David Seaton's Energy Links®

"The Stone Age came to an end not for a lack of stones and the oil age will end, but not for a lack of oil.'' 

Sheikh Ahmed Zaki Yamani
 

Table of Contents
Editorial
*Oil companies report earnings surge on higher prices following hurricanes - Canadian Press
*Iraqi oil exports grind to a halt - BBC
*Don't let oil harm global prosperity - Rodrigo de Rato - International Herald Tribune
*The way to play oil stocks now - CNN
*Saudi Oil Income to Reach $163 Bln, Most in 22 Years - Bloomberg
*PUERTO RICO - VENEZUELA: Talks may lead to oil deal- Miami Herald
*Venezuela Eyes France As Oil Partner - MSN Money

David Seaton's Energy Links® Editorial - Syria: Another Step? The United States is putting fierce pressure on Syria. This time, in contrast to the build up to the invasion of Iraq, the Bush administration is using the United Nations and patient diplomacy.  Nobody, probably not even the Bushistas themselves knows how far they are prepared to go. On one hand, with its army stretched to the limit, there is little support in America for more military adventures, but on the other hand with scandals that could dwarf Watergate whirling around him and his approval ratings at 38%, Bush has a desperate need to take control of the news cycle. The mixture is potentially explosive. USA  TODAY said in an editorial, “Handled ineptly, Syria could ignite further disaster.”  Of course the question arises, has there been anything that the Bush administration hasn’t already handled ineptly?

The Russians are already supplying the Syrians with the state of the art SA-18 anti-aircraft missile and according to the Israeli intelligence web, Debka Report, Russia is now going to give the Syrians 26 of the Iskander SS-26 surface missiles, the most advanced tactical missile in the world; for which Israel has no defense. Haaretz, the Tel Aviv paper reports the Israeli governments “concern”. Perhaps the weapons are being supplied to make the Syrian generals more amenable to Assad’s predictable humiliation by the UN. According to Arnaud de Borchgrave of United Press, they harbor deep resentment against Assad for caving in to international pressure to withdraw the Syrian army from Lebanon after Hariri's assassination. Or perhaps Russia’s object is simply to dissuade the USA and Israel from taking military action against Syria, either way all these missiles certainly add a disturbing element to the mix.

Syria, like Iraq is a complicated crossword puzzle arbitrarily created by the British and the French after World War I. To give some idea of its Iraq-like potential, Syria, which borders Turkey, Israel, Jordan and Lebanon, is a Sunni majority country with a large Shiite minority and a significant Kurdish minority too. It has been ruled for forty years by a mafia from a tiny minority sect of the Shiites, the Alawites. After independence and before the Assad family's rise, there were no less than 22 coups d'etat. In the same way that stability in Yugoslavia depended on Tito, stability in Syria was strictly a product of Bashar’s father, Hafed al-Assad. A Sunni backed coup in Syria at this time would dynamize the larva of Iraq's incipient civil war, stimulate the Kurds drive for independence everywhere, which might in turn bring in the Turkish army etc. Probably the most intelligent thing that the "international community" could do at this moment is to leave Bashar al-Assad to the twilight limbo of his dwindling power.  David Seaton

David Seaton's Energy Links®

Oil companies report earnings surge on higher prices following hurricanes - Canadian Press
ConocoPhillips, the country's third-largest integrated oil and gas company, said third-quarter profit surged 89 per cent, reflecting high prices for crude oil and natural gas after one of the worst hurricane seasons in memory slammed the heart of America's oil industry. The Houston-based company emerged from the one-two punch of hurricanes Katrina and Rita unscathed profit-wise, with earnings for the quarter ended Sept. 30 of $3.8 billion US, or $2.68 a share, topping the average Wall Street estimate of $2.57 a share, according to a Thomson Financial survey of analysts. Results were nearly double those of a year ago, which reached $2 billion, or $1.43 per share. "The hurricanes barked, but they didn't bite," said Oppenheimer & Co. analyst Fadel Gheit. "Obviously, what they gained was a result of higher oil and gas prices, which more than offset the impact of lower (production) volume." Oklahoma City-based oil and gas producer Kerr-McGee Corp. saw an even bigger jump with net income of $359.3 million, or $3.09 per share, up from $7.4 million, or five cents per share, in the third quarter of 2004. Excluding items and discontinued business, Kerr McGee's earnings reached $294.1 million, or $2.53 per share, from $143 million, or 95 cents, last year. And New York City-based Amerada Hess Corp.'s profits shot up 53 per cent as high commodity prices countered a production drop related to the storms. John Parry, an analyst with John Herold, noted that hurricanes boosted already high oil and gas prices, further countering what ConocoPhillips and others lost in production disruptions. "What they lost in production, they gained in price response to the hurricanes," he said. ConocoPhillips' quarterly revenue rose 43 per cent to $49.66 billion from $34.74 billion. "During the quarter, our U.S. Gulf Coast operations were significantly impacted by hurricanes Katrina, Rita and Dennis," said Jim Mulva, chairman and chief executive. "Despite these impacts, our overall operating performance for the quarter was good, and we continued to benefit from the strong commodity price environment." The company produced 1.79 million barrels of oil equivalent, or boe, per day, including 1.52 million boe per day from the exploration and production segment and an estimated 270,000 boe per day from its Lukoil Investment segment. Mulva told analysts the storms prompted a one per cent production drop of 60,000 boe per day. "We expect fourth-quarter boe to go up, and for 2005 to be flat with 2004 (excluding Lukoil)," Mulva said. "It would have been up if we did not have the impact of the hurricanes." During the quarter, ConocoPhillips generated $6.1 billion in cash from operations, spent $3.6 billion on capital projects and investments and reduced debt by $516 million to $13.5 billion. Corporate expenses from continuing operations rose 16 per cent to $242 million, reflecting $42 million in after-tax premiums incurred on the early retirement of debt, negative foreign-exchange impacts and increased benefit-related charges, partially offset by lower net interest expense. The company said it expects its Lake Charles, La., refinery, which has been shut since September because of Rita, to return to normal operations by next week. It's Belle Chasse, La., refinery, which sustained more damage from Katrina, should return to full operation early next year, Mulva said. In the first nine months of 2005, net income rose to $9.85 billion, or $6.94 per share, from $5.69 billion, or $4.08 per share, in the year-ago period. Total revenues increased to $131.2 billion from $96.8 billion a year ago. Kerr-McGee's results came in below the average estimate of $2.59 per share from analysts surveyed by Thomson Financial. The company's revenues were $1.21 billion, a slight increase from $1.2 billion a year ago. Integrated oil and gas company Amerada Hess reported net income of $260 million, or $2.60 per share, compared with $166 million, or $1.74 in the third quarter of 2004. Analysts surveyed by Thomson Financial expected earnings of $3.30 per share. Revenues rose to $5.96 billion from $3.93 billion.
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Iraqi oil exports grind to a halt - BBC
Oil exports from Iraq have been completely halted by a combination of attacks and bad weather, reports say. Four sabotage attacks brought exports from Northern Iraq to a halt on Sunday and officials warned the damage may take a month to repair. The problem worsened on Monday when a pipeline carrying crude to the Turkish port of Ceyhan was hit in an attack. Meanwhile, bad weather has prevented tankers from loading at terminals in the south, Agence France-Presse said. "Exports of crude oil have been stopped since Friday because of bad weather and high waves (in the Gulf) that prevent tankers from hooking up" to terminals in southern Iraq, an oil ministry spokesman told the news agency. Ahead of the stoppage, exports from the south of the country had been as high as 1.6 million barrels a day. In the north, Sunday's attacks hit a gathering centre for at least four wells in the country, around 40 miles west of the city of Kirkuk. On Monday, three mortars hit a set of oil and gas pipelines that had already been hit on Thursday, setting at least 16 oil pipelines on fire, news agency AFP said. Oil plays a vital part in Iraq's economy with crude exports making up 97% of the government's revenues.
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Don't let oil harm global prosperity - Rodrigo de Rato - International Herald Tribune
Oil prices have nearly doubled since 2003, and are likely to remain at historically high levels for the foreseeable future. Fortunately, although some countries are seeing signs of lower growth and rising inflation, the global economic expansion has continued. To sustain global prosperity, however, oil producers, consumers and policy makers need to cooperate to reduce the risks to growth and inflation, and to ensure that oil price movements are not as disruptive as they were in the 1970s. Two major factors have contributed to the rise in oil prices. One is a large and unexpected increase in the global demand for crude oil, the outcome of robust growth in global economic activity. The other is the markets' expectation of continuing tightness in the supply chain - ranging from extraction through refining. Globally, there has been only limited investment in the oil sector for the past two decades. In such market conditions, unexpected geopolitical developments, fears of potential supply disruptions and speculative activity can easily put pressure on prices. Hurricane Katrina provided a graphic illustration of just how sensitive the market has become. Disruptive price increases were only avoided by releases from strategic reserves, and by OPEC's offer to bolster crude production if needed. So far, the impact of higher energy prices in industrial countries has been surprisingly benign. Price pressure is coming primarily from unexpectedly high demand for oil, rather than from a sudden constriction in supply, as happened in the 1970s. Hence higher oil prices have merely moderated strong global output growth, rather than having been a serious drag. But such benign conditions may not persist, as is becoming evident in some countries already. Appropriate adjustments to monetary policy could be needed if higher oil prices start to have "second round" effects on inflation. Emerging-market and developing economies have already felt the effects of higher oil prices on output, trade balances and inflation. For the poorest countries, this is a further blow to the prospects for achieving the high rates of income growth that are needed to reduce poverty. To reduce the risks from high and volatile oil prices, we must improve the functioning of the oil market. Oil-exporting countries, international oil corporations and oil consumers need to work together cooperatively to find solutions. The growth of oil consumption can be moderated by allowing the market to work. This means seeking ways to ensure that oil product prices reflect the full economic cost. Many countries must face the reality that large and indiscriminate subsidies on oil products create social inequalities and economic distortions. In a few countries the issue will be to look at taxation policies - gasoline taxes remain particularly low in the United States, the largest consumer of crude oil. Slowing oil demand growth also hinges on further action to encourage alternative sources of energy and to promote energy conservation by adopting appropriate efficiency standards and energy taxes. Fears of future supply shortages must be eased by increasing investment in production and refining capacity. This will involve reducing regulatory obstacles to investment and reversing trends toward greater state control in the oil sector. Mundane as it may sound, better quality and more timely data relating to oil production, consumption, investment and inventories will help reduce excessive volatility. This will help producers and consumers adjust to shifts in supply and demand conditions and improve investment and consumption decisions. The poorest countries need more help from the international community to withstand the impact of higher oil prices. The International Monetary Fund's proposed new "shocks facility" will provide temporary financial support to low-income countries in adjusting to commodity price shocks, including higher oil prices. oil-exporting countries can also help the world weather the current tight market conditions and ensure that the benefits of higher oil revenues are well used in their own countries. For some, this is an opportunity to reduce their debt burdens. Many others, with sound and stable economies, could place themselves on a higher growth path through well-designed public spending. Oil producers, consumers and policy makers share the responsibility to ensure that markets operate efficiently in allocating our most crucial natural resource, that volatility in the markets is minimized, and that the global economy is sufficiently resilient to absorb increases in oil prices - even if these turn out to be permanent.
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The way to play oil stocks now - CNN
Americans may not be happy about spending $40 for a tank of gasoline, but they're coping. Problem is, just as we're adapting to one energy shock, another is lurking in our boilers and furnaces. The price of natural gas has doubled since June, rising from $6 to $13 per million BTUs. In northern climes many homeowners could see a $100 increase in their monthly heating bills. The implications for investors will be profound -- and not just for energy stock aficionados. "It's the single biggest issue out there for the stock market, yet most investors have their heads in the sand," says Wendell Perkins, manager of the JohnsonFamily Large Cap Value fund. "We're talking about $100 a month families won't be spending at malls, movie theaters, and restaurants." Wall Street economists haven't uttered the R-word much, but the fact is we have all the classic ingredients for one: war, rapidly rising energy prices, Federal Reserve rate hikes, and a mortgage-refinancing boom finally running out of steam. If there were a recession in 2006 -- or even just a slowdown -- demand for gas and oil would wane right along with construction, manufacturing, and the number of commuters. One way for you to hedge your bet is to avoid pure exploration and production companies like Anadarko (Research) and Kerr-McGee (Research), which are highly sensitive to the price of oil and gas. Instead, favor the big, integrated oil companies that make money not only from upstream crude production but also from downstream operations such as refining oil into gasoline, diesel fuel, and petrochemicals, and marketing gas directly to consumers. Downstream businesses make their money on the spread between the price of crude and the price of refined products, and that spread usually widens when crude prices are falling. "In this environment, what I want to do is take my bet away from crude oil and move it downstream," says David Talbot, an analyst with energy research firm John S. Herold. "That way you've got your finger in all the pies." Among the integrateds, the most conservative investment is also the best-run company: Exxon Mobil (Research). The stock used to trade at a substantial premium to its peers, but with legendary CEO Lee Raymond about to step down, this premium has diminished. Exxon trades at 11 times expected 2005 earnings, which is only one point more than BP or Royal Dutch. The average gap over the past five years has been three points. T. Rowe Price energy analyst Tim Parker smells a buying opportunity. "Lee Raymond or no Lee Raymond, the whole culture of Exxon is very cost-conscious," says Parker. "You know they're not going to do anything stupid." Exxon has also been buying back stock at a furious pace—1% of outstanding shares per quarter, according to Deutsche Bank analyst Paul Sankey—which is one reason Sankey thinks the stock could climb $16. Another attractive though lesser-known name is Total, the French oil giant. Trading at nine times 2005 earnings, Total is Europe's leading refiner, which means it's poised to profit from widening refining margins. Upstream, it's boosting oil- and gas-drilling production at a 4.5% annualized rate, second best among the major oil companies. On the downside, Total's dividend comes up a bit short, at 1.6%, although Citigroup analyst Jonathan Wright is predicting a 20% dividend hike. Another drawback (at least for U.S. shareholders): Because Total is based overseas, returns are affected by exchange rates. Oilfield service and technology companies also give investors energy exposure without overexposure to the vagaries of commodities markets. With rig counts up 40% since last year and Big Oil pouring billions into new exploration, these are boom times for the likes of Halliburton (Research), Baker Hughes (Research), and Schlumberger (Research), all on pace to improve earnings 50% or more this year. Price/earnings ratios range from 25 for Schlumberger to 20 for Halliburton. Two smaller players Parker really likes are Cooper Cameron (Research) and FMC Technologies (Research), both of which make, among other things, the subsea wellheads that control the flow of oil and gas from underwater wells. "Think of the difficulties of controlling oil and gas in a pressured environment on land, and then think about the difficulty of doing this at sea in maybe 1,000 feet of water," says Parker, who is predicting a surge in deep-water drilling. "The wellheads need to be highly engineered products, and these two companies have the technology the oil companies trust."
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Saudi Oil Income to Reach $163 Bln, Most in 22 Years - Bloomberg
Saudi Arabia is set to generate its highest oil revenue in more than two decades allowing the kingdom to reduce debt and boost spending on education and job creation plans in a bid to reduce unemployment that poses a threat to the country's stability. The world's largest oil exporter will derive $163 billion from oil sales this year, the most in 22 years, on higher prices and more exports, according to Samba Financial Group, the country's second- largest bank. The price of Saudi crude oil will average $51 a barrel in 2005, 45 percent more than last year, the Riyadh-based lender said in a report on the economy received by e-mail yesterday. ``This boom is coming at a time when the region as a whole has identified important gaps in physical infrastructure after years of neglect,'' said Ala'a Al-Yousuf, chief economist at Manama, Bahrain-based Gulf Finance House said. That's encouraging governments and companies to spend more on property development and industrial projects, Al-Yousuf said in an telephone interview today. Unemployment among Saudi males of about 9 percent is helping underpin a militant campaign to overthrow the ruling al-Saud family. Militants with suspected links to Osama bin Laden's al-Qaeda terrorist network have been targeting Westerners and other foreigners in the kingdom in an effort to scare them out, raising concern about security in the world's largest oil producer. Crude oil prices in New York have risen almost 43 percent this year to $60.63 a barrel on Oct. 21, according to Bloomberg data. Saudi Arabia's oil revenue last year was $106 billion. ``The Saudi economy is booming and it is at its best performing period ever,'' Brad Bourland, the bank's chief economist, said in the report. Higher oil production, and government and private spending will spur gross domestic product by 6.8 percent, the most in two decades, the bank said. Gulf Finance is an investment bank helping finance more than $5 billion of property projects in the Persian Gulf region, according to its Web site. Saudi Arabia, Kuwait, the United Arab Emirates and three other Persian Gulf monarchies will generate a record $305 billion of oil revenue this year, a third more than in 2004, on higher international oil prices, according to Standard Chartered Plc, a U.K. bank. The Saudi central bank will have foreign assets of about $141 billion by year-end, Samba said.
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PUERTO RICO - VENEZUELA: Talks may lead to oil deal- Miami Herald
Gov. Aníbal Acevedo Vila met with Venezuela's ambassador to the United States on Thursday for talks they hope could lead to Venezuela selling oil to Puerto Rico under preferential terms in exchange for cheap drugs. Puerto Rico's government has expressed interest in joining the Petrocaribe initiative, under which Venezuela sells fuel directly to 13 Caribbean countries with low-interest financing and deferred payment. Venezuelan President Hugo Chávez has said the island isn't eligible to join the pact because of its status as a U.S. commonwealth. Addressing reporters at the capitol building, Acevedo Vila said the two governments initiated the meeting to bring ''formality'' to talks about a future oil deal and other commercial ventures ``of benefit to both peoples.'' Venezuelan Ambassador Bernardo Alvarez said he told Acevedo Vila about Venezuela's need for medicine and didn't rule out the possibility that Venezuela could one day supply fuel to Puerto Rico in exchange for drugs. ''In the future, who knows?'' Alvarez said. ``We feel this should be the start of more dialogue, more interaction, of an analysis of the different options of Puerto Rico and Venezuela with regard to the energy issue.'' Under Petrocaribe, countries pay market prices for oil, but can pay for a portion up front and finance the rest over 25 years at low interest rates. Countries may also pay partly with services or goods. The governor said he would ''explore the possibility'' of encouraging local companies to produce drugs that could be sold to Venezuela more cheaply.
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Venezuela Eyes France As Oil Partner - MSN Money
France's Total has a vital role in Venezuelan oil projects and will continue to play a major role as part of a "strategic alliance" between Paris and the South American country, Venezuelan President Hugo Chavez said Thursday. Chavez noted that under a new law, Venezuela has begun revising its contracts with foreign companies to increase taxes and royalties. "We are in dialogue, bringing our positions closer together," Chavez told a news conference. He said details were being worked out in private, "but what I assure France and its interests on this issue is that Total will continue in Venezuela, and not only in Sincor I" -- a major heavy crude project in the Orinoco tar belt. Total is a partner in the Sincor project with Norway's Statoil and Venezuela's state oil firm Petroleos de Venezuela S.A., or PDVSA. Venezuelan Oil Minister Rafael Ramirez has accused the companies involved in the project of drilling beyond the boundaries set in their contract and extracting more oil than agreed. "We have reported some deviations (from contract terms) with respect to Sincor I," Ramirez said in Caracas on Thursday. He added that the extent to which Total and Statoil move forward with the second phase of the project in eastern Venezuela, known as Sincor II, will depend on their development of the first phase, known as Sincor I. Chavez said he hopes to create a "strategic alliance with France" through oil, and that support from Total is "indispensable." "We are going to talk with Total to keep advancing with the agreement Sincor I, making it better and perfecting it, and Sincor II, to double production and improve our wells in the Orinoco tar belt," Chavez said. "A Total-PDVSA alliance is a fundamental factor of the alliance between France and Venezuela," said Chavez, who also met with French President Jacques Chirac on Wednesday. Venezuela is the world's fifth largest oil exporter and a major supplier to the United States.
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