Showing posts with label Mayer Brown. Show all posts
Showing posts with label Mayer Brown. Show all posts

Monday, April 11, 2011

Talking SPRs & bidding farewell to North America

As the Oilholic prepares to leave North America and head home, oil prices are at a 32-month high with both the WTI & Brent forward futures contracts setting new records each week. Americans are grappling with gasoline prices of over US$4 per gallon. European tales of crude woes have also reached here.

Quite frankly, the global markets must prepare for a lengthy supply shortage of the 1.4 million barrels per day exported by Libya. Rest of OPEC is struggling to relieve the market pressure. Yet it is not the time for governments of the world to dig into their strategic petroleum reserves (SPRs) as has been suggested in certain quarters.

The loudest clamour here is coming from Senator Jeff Bingaman – a Democrat from New Mexico and chairman of the US Senate energy committee – who would like to see his country’s SPR raided to relieve price pressures. That SPR is tucked away somewhere in states of Texas and Louisiana and contains 727 million barrels of the crude stuff. The Japanese have stored up 324 million while European Union member nations should have just under 500 million barrels.

The Oilholic would like to tell Senator Bingaman and others making similar calls that such a move would add to the market fear and confirm that a perceptively short term problem is worsening! Long term hope remains that the Libyan supply gap would be plugged. Releasing portions of the SPRs would not alleviate market concerns and could even be a disincentive for the Saudis to pump more oil.

Meanwhile, the IMF also warned about further scarcity of supply, noting: “The increase in the trend component of oil prices suggests that the global oil market has entered a period of increased scarcity.” This does beg one question though – if supplies from the world’s 17th largest oil exporter can cause such market fear, then aren’t we glad it wasn’t an exporting nation further up the 'crude' chain?

Elsewhere, a share exchange agreement between BP and Russia’s Rosneft was blocked again on April 8 as an arbitration panel in London upheld an injunction on the deal following objections by TNK-BP. However, it gave BP until Apr 14 to find a solution. Shareholders of TNK-BP – an earlier Russian joint venture of BP – have argued successfully up until now that the tie-up breaches business agreements BP entered into with them.

The only good news here for BP is that it can ask for Rosneft's consent to keep the agreement alive. If the company bosses wished for an easier 2011, clearly the year has not started as such and as with much else, the injury is largely self-inflicted! And here is BP’s spiel on the Gulf of Mexico restoration work.

Additionally, on April 6 a three-judge panel of the Fifth Circuit Court of Appeals in Houston denied ex-Enron chief executive Jeffrey Skilling a new trial, upholding his conviction on 19 counts of conspiracy and other crimes. It vacated Skilling's 24-year prison sentence and sent it back to a lower court for re-sentencing.

Enron's collapse into bankruptcy in 2001, following years of dodgy business deals and accounting tricks, made over 5,000 people redundant, wiping out over US$2 billion in employee pensions and meant US$60 billion in the company’s stocks were worthless. The city of Houston bore the brunt of it but the Oilholic is happy to observe that it found the strength to move on from it.

Having left London on March 23, it has been an amazing three-week long journey across the pond starting and ending here in Houston, with Calgary, Vancouver, Seattle and San Francisco in between. Completing a full circle and flying back to London from Houston, it is apt to thank friends and colleagues at Deloitte, Barclays Capital (Canada), S&P, Norton Rose Group, Ogilvy Renault LLP, Heenan Blaikie LLP, Mayer Brown LLP, Pillsbury Winthrop Shaw Pittman LLP, Canadian Association of Petroleum Producers (CAPP), Stanford University, Rice University, University of Calgary and several energy sector executives who spared their time and provided invaluable insight for the Oilholic’s work.

© Gaurav Sharma 2011. Photo: Disused Gas Station in Preston, Connecticut, USA © Todd Gipstein/National Geographic Society

Tuesday, March 29, 2011

BP's still going ‘Beyond Petroleum’ in Houston

It is difficult to say whether Texans in general and Houstonians in particular are more irritated or more disappointed with BP. Perhaps the answer is a combination of both, but anti-British the Texans are not. Many here feel let down by the company, a sentiment which had already been on the rise following the Texas City refinery blast in March 2005. News that the company is now trying to sell the asset does not assuage that feeling here.

Many opine that when things were going horribly wrong in the Gulf of Mexico, BP could have done better, sought more cooperation from the government and not insisted it can handle things on its own. Some also blame their government of complacency for not intervening sooner and forcing BP’s hand.

Nearly a year on, while a sense of disappointment has not subsided, no one here seriously believes BP has turned its back on a lucrative American market – a withdrawal from refining and marketing ends of the business is more likely. I think it is a dead certainty from a strategic standpoint.

Now this ties in nicely to the company’s "Beyond Petroleum" campaign from a few years back. There was a fair bit of scepticism about it in England and elsewhere. However, it seems the company continues to go beyond petroleum in Houston. In 2006, BP said it would set up its alternative energy business in Houston on top of an existing solar business in Frederick, Maryland.

Five years hence and despite all what has happened, it is still going or rather has been kept going based on the 33rd floor of this city’s iconic Bank of America Center building on 700 Louisiana Street (see left). Asked about its prospects, the company did not return the Oilholics’ call. However, I visited the iconic building anyway courtesy of other occupants, especially Mayer Brown LLP, for which I am grateful.

The next 12 months are crucial for BP. Americans are a largely forgiving bunch, but as Texans say forgiving is one thing, forgetting is another matter! And many have pointed out their disgust at Transocean and Halliburton too. Unfortunately for BP – the 'crude' muck stops with them.

© Gaurav Sharma 2011. Photo: Bank of America Center, Houston, Texas, USA © Gaurav Sharma, March 2011