law. But Uncle Sam has plenty of real sway over BP.

Jun 9, 2010
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Soft pump prices show “drill baby drill” can wait

Hamper oil drilling and motorists will pay, industry groupies warn. But the drop in crude prices since BP’s  Gulf of Mexico blowup suggests U.S. deepwater wells have a picayune impact on the market for oil. It’s a reminder that America relies on imports anyway and it won’t make any real difference to ban difficult drilling until oil firms prove it is safe.

The West Texas Intermediate crude price actually fell slightly in the days after President Barack Obama called a six month time-out on deepwater drilling. It even slid soon after the failure of BP’s top-kill method to stem the leak — an event which pushed a final resolution out towards August at the earliest and increased the risk of more lasting restrictions on drilling.

May 20, 2010
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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
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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
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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.

    • 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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