Energy investors enjoyed a second consecutive outstanding year in 2004, with all sectors in the industry providing larger gains than broad market indices, according to a year-end performance review conducted by energy research and consulting firm John S. Herold, Inc., Norwalk, Conn.
About 90 percent of the 360 companies in the survey recorded gains for the year, with 48 more than doubling in value. The median return for the entire group was a whopping 39.2 percent. In comparison, the Dow Jones Industrials were up just 3.1 percent in 2004, while the S&P 500 Index increased 9 percent.
Buoyed by demand for fuels to substitute for high-priced oil, coal producers led all industry groups with a 71.4 percent total shareholder return in 2004. Australian companies Macarthur Coal Ltd. (up 217.2 percent) and New Hope Corporation (130.1 percent) led the group.
Refiners and marketers benefited from a second straight year of strong margins, with total returns soaring to 62.3 percent in 2004 after recording 58.3 percent in 2003. Czech refiner Unipetrol was the top performer with a 225.5 percent gain.
Companies operating outside North America dominated a thriving E&P segment, registering a 67.1 percent total shareholder return in 2004. Mid-size US E&Ps rose 64.4 percent, followed by Canadian E&Ps (57.7 percent), large US E&Ps (45.3 percent), small US E&Ps (38.9 percent), and the super independents (36.6 percent). Centurion Energy was the top-performing company, with returns skyrocketing 590 percent based mainly on a series of prolific gas discoveries in Egypt. Runner-up Pebercam Inc. achieved a 456 percent gain by hitting a promising oil strike just off Cuba’s north coast.
The median shareholder return for the integrated oils was 31.5 percent, which outperformed most major market indices for the fifth consecutive year. Total market capitalization reached ahead by $257 billion, a value change roughly equal to the total market capitalization of the entire E&P sector. Rapid economic growth in Central and Eastern Europe drove Hungary’s MOL Rt. and Austria’s OMV to the top of the list, as both more than doubled in value.
Oil service companies (up 38.4 percent) and drillers (up 36.6 percent) rebounded from lackluster returns in 2003 due to increased spending by oil and gas companies. Pioneer Drilling Co. topped the drillers with a 108 percent rise, while the NS Group rose 186.6 percent to lead the oil service companies. Russia’s Yukos Oil recorded the steepest decline of the 360 companies in 2004, plummeting 92 percent.
Major price drop predicted for Rocky Mountain gas
Colorado-based Bentek Energy LLC, an independent intelligence consulting firm for the energy industry, forecasts as much as a 50 percent decline in prices for Rocky Mountain natural gas in 2005. The findings are based on a new multi-client study of that market by Bentek.
The study, titled “Catch the Wave - Risks and Rewards in the Expanding Rocky Mountain Gas Market,” is a comprehensive review of the supply, demand, and delivery fundamentals that shape the market for gas produced in that region.
“We were quite surprised by study findings that Rockies gas prices could be much lower by [late 2005] - perhaps down into the low $3/MMBTU range,” said Porter Bennett, Bentek president. “We expected that the new pipeline capacity out of the Rockies providing increased access to Midwest markets would improve the market for western gas production. Instead, any improvement in market access has been overshadowed by dramatic increases in competitive supplies from new production in West Texas and Oklahoma.”
This conclusion and others in the four-volume study include:
• a review of production trends and forecasts in each basin;
• a pipeline-by-pipeline assessment of capacity, utilization, and deliverability;
• an analysis of each utility’s demand down to the sector level - commercial, power, industrial, and residential; and
• an assessment of specific market risks, developments, opportunities, and strategic implications.
The Bentek study also examines the potential impact of LNG on long-term supply-demand balances and other developments that may impact the market for Rockies natural gas through 2010.
“Understanding these developments is essential for making strategic decisions on gas marketing programs, transportation arrangements, drilling budgets, and pipeline investments,” added Rusty Braziel, managing director of Bentek.
Volatile prices, new risks are CERAWeek topics
High and volatile prices, compounded by new geopolitical and technology risks, have altered the playing field and forced energy companies worldwide to change their strategies in response to these issues, says Daniel Yergin, chairman of Cambridge Energy Research Associates, a Massachusetts-based advisory firm to the global energy industry.
How the companies, countries, and individuals should respond to these challenges is the theme of this year’s week-long CERA executive conference, held Feb. 14-18 in Houston.
Along with CERA’s team of energy experts, more than 1,500 senior international energy executives, energy ministers, leading members of the policy and financial communities, and technology providers are expected to attend the event.
“CERAWeek will explore the energy industry’s changing landscape and identify the key landmarks,” says Yergin, who won a Pulitzer Prize in 1992 for his book, The Prize: The Epic Quest for Oil, Money and Power, which became a No. 1 national best seller and was made into an eight-hour PBS/BBC series.
Keynote speakers at the conference include Edward Galante, senior vice president, ExxonMobil, who will discuss the global oil industry; Pat Wood, chairman of the Federal Energy Regulatory Commission, who will examine natural gas and related energy issues; and Jeff Immelt, chairman and CEO of General Electric, who will address global and regional power issues. Microsoft CEO Steven Ballmer and Yale School of Management Dean Jeffrey Garten will also make keynote addresses.
Other speakers and panelists include James T. Hackett, president and CEO, Anadarko Petroleum; Maurice Dijols, president, Schlumberger Russia; George Kirkland, president, ChevronTexaco’s overseas petroleum group; Philip J. Dingle, president, ExxonMobil Gas & Power Marketing Co.; and Abdulla Salem el Badri, chairman, Libya National Oil Company.
CERA, a subsidiary of IHS Energy, is headquartered in Cambridge, Mass.
Vanguard closes Energy Fund
The Vanguard Group has implemented a temporary cooling-off closure period for the $5.3 billion Vanguard Energy Fund. Vanguard’s top-performing fund this year, Vanguard Energy Fund will cease accepting new accounts, although existing shareholders may continue to purchase shares.
This is the seventh of the firm’s 25 actively managed stock mutual funds to close in the past 30 months.
“Given the intense interest in the energy sector as a whole and the level of cash flow into Vanguard Energy Fund, the board of trustees decided that this was a prudent step to protect existing shareholders,” said Vanguard chairman Jack Brennan. “Vanguard funds are designed for long-term investors, and we are concerned that some investors may be gravitating toward the Energy Fund based on its recent short-term performance record.”
Vanguard Energy Fund has produced a 55.2 percent total return over the 12 months ended Nov. 30, 2004, compared to a 12.9 percent return of the S&P 500 Index, according to the Vanguard Group. The fund’s assets increased from $2.4 billion at year-end 2003 to $5.3 billion in November 2004.
Top holdings for the Energy Fund include BP, Total SA, ExxonMobil, ChevronTexaco, and ConocoPhillips.
Forbes magazine commented last April: “We believe there is excellent profit potential in the energy sector. Our bullish view is based on the supply and demand dynamics that Wall Street seems unwilling to accept. . .Our analysis shows current share prices of diversified, good-quality energy companies are in many instances 20 to 50 percent below our estimations of their intrinsic values. Vanguard Energy Fund is our favorite mutual fund choice in the energy sector.”
“The closing of the fund should not be construed as a statement on or a forecast for the energy sector,” said Brennan.
Sector funds, by definition, are less diversified than general equity funds and therefore have a higher level of risk and the potential for considerable short-term volatility. As a result, Vanguard generally recommends that sector funds represent a “modest” portion of a well-balanced and diversified investment program.
The Vanguard Group, with headquarters in Valley Forge, Pa., is the second-largest mutual fund firm in the US and is a provider of company-sponsored retirement plan services. The firm currently manages nearly $795 billion in US mutual fund assets.
PPHB provides advice on $23.9 million rig sale
The investment banking firm of Parks Paton Hoepfl & Brown has provided financial advisory services to their client, Helmerich & Payne Inc., in the sale of two Helmerich & Payne rigs to an undisclosed international land drilling contractor. The amount of the transaction was $23.9 million.
Helmerich & Payne is a publicly traded contract drilling company based in Tulsa, Okla., that operates mainly in the US and South America. The company currently owns 88 US land rigs, 12 US platform rigs in the Gulf of Mexico, 30 rigs in South America, one in Hungary, and one in Chad, for a total of 132 rigs.
PPHB, headquartered in Houston, is an independent investment banking firm that provides advisory services to clients in the energy industry.
ChevronTexaco asks State Street to service its European pension plan
State Street Corporation, which provides services to institutional investors, has been appointed to provide global custody, investment accounting, securities lending, and performance measurement services for the pension plans of ChevronTexaco in the United Kingdom, The Netherlands, Ireland, and Belgium for approximately $2 billion in assets. State Street currently services $7 billion in assets for ChevronTexaco’s pension plan in the US. ChevronTexaco ranks among the world’s largest global energy companies with more than 47,000 employees worldwide.
State Street specializes in providing institutional investors with investment servicing, investment management, and investment research and trading. With $9 trillion in assets under custody and $1.2 trillion in assets under management, as of Sept. 30, 2004, State Street operates in 24 countries and more than 100 markets worldwide.
ConocoPhillips exits Arctic Power group
Houston-based ConocoPhillips has dropped out of Arctic Power, a lobbying group based in Anchorage, Alaska, that promotes opening part of the coastal plain of the Arctic National Wildlife Refuge for oil and gas leasing.
“We have not been involved in the ANWR debate in many years and have focused our investment attention in Alaska toward the gas pipeline and development of other North Slope satellite fields,” said a ConocoPhillips spokeswoman. “Since ANWR is currently closed to development, we feel that any resolution or pledge on our part would be moot.”
Another former Arctic Power member, BP PLC,dropped out of the organization in November 2002. ExxonMobil remains an Arctic Power member.
Since 1998, a coalition called US Public Interest Research Groups (PIRG) has targeted oil companies that expressed an interest in ANWR, if drilling were to be permitted there.
Athan Manuel, director of US PIRG Wilderness Campaign, said he hopes Congress will defeat any attempt to allow drilling in ANWR. The issue is expected to come up during the next session.
Meanwhile, Green Century Capital Management Inc. of Boston said it will withdraw a shareholder resolution that it filed in December with ConocoPhillips regarding ANWR. The firm, a mutual fund manager, previously filed a resolution urging the company to drop out of Arctic Power. The resolution received approximately nine percent of the ConocoPhillips shareholder vote in May 2004.
Investors buy Energy Solutions
Energy Solutions International, a global vendor to the pipeline industry, has been acquired by Inverness Capital Partners LP and co-investment partner Alvin V. Shoemaker Investments for an undisclosed amount. The companies plan to inject up to $3 million of additional capital to fund growth opportunities and advance the company’s oil and gas pipeline management technologies. Inverness invested an initial $2 million in Energy Solutions last July that led to the company’s restructuring.
Founded in 1976, Houston-based Energy Solutions supplies decision-support software that is utilized in such applications as pipeline safety, operational efficiency, and throughput management. The company serves more than 500 clients in over 70 countries and has offices in the US, the United Kingdom, India, China, and Canada.
Inverness Capital Partners is a $125 million private equity fund with offices in Philadelphia and Boston that provides growth and expansion capital to innovative, high-growth companies. Inverness is part of the Graham Group, a privately held concern founded in 1960 with more than $1 billion in net assets.
Alvin V. Shoemaker Investments, based in Los Angeles, is a private equity firm that specializes in funding oil and gas technology and service businesses.
Pengrowth Energy Trust licenses Quorum software
Quorum Business Solutions, Houston, has entered into a new licensing agreement with Pengrowth Energy Trust for its gas plant accounting and allocations software.
Pengrowth is one of the largest Canadian energy trusts, as well as a major oil and gas producer in North America. It has operations in Alberta and British Columbia, as well as non-operated properties in Saskatchewan and offshore Nova Scotia. Pengrowth’s Judy Creek facility, its largest producing asset in Alberta, processes oil, natural gas, and natural gas liquids. Production rates at the facility in 2003 averaged 12,535 BOE per day.
The implementation of Quorum’s software suite at the facility is now underway with the project scheduled for completion in May 2005.
FMC Technologies expands facilities in Africa, Asia; inks deals with Statoil
FMC Technologies, Inc. plans to increase its subsea manufacturing and service capabilities in 2005 by expanding its existing service base in Luanda, Angola, and constructing a new manufacturing facility in Malaysia.
The Angola expansion will consist of additional land and facilities, including assembly, fabrication, testing, and storage areas to enable the company to better serve subsea projects in West Africa. FMCTI also plans to move from its existing leased manufacturing plant in Pasir Gudang, Johor, Malaysia, to a larger, owned facilty nearly in the state of Johor. The new manufacturing facility will improve the company’s ability to supply surface and subsea completion systems for Malaysia and the entire Asia Pacific region.
FMC Technologies’ FMC Kongsberg Subsea AS unit has signed a contract with Statoil ASA to supply subsea systems for the Tampen area in the North Sea. The value of the contract to FMCTI is approximately $74 million in revenue.
The FMC Kongsberg business unit also inked an extension of its existing subsea service contract with Statoil to provide technical services and subsea equipment for an additional two years, with an option for two more years beyond that. FMC Technologies estimates that annual revenue for 2004 under the current agreement will be $70 million. The estimated revenue realized under the new deal has not yet been determined.
