Posts Tagged ‘energy’

Brazil remains bullish on oil as Petrobras sets new production record in March

offshore-oil-rigPerennial favourite Petrobras (NYSE : PBR), has announced that in March of this year, it surpassed February’s output record by 52,00 bpd. Last month, the Brazilian oil giant produced a record 1.99 million bpd from its domestic holdings. The increase has been attributed to a number of new wells in the offshore Campos Basin being brought into commercial production. Petrobras has also reported domestic production of combined oil & gas for March reached 2.3 million bpd of oil equivalent, a 9.5% month on month icrease, adding in international operations, brings an enviable 2.5 million bpd production average for the month of March.

Following up on Petrobras’ unveiling of its $174 Bn, five year investment plan, this can only be good news for investors, as the company has based its 2009-2013 plan on Brent crude running at $42 a barrel, with financing needs for 2009 based on Brent averaging at $37 a barrel. With Brent crude trading at $50.46, depressed fears over swine fever, a fiar cushion is in place.

On May 1st, President Lula will officially open Petrobras’ new Tupi operations.  Tupi,which is located in the pre-salt region and is estimated to contain between 5 billion and 7 billion barrels of crude, will initially pump 15,000 bpd through a test phase, finally ramping up to 100,000 bpd in 2010. The pre-salt region covers an offshore area 800 kilometers long and 200 kilometers wide between the states of Espirito Santo and Santa Catarina, is estimated to contain up to 80 billion barrels of light crude under a thick layer of salt far beneath the ocean floor.

As we previously discussed, the planned $175 Bn investment, is also good news for companies supplying the oil business. With offshore oil development vessels likely to be in high demand.

“In the next five to six years, we are looking for 240 different vessels… drillships, storage units, supply vessels, transportation vessels and others,” Petrobras CFO Almir Barbassa told reprorters at recent a seminar held in Seoul. “Petrobras will soon issue tenders for eight floating product storage and offloading units and seven drill ships”

Trading off a 52 week low of just $14.73, Petrobras is currently trading in the $32-$34 range (5 day spread) & the ADR has grown by 37% in the last three months of trading.

ABB : Switzerlands Sleeping Giant

abb1Swiss power & automation specialist ABB is moving from strength to strength with the recent announcement of a €550m contract which integrates with a green power project in Ireland. Irish system operator Eirgrid, has ordered a transmission system using HVDC Light (high-voltage direct current), an ABB technology with environmental benefits that include neutral electromagnetic fields, oil-free cables, low electrical losses, and compact converter stations. The solution will allow Ireland to expand wind power generation & via the new link, will enable it to import power from the UK as needed & to export power when it generates a surplus.

“We are delighted to partner Eirgrid for this project,” said Peter Leupp, head of ABB’s Power Systems division. “ABB’s HVDC Light technology will enhance the stability of both the Irish and U.K transmission grids, and also expand capacity for the use of renewable power.”

For those not in the know, ABB Ltd, is a global leader in power and automation technologies, enabling customers to improve performance while lowering potential environmental impact. The company has operations in 87 countries globally & currently carries a workforce of approximately 110,000 employees, delivering complex power projects into logistics, energy, industry & utility sectors.

This is just the latest in a string of deals that ABB (NYSE : ABB) has managed to pull together in the face of the turmoil in global markets. Looking at ABB’s press release pages, it is apparent that the company has capitalised on its almost unique position as a global player in its field. In 2009 alone, ABB has so far announced in the region of $2.3bn in new contracts, a strong performance in these troubled times. Referring to ABBs annual report (a weighty 7.4Mb file) from 2008, revenues rose 20 percent to a record $34.9bn as the company continued to drive growth & also managed to deliver on its strong order backlog, more on that later. Earnings before interest and taxes (EBIT) reached $4.6bn, with the company recording it’s second highest net income statement in its history, even after provisions taken in the fourth quarter, which saw the order book drop by 60% on 2007 Q4 earnings. Admirable stuff. Even more admirable is the fact that ABB exited 2008 with an order backlog in the region of $24bn, which is a huge cushion to take it through the troubled waters of 2009.

ABB is not however resting on its laurels, under the new management team of CEO Joe Hogan (recent head of GE’s Healthcare division), has reacted to the global shift, as ABB business is pretty much tied to GDP of the countries it operates in, Hogan has instigated a cost reduction plan that should pair costs by as much as $1.3Bn per annum. The company has recognised that its orders are down in Europe, as industrial & construction demand has dramatically slowed. Also in Asia, ABB has suffered, mainly due to the fact that the explosive growth in the region in 2007 could not be offset in 2008.

One area that I am sure ABB will be focusing on is Emerging Markets, which will need to continue expanding their power grids for years to come, while mature economies in North America and Europe will only look to smaller upgrades to legacy platforms. This can already be seen in recent wins in Mozambique, Kuwait, Oman, Saudi & South Africa. The company is also looking into how it may capitalise on the fact that countries must tackle climate change, if they are to continue to grow their GDP & satisfy growing consumer demand for greener technologies.

I feel that ABB is under recognised by the markets & looking at the ADR’s performance against the criteria above, can only come to the conclusion that it is severely undervalued at todays price of $13.50, having reached a 52 week low of $9.11. Past shrewd management of assets, coupled with a typically Swiss style of quietly acquiring smaller companies to either subsume competition or add to its technology base make ABB a winner for me. To that end, I instigated a buy on the ADR yesterday & am setting a target price of $25 by Q3 of 2009. I am also of the opinion that ABB will profit from some of the new energy projects that have been announced & which I have previously commented upon on MyStockVoice, particularly in the Brazilian Petrobras (NYSE : PBR) & the West African Total (NYSE : TOT) projects.

Venezuela : Chavez returning to dirty tricks ?

hugo-chavez-venezuela1For the last 4 years, soaring worldwide oil prices and 9% growth rates have underpinned President Chavez’s generous social programs & his (none too successful) campaign to build an international anti-American alliance. The oil windfall saw the socialist government of Venezuela threaten to divert oil exports from the US to competitors in China and India, even though the Asian markets would be costlier to serve. Currently 60% of Venezuela’s production goes to the States.

As if Venezuela were not doing well enough, the government then imposed crippling tax increases & royalties on the IOCs (International Oil Companies) working there. Snapping up majority shares in oil-producing joint ventures & effectively forcing the multinationals to either take smaller roles or leave Venezuela. Now with oil revenues failing due to lack of demand on global markets, Chavez looks as though he is turning his attention to agriculture.

Chavez is hugely popular with Venezuela’s poor due to his heavy spending on social services, however,  continued investment in social programmes is not sustainable with the crash in oil prices. Oil accounts for 94 percent of Venezuela’s exports and about half of the national budget. Chavez decided on Wednesday (04/03/09) to take over at least one rice plant owned by Cargill Inc, the largest U.S. agricultural company, extending his grip on food producers as the government seeks to slow inflation.

“We’re going to continue to tighten the screws,” Chavez said during a cabinet meeting that was broadcast on Venezuelan state television. “Begin the process of expropriating Cargill. This is a flagrant violation.”

Chavez, has also threatened to seize all plants run by Empresas Polar SA, Venezuela’s biggest privately owned company, in his push to increase state control of the economy. Venezuela has the highest inflation rate in Latin America, and food prices rose 43.7 percent in January from a year earlier. Over the last four years, following Chavez’s re-election as president, Venezuela has increasingly moved to a government-run economy, announcing takeovers in the electricity, cement, telecommunications and now food production industries.

In the 1990s, Venezuela offered discounted taxes and royalties to entice IOCs such as BP, ConocoPhillips, Exxon Mobil & Total to develop the Orinoco basin deposits. The Orinoco Belt holds over 1.2 trillion barrels of extra-heavy oil which is refined locally. Previous estimates claim that the Orinoco Belt may contain more than 250 bn barrels of recoverable synthetic crude, making Venezuela potentially the biggest source of oil in the world, topping Saudi Arabia. Following more than $16 bn of direct investment, four international “strategic alliances” began producing synthetic crude in 2001. Production now totals about 600,000 barrels a day, roughly one-quarter of Venezuela’s total output.

In May 2007, Chavez announced the nationalisation of oil assets in the Orinoco belt, prompting Exxon Mobil Corp. and ConocoPhillips to pull out of the country and seek international arbitration. Total remained & is still attempting to work under tough government constraints, which saw its stake in the Sincor project reduced from 47% to 30%. Massive revenues generated by high oil prices have managed to mask years of economic mismanagement. Currently, inflation stands at 35%, capital is fleeing the country & unemployment is rampant. Continued rhetoric about revolution, socialism and expropriation has caused foreign investment, which is vital to the oil industry, to dry up. Venezuela’s private sector recorded zero growth in 2008, according to the central bank.

Back to today & a reliance on his populist support seems to have forced, Chavez to maintain his 2007 pledge that the government would secure supplies of basic food staples, as the country experienced widespread shortages of milk, beans and rice. Chavez issued a raft of  decrees last year, increasing government control over food storage and distribution and allowing the state to jail company owners for hoarding. This week, he set new production quotas for food makers to boost supply of price- controlled foods. The Cargill seizure follows troops being deployed in rice plants across the country, in a blaze of publicity, claiming that private owned companies are hoarding rice stocks in order to manipulate prices.

“Cargill is committed to the production of food in Venezuela that complies with all laws and regulations,” Mark Klein, a spokesman for the Minnetonka, Minnesota-based company, said by email late yesterday. “Cargill expects the opportunity to clarify the situation with the government and is respectful of the Venezuelan government decision.”

Chavez hasn’t specified whether the Cargill expropriation order would apply to all of the company’s plants in Venezuela. According to Cargill’s Web site, it has operated in Venezuela since 1986, and runs 13 plants that produce foods including rice, pasta, flour and juice.

Meanwhile, Venezuela is courting Asian countries for FDI for future growth in the oil indusry, recently China & Venezuela announced a $12B pact for a JV in the Orinoco belt, part of China’s ongoing spree of buying into national projects. Vietnam via its state owned oil company PetroVietnam has also entered into a JV with Petrolos de Venezuela, where the expecation is to extract 200,000 barrels per day for export to Vietnamese refineries, as previously discussed. This follows inconclusive talks with neighbour Brazil regarding an accord with Petrobras, whcih would have seen the Brailian giant investing 40% into the construction of a $4Bn / 200,000 barrel a day refining operation.

With this latest bout of  “nationalisation”, Venezuela is surely set to lose more friends in the West & also on its doorstep. Chavez has been pouring billions into local economies to shore up Latin American support for his Bolivista government, but now the revenues have dried up, he is seen as a political blusterer.  It is clear that Asian nations starved of natural resources will make deals at favourable rates right now whilst oil prices are in a slump, however, it will be interesting to see which rabbit Chavez will pull out of the hat when oil goes back over $70 a barrel.

Total continues emerging markets investment & expansion

total-oil-logo1Total SA (NYSE – TOT), France’s largest company, announced the highest annual net profit in French corporate history last week, sounding a rare positive note in todays grim financial meltdown. In 2008 the firm made a profit of  €13.9 Bn ($18.0 Bn) thanks to record oil prices in the first half of the year, which helped offset the second half collapse in oil prices. Profits began to fall in the fourth quarter of 2008 as the credit crunch hit demand, sending crude prices tumbling. Total is now preparing for the future by investing in increased capacity in new fields, especially in Africa & the Middle East, whilst putting the brakes on production in Canada & the North Sea.

“Unprecedented volatility marked the 2008 market environment,” said Total chief executive Christophe de Margerie, noting that oil had peaked at about $150 a barrel last year before plunging to as low as $35

With regards to its North Sea operations, Total has reviewed its capital expenditure for 2009 due to the fall in oil prices. Senior vice president for Northern Europe, Michel Contie, remarked that an oil price of $40 per barrel was required to realistically develop new fields in the North Sea, as many new offshore discoveries are “not economic today.”  The Joslyn & Surmont heavy-oil ventures in the Canadian Athabasca project are among the “building blocks” for boosting output from 2016, the oil sands projects are expected to provide Total with almost 300,000 barrels a day of production capacity by 2020, as reported by Bloomberg : Total is “reevaluating costs, technologies, structure and timing of Canadian projects”

In a recent aggressive move, Total has offered to buy Canadian oil-sands explorer UTS Energy Corp for $ 617 million Canadian ($505 million), which rejected the bid as “inadequate.”  UTS has advised shareholders that the bid should be rejected, as the book value of the company is pegged at twice the unsolicited offer. Total reiterated today that oil sands need crude prices at $80 a barrel for investment, which to my mind displays that they are looking to bank up potential reserves for a time when oil demand will flip to the upside. Until then, Total looks as though it is banking on emerging markets to provide the spur to growth for the forseeable future.

In Nigeria, Total is the lead company in the Apko offshore oil field, where it is partnered with MSV’s favourite oil firm, Petrobras (NYSE – PBR) & state-owned Nigeria National Petroleum Corporation, the field is estimated to have reserves of up to 1.6 billion barrels of sweet crude in reserve. In order to help fund the project, the three existing shareholders agreed to auction off a 45% stake in the field to Indias state controlled ONGC for an estimated $2 Bn.

In Yemen, Total will soon start shipping liquefied natural gas from the Gulf of Aden, bringing into operation a $4 billion project begun less than four years ago. The shipments will make Yemen the newest member of the world’s small club of gas exporters & should earn the government as much as $50 billion in tax revenue over the next 25 years.

In Angola, as discussed in a previous post, Total is set to continue with a $9 billion investment to raise production, despite the huge drop in crude prices since July last year. In a joint venture with Chevron (NYSE – CVX) & others, the Tombua-Landana oil field is expected to come online, contributing a further 120,000 bpd to Totals existing operations. Meanwhile, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil from depths of up to 1,200 metres,beginning in 2011, according to the company’s website. Presently, Total is the third biggest oil producer in Angola after Exxon & Chevron, pumping over 500,000 barrels per day.

During his presentation lat week, CEO  de Margerie stated that Total is also interested in entering the upstream sector in Brazil, particlualrly in offshore projects such as the Santos basin and is also eying new acreage in Venezuela.

“We have had discussions with Petrobras and told them officially that we would be interested either in entering existing discoveries or taking part in the next bids on new acreage,” de Margerie told reporters at a briefing in London.

He stressed that Petrobras needed financing to develop the reserves in the offshore basin, but that Total was not interested in merely becoming a financial partner in Brazil. De Margerie also said Total would be interested in bidding for new exploration acreage in the extra heavy crude oil Orinoco Belt in Venezuela.

“There is room for additional development  & we will be one of the companies to get access to the bid data, and we may bid,” he said. “We need to operate in Venezuela in good conditions, but it is an important target in terms of acreage” .

De Margerie said Total was right to stay in Venezuela despite the nationalization by President Hugo Chavez of large swathes of the country’s oil industry in 2007. Chavez nationalized oil fields when crude prices were on what looked like an unstoppable bull run, and as a result ExxonMobil and ConocoPhillips left Venezuela and are still runiing legal battles over disputed projects. It was reported earlier this year that Venezuela is now looking for new bids to develop fields from both global majors and state-run oil companies. Total which saw its stake in the Sincor project reduced from 47% to 30.3% in Chavez’s ambitious move remains committed to the project.

“We have to make sure our existing Sincor project delivers–this is still a real challenge,” he said.

Looking at Total from an independent viewpoint, it is obvious the management are playing a canny game. We have seen them exit or scale down high cost projects, such as Saudi Arabia, UK & Canada, whilst at the same time, investing heavily in emerging market prospects, as is clear from this article. What also impresses me about this company is its track record of working well with IOCs such as Chevron as well as local state entities & as long as it continues with this “nimble” approach along with a prudent focus on legacy operations, the future looks very bright indeed.