Offshore

Noble Denton and Germanischer Lloyd have joined forces to form a fully integrated technical assurance and consulting company. Unlike other mergers that are taking place these days, this joining of forces is one that will lead to expansion, not consolidation.

“It’s a real feel-good deal,” John Wishart, group managing director of Noble Denton, told attendees at a press conference to announce the merger in Houston in early April. “We’re not downsizing,” he said. “We need people.”

Both companies serve oil and gas companies, contractors, shipyards, ship owners, consultants, designers, and financial institutions across the marine and energy industries. The joint workforce will amount to more than 6,400 employees in 80 countries. In Houston alone, the two companies will jointly operate with a workforce of more than 200 engineers and technical experts serving the US oil and gas industry.

The new entity will provide assurance, inspection, and consulting as well as project management on a worldwide scale. It will focus its services along the entire life cycle of oil and gas (upstream through downstream), renewables, and energy installations onshore and offshore, including safety, integrity, reliability, and performance management.

“The merger is a reflection of the needs of our clients who increasingly face challenges in technology, environment, and asset integrity,” said Pekka Paasivaara, member of the Germanischer Lloyd executive board. “This is a holistic service offering.”

One of the primary focus areas for the company will be upstream, which Paasivaara defined as “the largest segment in the oil and gas value chain.”

Together the companies plan to address the technology challenges presented by frontier E&P. “Frontier areas drive demand for advanced technology support and solutions,” he said, “Deep water is driving growth, and deep water is introducing a new dimension in complexity and technology.”

According to Wishart, one of the greatest strengths of the new company will be the combined personnel resources. “We are now able to provide an even more comprehensive service offering to our clients with access to a greater number of technical experts. This will enable us to enter developing markets,” Wishart said.

David Rowan, managing director of project management and execution for Noble Denton, agreed. “What differentiates us and gives us the edge is that we have a high level of technical expertise as well as real-world experience. No one else has that same combination of skills.”

Equally significantly, perhaps, is the optimistic mood of the merger.

“This is an ‘up’ story at a ‘down’ time,” Wishart said. “We’ve got something that is going to be very special and interesting. We’ve got ambitions plans for growing our business. We’re giving people opportunities to develop their careers.”

At a time where the word “merger” has come to mean “downsizing,” the industry needs some good news. On the surface, it certainly looks as if the Noble Denton/Germanischer Lloyd merger fills the bill.

The company has plans to expand into growing markets in Russia and Vietnam and hopes to establish a local presence in Australia soon. To accomplish those goals, the company will need to add people. Wishart welcomes that challenge and is hopeful that others will see the value of the combined company and the opportunities that will inevitably arise.

“We want to become the organization where the talented engineers in the marketplace want to work,” Wishart said.

On Tuesday, March 24, the Greater Houston Partnership held an interesting event titled “America’s Energy Future: Assessing Our Paths to Energy Security,” which took place at the George R. Brown Convention Center.

Discussions in the course of the day addressed a number of topics, including potential solutions to supply and demand challenges, infrastructure issues, the role of technology, and energy policy in the US.

One of the more spirited exchanges of the day took place in the final panel discussion, “The Future of Federal Energy Policy.”

The panel, moderated by Dr. Renu Khator, Chancellor and President of the University of Houston, included:
•    Dr. Daniel Sperling, board member of the California Air Resources Board and founding director of the Institute of Transportation Studies at the University of California, Davis
•    Amy Myers Jaffe, Wallace Associate Director for the Rice Energy Program at Rice University
•    Clarence P. Cazalot Jr., President and CEO of Marathon Oil
•    Steve Winn, CEO of Nuclear Innovation, NRG
•    Paul P. Bollinger Jr., Deputy Assistant Secretary of the Army for Energy and Partnerships.

According to polls cited by the Partnership, Americans overwhelmingly support energy independence, but at present, there is no clear idea of how America will reach that goal, when it will be achieved, or what technology will lead the way.

There is a lot of money being allocated to energy efficiency and conservation, new technology, and new infrastructure. That investment, according to Cazalot, is necessary. “We need to move off our dependence on foreign oil,” he said. The big challenge at present, however, is that the idea of moving away from “dependence on foreign oil” is rapidly becoming a move from dependence on oil – period.

Moving away from the use of hydrocarbons for energy, Cazalot said, is an enormous challenge. The transition is one of the most difficult the nation has ever undertaken.  “Much of the emphasis is on new sources of energy,” he said, but there needs to be more focus on conventional sources, including coal, gas, and oil.

“We as a nation – we as a world – can’t get by without this transition,” Cazalot said, but people expect seamlessness, which is not going to be easy. There has to be a comprehensive solution, and there has to be certainly of supply. “We need to design a bridge from where we are today to our energy future,” he said. “You can’t do this helter-skelter. And oil and gas is a key part of our future.”

According to Amy Jaffe, “Energy conservation is the first step.” If conservation policies were put in place, the country could cut consumption by a significant amount.

To reach our goals successfully as a country, though, there has to be flexibility in electrical power generation. The best way to get to that point, Jaffe said, would be to have the same sort of competition of technologies in the power generation sector as exists in the country’s transportation system.

Dr. Sperling seconded Jaffe’s point on conservation. “There is not an appreciation of the urgency and importance of reducing consumption.”

Sperling followed this statement with his views about cutting carbon emissions, noting that one of the primary ingredients for success is creativity. “The single most important policy is the low-carbon fuel standard,” he said. Though it legislates reduced carbon emission, it is not prescriptive. It gives industry the freedom to figure out how best to meet the standard.

Nuclear power might well be part of the solution to reduced carbon emissions. “Nuclear plants produce no carbon,” Steve Winn explained. That point is significant, and it is certainly one of the reasons behind Department of Energy loans that will fund immediate plans for building new nuclear power generation plants.

One of these new plants in the wave of new construction has been proposed for the Houston area, Winn said, noting that he expects construction across the board to be rapid because of the “cookie cutter” approach that will be taken in building the new reactors.

According to Paul Bollinger the US Army is actively working on every front for energy security. The Army will be “the point of the spear” aimed at this goal, he said.

Today, the Department of Defense is the largest single purchaser of fuel in the US, Bollinger said, with the Air Force using 2.5 billion gallons of fuel each year and the Army consuming 600 million gallons.

According to Bollinger, the Army is working to diversify its fuel supply much as it invests in a broad arsenal. “You wouldn’t have just one weapon,” he said, explaining that it is equally foolhardy to rely on a single fuel. The Army is already investing in diverse energy supplies, including renewable fuels. The objective of this move is to reverse the Army’s fuel dependence and to produce fuel instead. “The Army proposes to be a net energy exporter in 15 years.”

The most conspicuous point to come out of this panel discussion is that individual groups within the country are approaching the concept of energy security from very different places. Though they think about energy differently, however, they are all working toward the same goal.

If they can find a way to build Cazalot’s “bridge,” there is every reason to be optimistic that they will succeed.

In mid-March, AGR Petroleum Services, the world’s largest independent well management company, took advantage of its annual rig briefing to operators in London to warn operating companies that there is a small window of opportunity for operators in the North Sea to capitalize on falling rig rates.

AGR claims that although semisubmersible rig rates are expected to drop below $250,000, drilling contractors are beginning to stack their rigs in lieu of accepting short-term contracts at low rates. “This could in turn lead to a return to capacity issues and rising rates once the oil price bottoms out,” said Ian Burdis, vice president of well management for AGR Petroleum Services.

Burdis compared the rig business today to the UK housing market. Although prices are falling, he said, no one is buying because they are holding out for the best deal. The result is that this is creating an artificial market where the true price is not known.

Burdis urged operators to end the current brinkmanship with drilling rig contractors and to progress activity where possible if they expect to make the most of the rate reductions.

“It’s accepted that there are difficult times ahead for operators over the next period,” Burdis said. “Never before have we seen a drop in oil price coincide with a recession, so over the short term it’s going to be challenging. The dip in North Sea activity offers significant opportunities to capitalize on lower rig rates, but this won’t be open for long as contractors opt to bottleneck rigs rather than take a rate reduction.

“To take advantage of the current situation operators must be drill ready and have progressed well preparation in advance. By keeping ahead of the game and committing early to site survey work, companies will be able to maximize activity while rates are low and avoid the delays bad weather can cause during the winter.”

Burdis believes that while there will be a major reduction in E&A activity in the North Sea through this year and into 2010, projects will pick up toward the end of next year. He expects activity in other areas to remain fairly steady.

“Although we have seen a reduction in activity in the North Sea, we still have a full program of activity planned in Norway, Australia, and Southeast Asia and are still pretty busy in the US Gulf of Mexico too. While the current situation means that we’re not going out and completing wells in the UKCS, we are busy with our other revenue streams from reservoir management and engineering,” Burdis said.

In brief, AGR Petroleum Services believes that taking advantage of rig campaigns offered by well management companies is a prudent way of ensuring activity is carried out as efficiently and effectively as possible. The company, whether right or wrong, is speaking from experience, having pioneered this campaign model in the North Sea more than four years ago.

The message to North Sea operating companies is clear – if operators are interested in getting the best deals, they need to secure contracts as soon as possible and begin drilling right away.

According to a press release issued by Cambridge Energy Research Associates (CERA), the US Environmental Protection Agency (EPA) has taken a major step in climate policy with the introduction of a mandatory greenhouse gas reporting proposal.

The proposal, issued on March 10, 2009, is a “first-of-its-kind mandatory greenhouse gas (GHG) reporting program,” the press release said, representing the most expansive reporting program ever established by the EPA. It covers approximately 13,000 facilities and 85% to 90% of all US GHG emissions.

“While the rule does not impose emissions reductions, its implications are nonetheless far-reaching,” said Robert LaCount, CERA head of climate change and clean energy research. “Industries will need to prepare for comprehensive GHG reporting requirements, reevaluate current climate change strategies, and assess the implications of a federal GHG cap that may now go forward on an accelerated schedule.”

In some ways, the rule simplifies the challenges companies previously faced in reporting GHG emissions, according to LaCount. The rule sets forward a federal standard that will apply across all of a company’s facilities regardless of location. The primary difference between what exists now and what existed before, LaCount said, is that the new system is mandatory.

The proposal calls for companies to begin collecting data on January 1, 2010, and to file the first annual report by March 31, 2011. CERA says this is a very aggressive implementation schedule, especially considering that the EPA will be hard pressed to finalize the rule by the end of this year.

“Companies will need to plan ahead for the upcoming requirements in order to have new emissions management procedures operational by January 2010 to measure, verify, and report emissions from an extensive list of sources, including stack emissions, fugitive emissions, and vehicle fleets,” LaCount said.

CERA believes that when the new rule is implemented, it will enable unprecedented visibility of GHG emissions for the US economy and for specific sectors and companies.

“To put this in perspective,” LaCount said, “the reporting system for the European Union’s (EU) Emissions Trading Scheme currently covers approximately 40% of EU GHG emissions. To achieve this high level of coverage, the reporting requirements go beyond direct sources of emissions such as smoke stacks and fugitive emissions from industrial activity. For the first time, suppliers of coal, natural gas, and petroleum products into the US will need to report the carbon content of these products, and manufacturers of new motor vehicles and engines sold in the US will need to report the emissions rates for these products. Not only will this detailed information support the development of a future federal cap on emissions, but companies should prepare for greater scrutiny of their emissions profiles.”

The EPA reportedly will make this data available through a variety of publicly accessible sources including the agency’s Website.

“One of the stated goals of this rule is to help inform future climate change policy decisions,” LaCount said. “This explicit goal may not be achieved since US policy decisions could precede the first release of data anticipated in March 2011, but nonetheless, the rule is poised to influence future policy. First, the adoption of reporting rules that address a full range of economic activity, including the marketing of fossil fuels, could help build support for and demonstrate the viability of an economy-wide cap-and-trade program that extends beyond industrial facilities and power plants that have been traditionally regulated under these programs. And second, final measurement, verification and reporting protocols could help expedite the implementation of a federal cap-and-trade system. This rule will take close to two years to be developed, proposed, and finally adopted.”

Finally, some good news!

Exxon Mobil Corp. announced at an annual briefing for investment analysts at the New York Stock Exchange that it has plans to invest at record levels – between $25 billion and $30 billion annually over the next five years – to meet expected long-term growth in world energy demand.

“The global economy is currently experiencing a downturn, but at ExxonMobil we are focused on the long term,” said Rex Tillerson, chairman and CEO.

Tillerson outlined ExxonMobil’s major achievements in 2008 and plans for the future. Highlights include:
·    Production started at eight major projects in 2008, which at their peak are expected to add the net equivalent of 260,000 b/d to the company’s production. A further nine major projects are expected to begin production in 2009. At their peak, the fields coming onstream this year are expected to add the net equivalent of an additional 485,000 b/d to production.
·    For the 15th consecutive year, the company replaced more than 100% of production through proved reserves additions in 2008. ExxonMobil’s net exploration acreage has been increased by about 40% since 2003.
·    In the downstream sector, the company is progressing plans to invest more than $1 billion in lower-sulfur diesel projects at three refineries in the US and Europe. Once complete in 2010, these projects will allow an increase in lower-sulfur diesel production of 140,000 b/d.

“Our commitment to developing advanced technology, our industry-leading operational and project-management capabilities and exceptional employees continue to position the company as the partner of choice for resource owners around the world,” Tillerson said. “ExxonMobil is strong, resilient, and well positioned for the future.”

Chevron Corp. also announced good news this week, stating the company is well positioned to deal with difficult market conditions. Chevron attributes its position to a strong balance sheet, numerous new growth projects coming onstream, and a disciplined approach to cost management.

“We are continuing to execute our key strategies,” Dave O’Reilly, chairman and CEO, announced at the annual meeting with financial analysts in New York. “We’re moving legacy projects to development, we’re moving resources to reserves, and we’re continuing to deliver our industry-leading exploration program. In the downstream, we’re continuing our program to improve reliability and feedstock flexibility, and we are sharply focused on reducing costs.”

The company is basing its current plans on a belief that global energy demand will rise as economic growth resumes. “Shorter term, our portfolio is relatively less exposed to sectors that are most sensitive to an economic downturn,” O’Reilly said.

George Kirkland, executive vice president of upstream and gas, recapped the strong 2008 performance of the upstream and natural gas business, which had record earnings with nine major capital projects completed.

Kirkland also provided details on how the industry-leading queue of Chevron’s major capital projects will deliver significant growth and provide flexibility in the current economic environment. “Over the next two years, we expect new project startups and continued ramp-ups to contribute production of 650,000 b/d.”

Future growth, Kirkland said, will focus on the company’s LNG portfolio, particularly Gorgon and Wheatstone in Australia, as well as the crude oil opportunities in the Lower Tertiary trend in the deepwater US Gulf of Mexico (GoM).

Kirkland also discussed development plans for Chevron’s high-profile Jack and St. Malo discoveries in the Lower Tertiary trend in the GoM. The company has begun front-end engineering and design for a production facility that will have a capacity of between 120,000 and 150,000 boe/d. The facility will co-develop Jack and St. Malo, which have combined recoverable resources in excess of 500 MMbbl.

Pat Yarrington, CFO, outlined the company’s financial priorities. “We plan to sustain and grow our dividend and to maintain our financial strength and flexibility throughout the commodity price cycle,” she said, emphasizing the company’s strong track record of balancing current performance with future earnings growth.

So at least a couple of the supermajors see a light at the end of the tunnel.

Let’s hope we can take that optimism to the bank.

The beginning of May brings with it an annual event that draws tens of thousands of people to Houston, Texas. The Offshore Technology Conference (OTC), the largest event of its kind in the oil and gas industry, is an event that many companies and individuals plan for all year.

In 2008, OTC was an enormous event. Organizers announced that attendance at the 2008 OTC reached more than 73,000, a 26-year high, with energy professionals from 110 countries traveling to Houston for the show. This marked an 11% increase over 2007.

Last year, the exhibition area covered more than one-half million square feet, and 2,500 companies from more than 35 countries purchased booth space. Oil was at an all-time high, and companies in the oil and gas industry were raking in the profits.

With the present economic situation, there is speculation that OTC 2009, which will be held in Houston May 4-7, will not be on the same scale as last year’s event in terms of size and attendance.

While companies cut budgets in myriad ways, investment in technology is one of the line items that is not being reduced. And the one thing that remains constant at OTC is the focus on offshore technology. In fact, many would argue that some of the most prestigious awards for technology are the 2009 Spotlight on New Technology Awards that are given out each year at OTC.

On March 2, OTC organizers announced the 14 technologies that will receive this year’s Spotlight awards, which will be conferred on Monday, May 4, at Reliant Park.

To be entered, technologies must meet the following five criteria:
1. They must be less than two years old
2. They must be innovative – original, groundbreaking, and capable of revolutionizing the offshore E&P industry
3. They must be proven through full-scale application or successful prototype testing

4. They must have broad appeal for the industry
5. They must have significant impact, which means that they will provide significant benefits beyond existing technologies

These are the Spotlight recipients and products for 2009:

• 2H Offshore – INTEGRistick Dynamic Curvature Sensor
• Baker Hughes Inc. – TORX Expandable Liner Hanger System
• Baker Hughes Incorporated — Frac-Hook Multilateral System
• Cameron-Nautronix – NASMUX
• ProPure AS – ProSalt
• Reelwell AS – Reelwell Drilling Method (RDM)
• Schlumberger Subsea Surveillance – subC-strip and subC-collar
• Specialized Products – Pulse Technology-Battery Maintenance, Conditioning and Charging
• Technip France – Amplitude-LNG Loading System (ALLS)
• US Synthetic Corp., a Dover Company – Diamond Radial Bearings
• VetcoGray, a GE Oil & Gas Company – SEM5
• Weatherford International – OneTrip StarBurst Multilateral System
• Welltec – Well Cleaner PST
• WesternGeco, a business unit of Schlumberger – Coil Shooting

If you are interested in knowing more about the winning technologies, you can find photos and descriptions here.

The Center for Liquefied Natural Gas (CLNG) released an independent study that quantifies the greenhouse gas emissions released through the lifecycle of electricity production supplied by LNG and domestic coal.

The study, performed by PACE Global Energy Services, reveals that existing US coal fired power generation produces 2.5 times (161%) more greenhouse gas emissions than LNG fueled power generation.

This “revelation” should not come as a surprise. Anybody who tuned in to the US presidential debates at the end of last year was treated time and again to the Democrats’ criticism of coal as an energy source and to President Obama’s view that the US should burn clean coal or not burn any at all.

Given that the US is looking for alternatives, perhaps the CLNG study contains some information that is worth looking at.

“As Congress works to pass climate change legislation in the coming months in an effort to reduce greenhouse gas emissions, it is important that they know the truth about LNG’s contribution to a cleaner environment, said CLNG President, Bill Cooper. “Our study has found that LNG fueled power generation produces 70% fewer greenhouse gas emissions on a lifecycle basis than even the cleanest coal technologies.”

According to CLNG, the PACE study provides an “apples to apples” comparison of the lifecycle greenhouse gas emissions attributable to LNG and coal using a representative average of typical US LNG and coal operations used for electricity generation. The study evaluated a natural gas power plant supplied by LNG, a current US coal-fired power plant, and two advanced coal technologies that are not yet commercially viable in the US – Integrated Gasification Combined Cycle (IGCC) and Advanced Ultra Super Critical Coal (SCPC).

The study found that existing domestic coal power plants produce 2.5 (161%) more greenhouse gas emissions on a lifecycle basis than LNG-fueled power plants. Even the coal technologies that are considered to be “cleaner,” IGCC and SCPC, were found to produce 70% more lifecycle emissions than LNG.

It’s important to remember that end-use fuel combustion produces the large majority of the total lifecycle greenhouse gas emissions for all cases. Emissions from fuel extraction, processing, and transportation are minimal in comparison to the emissions produced from combustion for all of the scenarios evaluated.

That aside, the study results make good news.

According to Cooper, “LNG will clearly play a crucial role in helping to meet the substantial increase in demand for clean burning natural gas once climate change legislation becomes a reality,” Cooper said. Replacing a single coal plant with LNG-fueled power generation for one year, he said, would equate to removing 557,000 cars off of American roads.

Now that’s something the Obama Administration would be happy to hear.

Of course, the US doesn’t produce an awful lot of LNG. Most of what the country uses comes from other parts of the world. So even if we move to LNG as a cleaner fuel, we aren’t making dramatic headway toward energy security.

Still, it’s good to keep an open mind.

The fact that LNG hasn’t gained much of a foothold even though it is a very safe fuel source tells me that promoting LNG is worthwhile. And the more CLNG does to promote LNG, the better off everyone in the oil and gas industry is.

Changing misconceptions about fossil fuels is the first step toward changing America’s view toward the industry. And if voters are going to determine whether additional areas are opened for exploration drilling, they need to know the facts about oil and gas.

For a copy of the complete PACE Global Energy Services study, visit the CLNG website.

Additional stories about CLNG can be viewed at the E&P website.

A press release put out by Oil & Gas UK in early February says the oil and gas industry in the UK could suffer from the current financial crisis. “Urgent measures are needed to prevent the effects of the global recession combined with the banking crisis from dampening new investment in the recovery of the UK’s still significant oil and gas reserves”

For those who don’t know, Oil & Gas UK is a representative organization for the UK offshore oil and gas industry.  Its members are made up of companies licensed by the UK government to explore for and produce oil and gas in UK waters as well as companies that make up any part of the industry’s supply chain

The volatile press release accompanied the publication the organization’s annual survey of activity for the industry.

The Oil & Gas UK 2008 Activity Survey, which summarizes planned expenditure on the UK continental shelf (UKCS) by 75 oil and gas companies, indicates the combination of low oil prices and the freezing of capital markets will have a serious effect on E&D activity over the next 12-18 months.

This aging petroleum province has been fighting for E&P dollars for some time and had recently made headway in attracting more companies to developing the estimated 25 Bboe in remaining reserves.

According to Malcolm Webb, Oil & Gas UK chief executive, “The UKCS is clearly a mature oil and gas province, but production has responded to a step-up in investment in 2005-2006, and as a result, the annual rate of decline has slowed from 7.5% to 5% in 2008. This year and next, however, capital investment in exploration and development is forecast to drop, thus hitting future production. We cannot stand by and simply allow the decline rate to accelerate.

“Of the UK’s remaining 25 Bboe, the survey tells us that companies have plans to invest £44 billion to recover 9.6 Bboe,” Webb said. “Our research shows that if investment could be sustained at around £5 billion per annum, the industry could hold production decline at 4% to 5% a year on average.” The problem is that if investment falls, decline will again accelerate.

The organization’s latest estimate indicates capital investment in new and existing fields fell from a peak of £5.6 billion in 2006 to just under £5 billion in 2008, despite rising oil prices. The present scarcity of capital means new investment is being secured for only the most attractive projects, which means investment will fall to somewhere in the range of £3.5-4.5 billion in 2009 and could decline further to between £2.5 billion and £4 billion in 2010.

According to Oil & Gas UK the break-even oil price for new field investment is now more than $40. That means that only one-third of the new developments currently under consideration can hope to break even at current costs.

“Since the oil price was last in the $40-45 per barrel range four years ago, the cost base and supplementary charge on corporation tax have both doubled,” Webb explained. “The fundamental mismatch of the tax rate and business environment is detracting from the value of investments, rendering them less competitive. This becomes particularly apparent when oil prices are lower.”

Though exploration and appraisal drilling activity in 2008 (109 wells) was on par with 2007, there is no such hope for 2009. Oil & Gas UK believes there will be a rapid reduction in drilling in 2009. In 2008, analysts estimated 113 wells would be drilled in 2009. Oil & Gas UK’s latest survey predicts there will be only 77 wells, only 34 of which have secured a drilling rig.

“The UK oil and gas industry is at a crossroads,” Webb said. There are many commercial opportunities that could attract investment in the right circumstances, but in the short term, the UK needs to focus on mitigating the effects of the downturn.

“The industry is working hard to adjust its cost structure and retain its impressive skills base, but we need government help to ease the flow of capital from banks to smaller exploration and production companies, improve the availability of credit to the supply chain and ease the tax burden on new oil and gas developments,” Webb said.

The organization is already in talks with the government to devise measures that address these concerns.

No doubt, the UK could use some bold, swift policies that will help ameliorate a crisis that is expected to exist for quite some time.

The full report is available here

Grant Thornton LLP, a national energy practice that serves the accounting and tax needs of energy companies, has released the results of an interesting survey of upstream US energy companies. This is Grant Thornton LLP’s seventh annual survey of upstream US energy companies.

More than 65 companies responded to the survey questionnaire with E&P companies making up 74% of the respondents and service companies making up the remaining 26%. Of the companies surveyed, public companies made up 26%, while private companies made up the balance.

According to Grant Thornton LLP, incentives to increase drilling topped the list of measures that could be taken to reduce the cost of energy to US consumers, followed by conservation and increased US refining/processing capacity.

Unsurprisingly, the top three most important issues facing the oil and gas industry are uncertain natural gas prices, uncertain oil prices, and scarce capital. Survey respondents also believe that the best way to enhance their company’s value and growth is through successful exploitation of resources, followed by successful exploration and mergers and/or acquisitions.

“Overall, as to be expected, respondents were generally not as optimistic as compared to the past two years,” said Reed Wood, Grant Thornton LLP’s partner-in-charge of the firm’s energy practice. “Their responses, together with intelligence gathered from client and industry meetings, indicate that the entire energy industry will likely confront formidable challenges throughout 2009 as it continues to adjust to one of the most severe declines (absolute, percentage and period) for oil prices.”

Additional highlights of the survey include:
·    A total of 32% of the energy executives anticipate increases in domestic capital expenditures in 2009, down from 65% in 2008. Nearly all (92%) anticipate decreases or no change in the amount of foreign capital expenditures in 2009.
·    $3.93 per MMbtu is the maximum acquisition price companies are willing to pay for conventional proved reserves.
·    More than a third (35%) expect higher employment levels at their companies in 2009 compared to three-fourths (76%) in 2008 and 2007.
·    One out of four (26%) anticipate difficulties in hiring and retaining employees, down significantly from 85 % in 2008 and 69 % in 2007.
·    Top choices for alternative fuels are: nuclear, wind, and clean coal.
·    While 43% believe the U.S. is a global leader in the industry, 89% believe the U.S. relies too heavily on foreign sources of energy.

The entire report of survey results can be viewed here

Robert Mundell, professor of economics at Columbia University, says there are six men responsible for our current financial crisis.

Why should we care what Mundell has to say on this subject? Well, there are several reasons.

Mundell, who is a Canadian economist, graduated from the University of British Columbia in Vancouver. He attended the Massachusetts Institute of Technology, where he earned a PhD in Economics in 1956. According to a Wikipedia biography, Mundell also attended the London School of Economics and was a top performer in his years there.

Mundell worked as an economics professor at McGill University and the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. As chair of economics at the University of Waterloo in the 1970s, Mundell laid the groundwork for the introduction of the euro through his pioneering work in monetary dynamics and optimum currency forms.

Mundell’s work on currency areas and international exchange rates led to his being awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel by the Bank of Sweden (Sveriges Riksbank) in 1999.

As a Nobel Prize winner, Mundell has an interesting outlook on the present world financial crisis, and he shared some of his ideas in a recent conference held in Florence, Italy.

According to Mundell, the origins of today’s financial crisis were the dot com boom of the 1990s and the global slowdown in 2001-2002. Sub-prime lending complicated things, and the temporary fixes along the way failed to normalize the situation.

Mundell identified six men he believes are responsible for contributing to today’s recession:
·    Lewis Ranieri, known as the father of securitized mortgages
·    Former president, Bill Clinton
·    Alan Greenspan, chairman of the US Federal Reserve from 1987 to 2006
·    Maurice (Hank) Greenberg, former chairman and CEO of American International Group, the world’s largest insurance and financial services corporation
·    Ben Bernanke, sworn in as chairman of the Federal Reserve Board of Governors in Washington DC in 2006; and
·    Hank Paulson, former 74th US Treasury Secretary

Lewis Ranieri was the first to come under attack. According to Mundell, Ranieri’s pioneering of mortgage backed bonds in the 1980s helped to lay the groundwork for today’s crisis.

Bill Clinton moved the crisis to the next level by strengthening the 1977 Community Reinvestment Act during his time in office as president, making loans easier to secure for socially disadvantaged borrowers.

Alan Greenspan’s role, Mundell said, was to keep interest rates “too low for too long,” supporting sub-prime lending, and advocating variable rate mortgages, which Mundell called “a terrible idea.”

Ben Bernanke’s mistake was that he “allowed the dollar to soar on the idea that the exchange rates don’t matter,” Mundell said.

And Hank Paulson, though Mundell calls him “the best of the three recent treasury secretaries,” shares the blame because of the “colossal failure” of bailing out Bear-Stearns, but failing to understand that it was equally important (if not more so) to bail out Lehman Brothers. This was a critical error, Mundell said, and it was compounded by Paulson’s failure to notice the significance of the appreciation of the US dollar in 3Q 2008. According to Mundell, that was a sure sign of the negative things to come.

Having pointed the finger into the past at all of the people who put us in the bind we’re in, Mundell looked forward to his prediction of where the world will be at this time next year.

Mundell’s prediction is that the US recovery will begin in the second half of 2009 and that Europe will begin to recover six months later. Though he predicts a major slowdown in the Chinese economy, he believes there will be moderate recovery late in the year 2010. China’s growth rate, which has begun to drop, will go from a high of 11% in 2008 to a more modest 6% in 2010, Mundell said. A drop of 5% is nothing to sneeze at, but the end result – a 6% rate of growth – will place China as a significant world player in the context of growth.

So if we put faith in Mundell’s outlook, though we’re in a bind now, it isn’t all bad news. If we hang in there for a few months, things might just begin to get better.