Barclays Capital said global spending on production will shrink 12pc to $400bn in 2009.
Source: Telegraph

Guilherme Estrella found an undersea lake of oil that may transform Brazil’s economy forever. Now, the exploration chief for Petroleo Brasileiro SA is at the center of a debate over who will profit from it. At stake is how much of Brazil’s newfound riches will be controlled by the state and how much will end up in the pockets of Exxon Mobil Corp., Royal Dutch Shell Plc and other oil companies hungry for new sources of crude. Estrella wants to make Western oil companies little more than hired help for government-controlled Petrobras, as his company is known.

“Petrobras is our space program,” Estrella, a 66-year-old geologist and socialist, said in a Sept. 23 interview in Rio de Janeiro. “Within it, the company contains the Brazilian nationalist spirit.”

A $110 drop in the price of oil since July may make it tougher for Estrella to get his way. Economies around the world are foundering amid the worst financial crisis since the Great Depression, and it may cost $600 billion to develop Brazil’s deepwater oil deposits, which could be worth $3 trillion at current prices.

Estrella has a powerful ally in Brazil President Luiz Inacio Lula da Silva, whom he has known for more than a decade and whose 2002 election victory was partly driven by criticism of the country’s 1997 decision to end Petrobras’s oil monopoly.

Estrella left Petrobras in 1992 after refusing to enact government-mandated job cuts. He moved to the mountain town of Novo Friburgo near his native Rio de Janeiro and became head of the local chapter of the Workers’ Party.

‘Getulista’ Stepfather

Estrella’s stepfather was a “Getulista,” or supporter of nationalist leader Getulio Vargas. Vargas created Petrobras in 1953 with the cry “O Petroleo e Nosso,” which means, “the oil is ours.”

When Vargas committed suicide in 1954 amid calls by the military for his resignation, Estrella remembers his school principal telling students to go home because “something important has happened.” When he got there, he found his stepfather in tears.

Estrella, who got training as a geologist at the University of Brazil in Rio de Janeiro and the University of Texas at Austin, was asked to return to Petrobras when Lula came to power in 2003. He was confident that he could do in Brazil what he had accomplished in Iraq in 1976, when he and his colleagues found the Manjoon field, the world’s 19th-largest.

“We have never accepted that our work would not succeed,” Estrella said. “We know that this is a great country.”

Oil Hunter
Few people have been involved in the discovery of more oil than Estrella, said Gerrard Demaison, a former Chevron Corp. geologist who is president of Capitola, California-based Petroscience2000.

“This guy’s work was prophetic and essential for finding the oil Brazil has today and making Petrobras what it is,” Demaison, 76, said in a telephone interview. “I would put him alongside the great petroleum geologists of the last century.”

Pumping the oil from Brazil’s so-called pre-salt deposits may prove harder than finding the reserves. Much of the crude is located more than 160 miles offshore in waters 2 miles (3.2 kilometers) deep and under a layer of salt. Over the next 20 years, it will cost $600 billion to extract the oil, according to Gustavo Gattass, an analyst at UBS AG in Rio de Janeiro.

That’s why it makes sense to sell more leases to big oil companies, said Delcido Amaral, Estrella’s predecessor at Petrobras and one of his critics.

Tupi Discovery
“If he’d stick to geology, he’d be fine, but I’m afraid his political ideas and those of his allies are going to damage the industry and put the country’s energy future at risk,” said Amaral, now a senator. “We need investment.”

The discovery of the Tupi prospect, which Petrobras said in November 2007 may hold 8 billion barrels of recoverable oil equivalent, was a sensation. Petrobras shares soared 40 percent from the Tupi announcement through May, and the company surpassed Microsoft Corp. and General Electric Co. to become the world’s fifth-largest company by market value, according to data compiled by Bloomberg.

Since May, oil prices collapsed and investors shifted money out of emerging-market stocks, dragging Petrobras down to No. 35 on the list, the Bloomberg data showed. Petrobras, the top performer among the world’s 10 biggest oil stocks in this year’s first five months, has had the biggest decline in the group since then, losing more than half of its market value.

Short of Cash
Irving, Texas-based Exxon Mobil, which had a $39 billion cash hoard as of Sept. 30, has fallen only 13 percent since the end of May. Petrobras, which plans capital spending of more than $22 billion a year, was forced to borrow from a state-owned bank last month because it was short of cash to pay taxes, according to the Energy Ministry.

Petrobras wasn’t alone in discoveries in the area around Tupi. Reading, England-based BG Group Plc, Galp Energia SGPS SA of Lisbon, Exxon Mobil, The Hague-based Shell and Hess Corp. of New York have leases nearby or stakes in Petrobras blocks.

An auction of more areas scheduled for the weeks after the Tupi announcement was called off. Since then, Brazilian leaders debated how to handle the development of the remaining two- thirds of the offshore reserves not yet leased.

Brazil has options other than its past approach of auctioning properties to the highest bidder, including production-sharing contracts that wouldn’t allow foreign companies to own the oil. Brazil also may create a new state oil company for the offshore prospects or increase its stake in Petrobras by giving fields to the company.

Making His Case
Estrella has made frequent visits in the past year to Brasilia, the nation’s capital, to consult with government officials discussing changes to oil rules and has made public comments on his preference for greater government control. He’s close to union officials who arranged protests against further sales of oil rights.

As a government committee’s review of oil-exploration rules dragged on, repeatedly missing deadlines to report conclusions, Estrella gained allies. Energy Minister Edison Lobao said there’s increasing support on the committee for reducing foreign access to Brazil’s hottest offshore oil prospects.

While promising to honor leases already sold to Exxon Mobil, Madrid-based Repsol YPF SA and other companies, Lobao said in a Nov. 13 interview that future exploration in the area around Tupi will likely be run by Brazil. Less promising areas will continue to be auctioned, he said.

“Foreign companies paid almost nothing for their concessions,” said Aloisio Mercadante, a Brazilian senator and an economic adviser to Lula. “Things have changed. There is less risk, and this country has every right to assert more control over its resources.”

Foreign Investment
Brazil needs foreign oil investment more than ever after the plunge in oil prices and tightening of credit markets, said Amaral, Estrella’s predecessor.

Marcio Mello, who with Estrella did a study on the geology of Brazil’s offshore oil regions, said he also sees the need for outside money.

“He’s a great geologist, one of the great oil hunters of all time, and he is an honest and decent man who pushes his people hard and has earned their respect,” said Mello, president of HRT Petroleum, a Rio de Janeiro consulting firm. “His political and economic ideas, on the other hand, are way out of date and not helpful.”

There are good reasons for BHP pulling the deal. The commodity markets have soured dramatically, hitting both groups’ cash flow prospects and removing the deal’s main, if unspoken, attraction – driving up prices in a bull market. Moreover, the divestments the EU hinted at would have been difficult to implement at a reasonable price when buyers are like gold dust.

But the crux is financing. Rio is saddled with $38bn (£25bn) of debt from last year’s top-of-the-market acquisition of Alcan, a Canadian aluminium producer. BHP has $6bn of net debt. So an identical fall in the enterprise value of both companies would hit Rio’s equity disproportionately hard. After Rio’s shares fell 35pc and BHP’s rose 13pc, both companies’ enterprise values were 3.6 times next year’s forecast ebitda. That makes one Rio share worth 1.4 BHP shares – far below the 3.4 BHP was offering.

BHP may have decided it would rather not be heavily geared as the world pitches into recession. Rio, though, is in a jam. It faces refinancing obligations of $9bn next year, which it should be able to meet through cash flows and existing short-term facilities. But if commodity prices keep falling – aluminium has plunged a third in three months – it will look increasingly uncomfortable.

With the deal scrapped, both sides have questions to answer. But those fired at Rio chief executive Tom Albanese may be the tougher. Albanese was spared a drubbing for his $38bn splurge on Alcan by a subsequent spike in the aluminium price, and the distraction of a bid from BHP. He has now lost both shields. By leaving its biggest rival in such a tight spot, BHP may have pulled off a sort of victory after all.

Russian nuclear power plant builder Atomstroyexport will by mid-December meet Turkey's request for further information on the company's bid to build a power plant, a senior company official said on Friday.

Atomstroyexport, acting through a consortium with Russian power producer Inter RAO UES and Turkey's Ciner Group, is competing in a tender to build four nuclear reactors in Turkey.

"Turkey has requested additional information on the project that we proposed at the tender. They have asked for clarification of details, including on the reactor and the construction timeframe. We will answer the questions by December 15," the source told RIA Novosti.

The Turkish government was scheduled to declare the winner of the tender in October, but has yet to do so.

Atomstroyexport, established in 1998, has completed or is working on reactors in Iran, Bulgaria, Hungary, the Czech Republic, Slovakia, China and India.

Cuando Hugo Chávez ganó la Presidencia en diciembre de 1998, el barril de petróleo venezolano se cotizaba por debajo de 8 dólares. Hace cuatro meses, esos 159 litros de crudo se pagaban a más de 132 billetes verdes. Diez años de alza y bonanza en el precio de los hidrocarburos le han permitido al mandatario el dispendio entre sus partidarios y el vilipendio de sus rivales. Pero la recesión económica mundial puede ser el fin de una década de alegrías revolucionarias. Hasta ahora, Venezuela elaboraba su presupuesto anual teniendo como referencia un barril a 35 dólares. El superávit de ingresos -que compensaba la caída en la producción ante el mal manejo de la petrolera estatal Pdvsa- le ha permitido a Chávez diseminar programas sociales, ayudar a sus afines ideológicos y crear una nueva clase social, la boliburguesía, a la que “se le olvidó ronear”, pues pasó de consumir ron barato a beber whisky escocés del mejor.

Sin embargo, la avalancha de divisas no revirtió en la creación de infraestructuras o en el aumento del PIB per cápita, que hoy es el mismo que hace diez años. Sí que ha servido para elevar casi un 50 por ciento el nivel de renta de los sectores más pobres de la población (más de un tercio de los 28 millones de venezolanos), vivero donde crecen los votos oficialistas.
Según un informe del Real Instituto Elcano, Chávez “ha aprovechado los grandes flujos de 'petrodólares' para financiar sus ingentes gastos sociales y subvencionar sus objetivos geopolíticos. Pero su creciente intervencionismo en el sector energético amenaza el nivel de inversión y producción, mientras que su intento de desviar sus exportaciones, tradicionalmente destinadas a EE.UU., a los crecientes mercados asiáticos no tendrá ningún impacto tangible más allá de lo mediático y superficial. Tampoco está claro que los gastos sociales serán capaces de crear una base para un desarrollo económico sostenido”.

Además, ahora, las vacas gordas adelgazan día a día. El barril de petróleo ha caído por debajo de los 45 dólares, y el presupuesto para 2009 ha tomado como base un precio de entre 55 y 60.

Venezuela produce, según la cuota oficial de la OPEP, más de tres millones de barriles diarios, aunque la Agencia Internacional de la Energía en París reducen la cifra a dos millones y medio. Casi en su totalidad se destinan a la exportación. Sus reservas probadas rondan los cien mil millones de barriles, y en el subsuelo de la Faja del Orinoco hay casi otros 300.000 millones de barriles de crudo ultra-pesado, con elevada proporción de azufre, que convertirían a Venezuela en el primer yacimiento mundial. Pero, para su explotación, se necesitarían inversiones y tecnología de las que carece y unos precios mantenidos por encima de los 40 dólares/barril. Hugo Chávez ha manifestado que “tú me pones el petróleo a 60 dólares y yo te digo que Venezuela no se verá afectada”. Pero, de ser así, el país experimentaría una reducción del 40 por ciento de sus ingresos petroleros, alrededor de 25.000 millones de dólares, mientras que la deuda externa alcanza ya los 80.000 millones de dólares.

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Source: DESTINIA
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Repsol YPF SA advanced in Madrid trading on reports that OAO Lukoil is in talks to acquire a stake of just under 30 percent in Spain's largest oil company. Repsol gained as much as 2.2 percent and traded up 30 cents at 14.25 euros as of 9:13 a.m. local time. The stock outperformed the Dow Jones Europe Stoxx Oil & Gas Index, which fell 1.5 percent. Lukoil may purchase Sacyr's 20 percent stake in Repsol and an additional 9.9 percent of its shares on the open market, EFE reported yesterday, citing people it didn't identify. Lukoil would be required to make an offer for the whole company if it bought more than 30 percent, EFE said.

The overall stake would be worth 5.1 billion euros ($6.37 billion) if taken as a direct percent of the Spanish oil company's market value of 17 billion euros as of Nov. 19.

Sacyr, Spain's worst-performing stock this year, increased 3.9 percent to 6.75 euros in Madrid.

Dmitry Dolgov, a spokesman for Lukoil, Russia's biggest non-state oil producer, declined to comment. Nobody from Repsol was immediately available for comment.

Sacyr remains open to discussions on any of its assets, a Sacyr spokeswoman, who asked not to be identified in line with company policy, said today by telephone.

Repsol operates five refineries in Spain, three in Argentina and one in Peru. The energy company has holdings in another refinery in Argentina and two in Brazil, giving the company a total refining capacity of 1.23 million barrels a day, according to the Madrid-based company's Web site.

Italian Refinery
In June, Lukoil agreed to pay Italy's ERG SpA 1.35 billion euros for 49 percent in a new venture that will control the 320,000 barrel a day Isab refinery, storage tanks, and a 99- megawatt power plant in Priolo, Sicily. The Russian company also has refineries in Bulgaria and Romania.

OAO Gazprom, Russia's natural-gas exporter, said Nov. 14 that it's not interested in a 20 percent stake in Repsol. Spain's government is opposed to state-run foreign companies buying into its strategic industries, Deputy Prime Minister Maria Teresa Fernandez de la Vega said earlier the same day.

The Spanish government wouldn't stand in the way of a Lukoil bid for 29.9 percent of Repsol, Cinco Dias reported today. The administration would prefer Lukoil, rather than Total SA of France, purchase the stake, the Spanish newspaper said, without saying how it got the information.

Crude oil fell for a fifth day, approaching $50 a barrel, as the contracting world economy increases concerns that demand for fuels will slow.

U.S. fuel use during the past four weeks averaged 19.1 million barrels a day, down 7 percent from a year ago, an Energy Department report said yesterday. Equities declined with the MSCI Asia Pacific Index dropping for a fourth day while the Dow Jones Industrial Average yesterday fell to the lowest since March 2003.

``The big picture remains one of weak demand, economic concerns and a falling market,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York, in an interview with Bloomberg Television. ``U.S. demand has really been collapsing and dragging the OECD demand as well and we might end up with a contraction in global demand growth for the year.''

Crude oil for December delivery fell as much as 97 cents, or 1.8 percent, to $52.65 a barrel on the New York Mercantile Exchange. It was at $52.75 a barrel at 2:36 p.m. Singapore time. Yesterday, futures touched $52.79 a barrel, the lowest since Jan. 23, 2007.

Oil has dropped 64 percent since reaching a record $147.27 a barrel on July 11. Yesterday, December futures fell 77 cents, or 1.4 percent, to $53.62 a barrel, the lowest settlement since Jan. 22, 2007. The more active January futures contract was down 90 cents, or 1.7 percent, at $53.20 a barrel. December futures expire at the close of trading today.

``Everyone is looking at the demand and seeing it as a reason to sell,'' said Clarence Chu, a trader with options dealer Hudson Capital Energy in Singapore. ``People are looking at the Dow as an indication of how the economy is doing.''

Japan Exports Drop
In the latest evidence that the global recession is deepening, exports from Japan dropped at the fastest pace in almost seven years in October. Japan, the world's largest oil importer, fell into a recession last quarter.

Singapore will tomorrow confirm it entered a recession last quarter, joining Japan and Hong Kong. Gross domestic product in Asia's biggest oil-trading center declined at an annualized 6.3 percent pace from the second quarter, when it shrank 5.7 percent, according a Bloomberg survey.

Slipping oil and commodity prices caused the shares of explorers and producers to decline. Woodside Petroleum Ltd. fell 5 percent to A$32.25 in Sydney, its lowest price in three years. Cnooc Ltd. plunged 40 Hong Kong cents, or 7.2 percent, to HK$5.14.

U.S. Inventories
Oil prices also fell as U.S. crude inventories climbed because of declining demand for fuels. Crude-oil supplies rose 1.6 million barrels to 313.5 million barrels last week, the Energy Department said yesterday. Stockpiles were forecast to rise 1 million barrels, according to a Bloomberg News survey of analysts.

Gasoline inventories rose 539,000 barrels to 198.6 million barrels in the week ended Nov. 14, the report showed. Analysts surveyed by Bloomberg News were split over whether supplies of the motor fuel increased or declined.

U.S. fuel demand fell 5.2 percent in the first 10 months of this year, the biggest drop since 1981, the American Petroleum Institute said in a report yesterday.

Brent crude oil for January settlement fell as much as 97 cents, or 1.9 percent, to $50.75 a barrel on London's ICE Futures Europe exchange. It was at $50.80 a barrel at 2:44 p.m. Singapore time. The contract yesterday declined 12 cents to $51.72 a barrel, the lowest settlement since Jan. 11, 2007.