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Alaska's addiction to oil
Editorial, Los Angeles mes
Investigations into whether the oil industry has undue influence in the state should come as no surprise.
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Alaska contains half the population of San Diego spread across an area more than twice the size of Texas. Thus it may have more corruption per capita than any other state.

Its two most important lawmakers, Sen. Ted Stevens and Rep. Don
aided Stevens' home in Girdwood, Alaska, this week looking for evidence of improper favors granted by Bill Allen, the former chief executive of the oil services company VECO Corp. who in May pleaded guilty to bribery charges. Young is also suspected of improper dealings with Allen, as is Stevens' son, Ben, a former state senator. One current and three former state legislators are under indictment, and Allen's influence over the capital is alleged to have been so deep that a group of his proteges in Juneau is believed to have had T-shirts made bearing the legend"Corrupt Bastards Club."

It can hardly come as a surprise that oil industry executives may have undue influence over Alaska lawmakers, because they have undue influence over the entire state electorate. Alaskans pay no state income taxes; quite the opposite, they get an annual check from the government, funded by -- you guessed it -- oil revenues. And one can't really blame Alaskans for their eagerness to trash their own environment by drilling in the Arctic National Wildlife Refuge, given that the state's economy has always been based on the exploitation of natural resources and they're actually getting paid for their complicity with the oil giants.

But the problem with natural resources is that they eventually run out, or the consequences of using them up become unbearable. The driest year on record in Southern California is prompting worries about the effects of global warming, but California has always had droughts; Alaskans are seeing something quite new. Buildings are falling over as the permafrost melts, and roads are buckling. Coastal native villages are vanishing as sea ice melts. The very oil that fattens Alaskans' wallets is contributing to the ruin of their infrastructure.

Alaska gets more than 80% of its revenues from oil, an overreliance on a single industry that can't be sustained -- its oil production is steadily falling.The state is heading for an environmental and economic crisis of which the current political woes may be only a first symptom.

The first step for any addict is to admit to the problem. It's still possible for something good to come of the Allen fiasco, if it prompts Alaskans to admit that they're addicted to oil.
(3 August 2007)

Oil firms' buybacks pump up criticism
Elizabeth Douglass, Los Angeles Times
Companies spend billions to boost shares, but industry observers say money could be better spent increasing production and undertaking alternative energy projects.
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The oil business has rarely been so good. Crude prices closed at a new high Tuesday and gasoline-refining profits are more than double what they were a few years ago.

It was no surprise, then, that last week's earnings reports showed that the cash had been rolling in at Exxon Mobil Corp., Chevron Corp. and overseas giants BP and Royal Dutch Shell.

To some, the surprise is where that cash has been going. With the world thirsty for more oil and cleaner fuels, Exxon Mobil and other oil firms have been spending billions to buy back their shares.

The top four oil companies booked a combined $57.5 billion in profits in the first half of the year and devoted $22.9 billion - 40% of their total earnings - to share repurchasing.

Industry critics have pounced on the buybacks as proof that Big Oil isn't interested in upsetting the lucrative status quo by greatly expanding production or refining capacity or in exploring alternative energy projects.

...Exxon Mobil, the biggest player in the oil buyback binge, has been repurchasing shares for 28 quarters in a row and has reduced the number of its shares outstanding by more than 20%, said Howard Silverblatt, senior index analyst at Standard & Poor's, creator of the S&P 500 stock index.
(1 August 2007)
Stock buybacks by oil companies can be seen as evidence of peak oil, since they indicate that management feels there are few promising opportunities for re-investing profits. It's also truth that oil-producing nations are increasingly exerting control over their resources, making investment difficult for foreign oil companies. -BA

Peak Oil, and what I think it means to the petroleum industry.
Paul D. Cox, Innovation in oil and gas
I would qualify my perspective on Peak Oil as the glass is half full. Statistically that is what Peak Oil means. What we have in remaining reserves would equal the total production over the past 140 year history of the industry. Has Peak Oil occurred? Or has there been recent demand destruction through higher prices? I don't know. But I do know that the tasks of finding and developing oil and gas will be much more difficult then the pre-peak or cheap oil era. This is well articulated in the Engineer Live! article of Tony Meggs, BP Group Vice-President for Technology.

The concept of peak oil has finally attained the attention that it should, and now is the time that we do something about it. I think our first order of business should be to organize the energy industry to achieve greater speed and innovativeness. A new organizational structure based on the industry standard Joint Operating Committee (JOC). An organization that is able to address the issues of peak oil and retire the structured hierarchy from its 100 year reign. But how? In my research I have found current organizations are constrained and supported by the software that is used by the company. This has prompted me to state that "SAP is the bureaucracy." And if a firm wants to change the organizational structure, it needs to build the software to support that new organizational construct first.

For too long the energy industry has suffered with the likes of Oracle Energy and SAP as their solutions providers. Applications that were built for the manufacturing sector, not for the oil and gas industry. What producers need is an application that ties the unique, and difficult, aspects of risk mitigation and the expanding aerial extent of their properties. In other words, the need to deal with other producers who share common interests in a property.

If the producer had IT systems that recognized and supported the legal, financial, operational decision making and cultural frameworks of the Joint Operating Committee. And then combined the JOC's frameworks with the Compliance and Governance frameworks of the hierarchy. And enhanced these six frameworks with today's collaborative Information Technologies. The resulting alignment would provide the organizational speed and innovativeness needed to address Peak Oil.
(29 July 2007)
An entrepeneur targetting the peak oil problem. The idea sounds plausible, but whether it really has promise is beyond my limited background. I do note that more and more readers from corporations, including oil companies, have been visiting Energy Bulletin. Mr. Cox may be one of the first in a wave of innovaters, as awareness of peak oil filters into the business community. -BA

Growing risk: the payback
Kate Askew, Sydney Morning Herald
After four years of easy global credit, hedge funds have gone into meltdown. Last week the market shook as many of the profligate players paid the price
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... it's not as though the world hasn't before witnessed the dire effect hedge fund speculation can have on global markets.

They first attracted headlines back in 1998. Long Term Capital Management and its Nobel prize-winning economists were an experience most in the global banking community would rather forget.

As the $US4 billion hedge fund's fixed income bets went sour, its losses rocked financial markets as the effects rippled first through New York and then the rest of the world. The US Federal Reserve took the unusual step of organising a bailout by 14 global investment banks.

Then it was the gas market's turn.

Nine months ago, a $US8 billion hedge fund, Amaranth Advisors, was forced into liquidation, the biggest on record in the hedge fund industry. It had lost $US2 billion on a gas bet.

Gas markets are still counting the costs. In late June the US Government held a hearing into the events surrounding the debacle of the Connecticut-based fund. It explained how it's not only investors, but consumers, who can be hurt by hedge fund collapses.

"Excessive speculation by a single hedge fund, Amaranth Advisors, altered natural gas prices, caused wild price swings, and socked consumers with high prices," Senator Carl Levin, the committee's chairman, said in his opening statement.

"It's one thing when speculators gamble with their own money; it's another when they turn US energy markets into a lottery where everybody is forced to gamble on them, betting on prices driven by aggressive trading practices."

In early July Levin exposed the cracks in US energy market regulation which allowed traders to switch their positions from a regulated market, NYMEX, to an unregulated market, known as ICE. "We can and must do more to protect the public," he said in a statement. "We must put the cop back on the beat in all US energy markets."
(4 August 2007)