Page 16 - Fuels & Lubes International 2014 - Q2

FUELS & LUBES INTERNATIONAL Volume 20 Issue 2 16
In the book “Quest” about the
global energy industry by the preeminent expert
in the field, Daniel Yergin, it was reported
that Chinese Communist leaders wanted their
oil companies to be publicly traded so that
management could benefit from what market
forces were dictating as to the needed measures
for maximizing shareholder value.
This is the position that BP PLC now finds
itself in selling off-prime assets, most recently
its USD100 million-aviation turbine oil
business to Eastman Chemical Company.
Across the industry, “Big Oil” firms are
retrenching in the face of adverse market
conditions. More than USD120 billion was
spent on exploration by ExxonMobil, Chevron
and Royal Dutch Shell in 2013. Production is
down despite one-half trillion dollars being
expended to scour the world for fossil fuel
resources over the last half-decade. But the
falling level of production has not resulted in
a bullish forecast for oil; in a recent report, the
U.S. Energy Information Agency expects that
the price of a barrel of oil will be USD93 in
2014 and USD90 in 2015.
This is showing up in the stock prices of
the companies.
Why BP had to sell its
Being publicly traded
provides many useful
functions for a major oil
company other than just
efficiently raising
capital. The investment
community provides
direction through the
pricing of a stock and
other actions as to what
its aggregate knowledge
deems best for an entity.
oil business
aviation turbine
By Jonathan Yates
the Energy
Information
Agency
expects that
the price of a
barrel of oil
will be $93 in
2014 and $90
in 2015.
G u e s t C o l u m n
For 2014, ExxonMobil has fallen more
than 6.3%. During that same period, Chevron
is down more than 8.3%. Royal Dutch Shell
was downgraded on February 3, 2014 by
HSBC Securities.
As a result, there has been a widespread
sell-off of assets by oil companies seeking to
bolster the balance sheet by focusing on the
most profitable of core operations.
Some of the selling has been a result
of political turmoil. Royal Dutch Shell and
Occidental Petroleum are selling holdings
in Africa and the Middle East due to tension
in the area. Repsol, the Spanish oil giant, has
sold its interests in Argentina and declared
it is looking to spend up to USD10 billion for
oil and natural gas interests in North America
due to the region’s political stability and
economic security.
Ironically enough, it is due to its operations
in North America that BP is undergoing a
corporate retrenchment.
BP is unique in the challenges it faces and
the responsibilities it has as a major oil firm.
The litigation costs from its Deep Horizon
oil spill in 2010 continue to strain both the
income statement and the balance sheet.
It does not look to be changing anytime soon
as a federal appeals court just cleared the way
for thousands of workers to be compensated
for medical treatment due to being exposed
to crude oil and chemical substances from
the Macondo oil well blowout in April 2010.
An estimated 200,000 workers will be filing
claims in that legal matter alone.