Yes, says Fred Lucas of JPMorgan, who notes that BP is trading on an implied reserve multiple that’s 30 per cent below its peers and equal to ExxonMobil’s long run finding and development costs:
Yesterday Desire Petroleum’s shares jumped more than a quarter, which can only mean one thing: oil in the Falklands.
As The Times reported (£):
In an announcement that could exacerbate tensions over the islands’ sovereignty with Argentina, Desire said that its offshore Rachel North well had been drilled to a depth of more than 3 kilometres and discovered a 57-metre thick belt of oil interspersed with layers of sand and shale.
The majors have a history of selling what they believe are their “cast offs” to the small, independent oil and gas producers because they see little value in them. When they all left the US for global markets, writing the US off as “mature” back in the 1970s, the independents picked up the pieces and carried on.
Not only did many continue to make a profit over the years, but they came up with new technology and expertise that cracked the code to making shale gas and now shale oil economic. The US is now a virtual boom town for energy resources.
So it is interesting to see that the majors, now back in the US and rushing to pick up shale assets from the independents, are selling their conventional assets in both the US and Canada.
Tudor, Pickering, Holt & Co Securities puts out a chatty research report every day, and it is worth reading. Case in point came yesterday when I came down to the header Industry response to Macondo.
It referred to a full-page advertisement in the Houston Chronicle from BP’s peers – ExxonMobil, Chevron, Royal Dutch Shell and ConocoPhillips. The ad was for the new oil containment system this group of four have agreed to spend $1bn building to ensure there is never again such a disastrous oil spill in the Gulf of Mexico. From the ad:
Engineer it. Build it. And make sure it is never needed.
But read on….
Two US oil and natural gas industry task forces have come up with more recommendations to the Department of Interior in a bid to have a say on how best practices are achieved following the Macondo well disaster. The American Petroleum Institute, the industry’s national trade association, said the recommendations are part of a comprehensive effort by the industry to strengthen all aspects of off-shore safety while continuing to produce energy and create jobs.
The task forces provided more than 50 recommendations, including ways to respond faster and more effectively to a runaway well and to better remove oil from water to block it from the coastline. In May, two other industry groups provided another set of recommendations. Erik Milito, API’s Upstream director, said in a statement:
We will continue to build on what has been achieved since the accident, and we must remain vigilant. However, producing the energy our nation needs and creating jobs are also important. It is time to end the deepwater moratorium that has sent many Gulf workers to the unemployment lines. People are hurting and have to get back to work.
Certainly the pressure is on the Obama Administration to lift the moratorium on new deepwater drilling and support the oil and gas industry at a time of slow recovery. API said its more than 400 oil and natural gas company members supply most of America’s energy, support more than 9.2m US jobs, account for 7.5 per cent of the US economy, and, since 2000, has invested nearly $2tn in US capital projects to develop all forms of energy, including alternatives, while reducing the industry’s environmental footprint.
But the US government is holding fast.
New York state is making inroads against hydraulic fracturing, the process that has enabled the big natural gas boom in the US in recent years. This is something environmentalists have been pushing for, and gaining traction with. They worry about what the fracturing of rock underground is doing to groundwater and what the entire process does to air pollution.
This week, the New York state Senate voted by a wide margin – 48 to 9 – in favour of a temporary suspension through May 15, 2011, on new drilling permits for the fracturing of shale rock deep under the ground. The fracturing process involves pumping underground, at high pressure, millions of gallons of water laced with chemicals and fine sands. The water breaks apart the rock and the fine sands prop it open so the gas can escape and be pumped out of the formation.