India’s Iran connection & the crudely high price

Don’t say the Oilholic did not tell you so after his Indian adventure – that India will find it very hard to match Europeans on censuring Iran in ‘crude’ terms! An interesting newswire copy from the Indo-Asian News Service (IANS) as cited by broadcaster NDTV notes that in fact, India is set to step up its energy and business ties with Tehran.

The news emerges in wake of an attack earlier this month on an Israeli diplomat carried out barely yards from the Indian Prime Minister’s residence in Delhi, for which Isreal is blaming Iran. It shows you how ‘crude’ the Delhi-Tehran ties are. The blogosphere is rife with news that it is becoming increasingly difficult for Indian oil companies to pay their Iranian counterparts in wake of international sanctions which hamper processing of international payments and place limits on what the central bank - Reserve Bank of India (RBI) - can or cannot do. Well placed sources suggest that various options from routing payments via Turkey and in suitcases are being trialled.

Pragmatically speaking, few can blame India for not curtailing ties with a country which supplies 10% of its crude imports. The Iranian situation coupled with the geopolitical influence of other events in Nigeria and Sudan alongside a Greek rescue and the Chinese Central bank’s cut of the required reserve ratio of its domestic banks (on Saturday to ease borrowing) have all come together to introduce bullish trends.

The crude price is currently at an 8-month high; when last checked @13:45GMT on Feb 23rd – the ICE Brent forward month futures contract was at US$124.33 per barrel and WTI was at US$106.33 per barrel. Three City analysts told the Oilholic this morning that the strong upside rally in the oil market is likely to continue for some time yet. Additionally, in a note to clients JP Morgan Chase raised its 2012 price forecast for Brent crude by US$6 to US$118 a barrel and its 2013 forecast by US$4 to US$125 a barrel.

Meanwhile, former UK Chancellor of the Exchequer Lord Lamont – who is now the Chairman of the British-Iranian Chamber of Commerce – recently told BBC Radio 4 that imposing economic sanctions on Iran will not work.

"I can only say we are banging our heads against a wall with this approach...Iran will not buckle under these sanctions. The effect of sanctions is to hit the private sector in Iran, drive companies bankrupt and drive them into the arms of the government, or into the hands of the Revolutionary Guards and into alliances with people in the government smuggling the goods they desperately need," he said.

"I'm not sure this will have the right effect. Could this produce regime change? It's possible but in my view it's just as likely that it will bolster the strength of the regime," Lord Lamont concluded. According to the BBC, data compiled by companies exporting to Iran show that direct trade dropped from just under £500 million in 2008 - to an estimated £170 million in 2011. Blimey – didn’t know we had that much bilateral trade in the first place!

Moving away from what a former UK Chancellor said, an Indian wire reported and the Oilholic ranted about, it is time to discuss some interesting bits of reading material. This humble blog’s rapidly rising North American fan base (to put it modestly) would be keen to know that Reuters’ very own resident Oilholic – Tom Bergin’s splendid book on BP’s Macondo fiasco and its corporate culture – Spills and Spin: The Inside Story of BP – saw its US edition launched earlier this week.

Here’s the review, and if you lot in the US haven’t been cheeky and ordered a UK copy from an internet retailer, the Oilholic would recommend that you visit you a friendly neighbourhood bookstore (or library) where you are likely to find a local edition. From Bergin’s book which raises serious questions on corporate ethics to a Pastor who raises a rather pious question for us all really - Where would Jesus Frack?

According to the Pittsburgh Tribune Review, a pastor told environmentalists last month that there is a scriptural basis for opposing Marcellus Shale drilling in the US. The Rev. Leah Schade, pastor of the United in Christ Church in Union County, Pennsylvania, USA, wore a hand-sewn white patch that said, "WWJF - Where Would Jesus Frack?" and dropped to her knees to demonstrate the power of prayer.

Asked later to answer the question on her blouse, Schade said, "I don't believe Jesus would be fracking anywhere." She cited Genesis 2;15: "God put human beings into the Garden to till it and keep it, not drill and poison it." Amen!

Continuing with interesting things to read, finally here is a comparison drawn by BBC journalist Vanessa Barford on what are the competing claims of UK and Argentina over the Falkland Islands – an old diplomatic spat which has recently acquired a crude dimension. Last but not the least, here is a video of yours truly on an OPEC broadcast discussing project investment by the cartel at its 160th meeting of ministers in December. That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo I: Veneco Oil Platform © Rich Reid - National Geographic. Photo II: Front Cover (US Edition) – Spills and Spin © Random House Publishers.

Talking to Deloitte, Kentz and Baker & McKenzie

As Day three ends, the Oilholic had the pleasure of great chats with friends at Deloitte, Kentz Engineers & Constructors and Baker & McKenzie here at the 20th WPC. Starting with the latter first – B&M – who have taken the initiative to discuss NOCs and IOCs from a different angle.

While the age old debate about NOCs versus IOCs is history, new opportunities for synergies and investment are emerging between the two and the Chicago-headquartered law firm wants to discuss these over a seminar here at the Congress. Let’s face it, NOCs overtook IOCs ages ago and most IOCs now seek partnerships with NOCs. Furthermore, since now would be a good time for asset acquisition; it is worth talking about the opportunities that exist for NOCs.

The Oilholic has been kindly invited by B&M to moderate the seminar wearing his Infrastructure Journal’s writer as well as this humble blog author’s hat. In sunny Qatar – its two hats better than one. Details on how it all went to follow when the seminar is over.

Since, the hot weather makes one thirsty, a parched Oilholic also had the pleasure of a few dwinkys with friends at Kentz. A chance and pleasant meeting with CEO Dr. Hugh O'Donnell courtesy Reuters’ very own resident oilholic Tom Bergin, author of the splendid book Spills & Spin, was deeply appreciated.

Dr. O'Donnell sees huge regional opportunities here in the Middle East and feels Asia Pacific and Australia would be good bet for investment in the oil & gas sector in this macroclimate for his firm. Sorry the conversation was off record at a social setting so it would not be appropriate to reveal more.

Last but certainly not the least, met several friends (new and old) from Deloitte, including Carl D. Hughes, the advisory firm’s global head of energy and resources. Like Dr. O’Donnell, Hughes sees potential in looking East. The Oilholic and Deloitte colleagues were in agreement about the challenges faced by the refining sector in Western jurisdictions and why new build in India is necessitated by demand.

Shale invariably had to creep in to the discussion – who would have thought that at the 20th Congress the US delegation would be heading here as the world’s leading producer of gas? By the way, got up close to an F1 McLaren car at ExxonMobil's stand! Pretty cool methinks! (See photo above left & click to enlarge). More later; keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: 20th World Petroleum Congress exhibition floor & entrance © Gaurav Sharma 2011.

Spills, spin, morals & a trusty correspondent!

A corporate scandal, disaster or an implosion always creates an appetite for literature on the subject. Amid a cacophony of books – some hurried, some scrambled and some downright rubbish – you often have to wait for a book that is the real deal. The Oilholic is delighted to say that if BP, its culture, the mother of all oil spills and its underlying causes are of interest to you, then Reuters correspondent Tom Bergin’s book – Spills and Spin: The Inside Story of BP – is the real deal and was well worth the wait.

Perhaps for many potential readers of this book, the author - a former oil broker turned newswire correspondent - would be a familiar name; Bergin’s wire dispatches have been flickering on our Reuters monitors for some time. However, if you were a shade worried that so networked a man as the author would give some within BP an easy ride, then that worry gets smashed to pieces a few pages into the book.

The Oilholic can safely say that in the energy business there are no moral absolutes. On reading Bergin’s account, the “pre-spill” BP it seems lost sight of morals full-stop. In a book of just under 300 pages, split by ten chapters banking on his experience as an oil correspondent, the author notes that what transpired when Deepwater Horizon went up in flames was not some isolated incident. Via a fast paced and gripping narration, he provides an account as well as his conjecture about all things BP and where did it all start to go wrong.

In order to contextualise what led up to the Gulf of Mexico spill and its aftermath, Bergin first examines BP’s history and its trials in some detail, then the transformative impact – for better or for worse – of John Browne, his successor Tony Hayward and corporate decisions throughout their time which transformed a once troubled part player into a big league major.

For over a decade and more, accompanying this transformation was what the author describes as the most sophisticated PR machine of all times which failed miserably when the company faced its biggest modern day crisis thereby making the CEO at the time of the spill – Tony Hayward – the most hated or the most farcical man in America; some say both.

Browne’s ego, his protégés, advertising group WPP-devised “Beyond Petroleum” campaign, safety bungle after safety bungle from Texas to Alaska and boardroom politics are all there warts and all. It would be unfair to pick a component of the book and single it out as your favourite, for the whole book is. However, if one may take the liberty of doing so then Chapter 3 - "There's no such thing as Santa Claus" is the best passage of the book. Maybe the Oilholic is biased in favour of these few pages, for as a CNBC researcher working in the wee hours of the morning I had a firsthand feel of the "PR drive" Bergin refers to in that passage.

Lastly, if you thought a British, excuse me – an Irish writer (as he confesses to announcing himself when Stateside in the days of perceived anti-British sentiment) – may give former CEO Tony Hayward an easy ride then you are being unkind. In the spirit of journalistic integrity, Bergin gives Hayward – a man whom he often had unique access to – what we scribes describe as the “full treatment.”

When I met the author a few days prior to book’s release, he told me his work was not a damnation of a company based on a solitary incident, no matter how horrendous the Gulf spill was. Au contraire, Bergin notes the story of that spill itself did not begin on the night of April 20, 2010 but 20 years ago when a determined John Browne set out to create the largest corporation in the world followed by his successor Hayward’s own determination to succeed and then outdo his mentor.

Having read the book cover to cover and seen the author deliver on his promise, the Oilholic’s overriding thoughts are that Bergin’s Spills and Spin could in the fullness of time be as definitive a book on BP in wake of Macondo as Bethany McLean and Peter Elkind’s Smartest Guys in the Room was in wake of the Enron collapse.

This blogger is happy to recommend the book to fellow oilholics, students of the energy business, those interested in corporate history as well as the horrendous spill itself. Last but not the least, some from the PR industry might wish to read it as well; albeit as a lesson on what to omit from the PR playbook!

© Gaurav Sharma 2011. Photo: Front Cover – Spills and Spin © Random House Group

Notes on a ‘Crude’ fortnight !

It has been a crude ol’ fortnight and there are loads of things to talk about. But first some “fused” thoughts from the Société Générale press boozer in London yesterday. There was consensus among crude commentators at the French investment bank most of whom asked that with commodities prices having been at or near record levels earlier this year, and subsequently subsiding only modestly, can anyone realistically say scribes or paranoid Western commentators are overstating the significance of China's presence in the global commodities markets? Nope! 

Additionally, should the existing commodities market conditions represent a bubble (of sorts); a deceleration in China could ultimately cause it to burst, they added. Most, but not all, also agreed with the Oilholic that IEA’s move to tap members’ strategic petroleum reserves (SPRs) may push Brent below US$100, but not US$90. At the moment it is doing neither. Finally, it is not yet time to hail shale beyond North America. Population concentration, politics and planning laws in Europe would make Poland a hell of a lot more difficult to tap than some American jurisdictions.

From an informal press party to a plethora of formal events at City law firms; of which there have been quite a few over the Q2 2011. Two of the better ones the Oilholic was invited to last quarter happened to be at Fulbright & Jaworski (May 10) and Clyde & Co (May 19).

The Fulbright event made Iraq and its “re-emergence” as an oil market as its central focus. Partners at the law firm, some of whom were in town from Houston, noted that since 2009 three petroleum licensing rounds have been held in Iraq with deals signed to cover of 51 billion barrels of reserves. There was enthusiastic chatter about the country’s ambitious plans to increase production from approximately 2.4 million barrels per day (bpd) to 12 million bpd by 2017. The Oilholic was also duly given a copy of the Legal guide to doing business in Iraq which regrettably he has so far not found the time to read.

Moving on, the Clyde & Co. event focussed on legal implications one year on from the BP Deepwater Horizon rig explosion. While much of the discussion was along predictable tangents, David Leckie and Georgina Crowhurst of Clyde & Co. drew an interesting comparison between the Piper Alpha tragedy of 1988 in the North Sea and the aftermath of the Gulf of Mexico spill. Agreed that regulatory regimes across the globe are fundamentally different, but observe this – Piper Alpha saw no corporate criminal prosecutions, no individual prosecutions and no top level political criticism. Deepwater Horizon will see FBI criminal and civil investigation, possible individual liability and we all remember President Obama’s “I am furious” remark. Shows how far we have come!

Continuing with Deepwater Horizon fiasco, met Tom Bergin last evening, a former broker turned Reuters oil & gas correspondent and a familiar face in crude circles. His book on BP – the aptly titled Spills and Spin: The Inside Story of BP – is due to be released on July 7th. Admittedly, books on the subject and on BP are aplenty since the infamous mishap of April 20th, 2010 and business book critics call them a cottage industry. However, the Oilholic is really keen to read Bergin’s work as he believes that akin to Bethany “Is Enron Overpriced?” McLean and Peter Elkind’s book on the Enron scandal which was outstanding (and surrounded by a cacophony of average “accounts”); this title could be the real deal  on BP and the spill.

Bergin knows his game, waited to present his thoughts and research in the fullness of time instead of a hurriedly scrambled “make a quick buck” work, has followed the oil major in question and the wider market for a while and has unique access to those close to the incident. Watch this space for a review!

Now, on to pricing and industry outlooks – nothing has happened since the Oilholic’s last blog on June 23rd that merits a crude change of conjecture. IEA’s move to tap in to members’ SPRs will not push Brent’s forward month futures contract below US$90 over the medium term. Feel free to send hate mail if it does! Analysts at ratings agency Moody's believe that (i) ongoing unrest in parts of the Middle East and North Africa (MENA); (ii) protracted supply disruptions in Libya; and (iii) lingering questions about OPEC supply are likely to keep crude at premium prices over the next 12-18 months.

In the past week, the press has received some ballpark figures from the agency. The release of 60 million barrels will take place in this month – but this will not be a straight cut case of two million bpd; the actual release will be much slower. The breakdown, as per IEA communiqués, will be -

• USA: 30 million barrels (or 50% of the quota comprising largely of light sweet with delivery of their lot to be complete by the end of August), 
• Europe: 18 million barrels (30%)
• Asia: 12 million barrels (20%)

Finally, the British Bankers Association (BBA) conference last week also touched on crude matters. Gerard Lyons, Chief Economist & Group head of Global Research at Standard Chartered opined that Western economies are two years into a recovery and that growth prospects are far better in the East than in the West. Hence, he also expects energy prices to firm up next year.

Douglas Flint, Group Chairman of HSBC Holdings noted that China is now a major destination for Middle Eastern exports (to be read oil and gas, as there is little else). So we’re back where we started this post – in the East that is!

© Gaurav Sharma 2011. Photo: Pipeline in Alaska © Michael S. Quinton, National Geographic