Can someone please get Neil Cavuto, senior vice president of business news at Fox Business, a fact check? On Tuesday, March 22, Cavuto was back to blaming a $2 billion loan commitment by the Export Import Bank of the United States, and President Barack Obama, for the lackluster drilling going on in the US, mainly in the Gulf of Mexico.
We are sending Brazil financing to drillfor oil off Brazil’s shores. Not our shores, he emphasized on Tuesday’s show.
“We’re more interested in finding oil off another country than pursuing the ample supplies readily available in this country. Our money for their oil and in the Gulf, a growing rage over the president’s seemingly growing more out of touch as the Wall Street Journal succinctly put it today, underwriting in Brazil what we won’t allow at home.” (The op-ed to which he was referring appeared in the Aug. 18 edition…way back in 2009.)
As was explained here before, there has been no financial transaction at this time between Brazilian oil giant Petrobras and the Export-Import Bank. What looks likely is a $308 million credit guarantee, of which JP Morgan would be the lender, and Ex-Imp would be the guarantor of the loan. The credit would be used by Petrobras to acquire drilling services and capital goods to dig for oil in the Santos Basin off the coast of Rio de Janeiro and Espirito Santos states. The money comes back into the US economy.
So in a very real sense, Cavuto’s guest, Todd Hornbeck, the CEO of Hornbeck Offshore in Louisiana, has it only half right when he said about the loan agreement with Petrobras, “Why isn’t (Obama) giving money to Chevron and Shell and Exxon and companies here in the United States and putting our people to work in our country. Why are we worried about putting everyone else to work?”
First, the Ex-Im Bank’s mandate is to lend money to foreign companies doing business with US companies. It does not lend to US companies. Second, the loan would actually be used to provide jobs in the US, because Petrobras would have to use that money to acquire the same types of services that a company the size of Hornbeck Offshore provides.
Cavuto’s other guest was Andy Lipow, president of consulting firm Lipow Oil Associates in Houston. I spoke with him on Wednesday. Lipow is a smart man. He also has been in the industry long enough to know that oil rigs have been leaving the Gulf of Mexico for much of the last six years and that has absolutely nothing to do with the Export Import Bank, or Obama, and surely not because of Petrobras, which also drills in the Gulf of was banned last year like everyone else.
Lipow is right to be concerned about the job losses in the Gulf’s oil economy, and what that means for small businesses who serve those workers — from the local donut shop, to hotel chains. It is a problem. Everyone agrees.
The Gulf of Mexico saw a ban on deep water oil drilling immediately following the BP oil spill last year, not because environmentalists and the government decided to save dolphins. That oil spill was the worst in US history and the public demanded action. As a result, new regulations were created and are now being put in place. The moratorium was lifted in October, but as Lipow said on Cavuto (and to Forbes), the permitting process is slow and time is wasting.
Okay, but that is the reason why we are not drill-baby-drilling like mad in the Gulf right now. It is because the country just witnessed its worst oil disaster ever, not because of the government’s ill-focused lending. And as Lipow said, “maybe things will get better” in the Gulf going forward.
The Ex-Im Bank offer to Petrobras has nothing to do with oil companies not drilling as much in the Gulf of Mexico, even though Cavuto used it as a lead to that argument. Stringent regulations because of BP, and a slow permit process as the Department of the Interior and the oil drillers figure out how all of these new rules are going to work is one reason. There is another…
Five rigs left the Gulf since the moratorium. Noble Corp (NE) client Royal Dutch Shell took the Clyde Boudreaux, an ultra-deepwater semisubmersible it leases from Noble, to Brazil this winter. It starts drilling for Shell in Brazil in April. Their investor relations cheif said that they have to go where their clients ask them to go, and Shell, because of the slowdown getting permits approved in the Gulf, chose to go to Brazil.
Investor relations of Diamond Offshore (DO), another driller, told Forbes Wednesday that they only have five rigs in the Gulf of Mexico now and moved three out last year because of the moratorium. One went to Africa. One went to Egypt. And the other went to Brazil, where Diamond has had an office for decades in Macaé, Rio de Janeiro. Diamond in Brazil is nothing new. They were there when Republicans controlled everything in the early part of the 2000’s. They are not fleeing the country by any means.
But Diamond and their peers also moved recently for another reason — money. They were getting better deals to drill elsewhere. They’ve got around 20 rigs and jack-ups, some rented to Petrobras, some rented to the US multinationals, floating around in Brazil at this time.
“Oil companies are going to drill wherever it is profitable to drill,” said Joe Petrowski, CEO of Gulf Oil, a large gasoline distributor in the US. “The reason we are not drilling more for shale oil in the Bakken formation in North Dakota – and production there has indeed increased, by the way — is because if it costs $40 to produce a barrel of oil there compared to $20 in Nigeria, we are going to go to Nigeria.”
So what’s the big problem? The Gulf of Mexico’s oil industry is in recovery mode. Permits are coming, albeit slowly, but that has nothing to do with Petrobras (which just got a permit on March 17) and nothing to do with the Ex-Im Bank loan guarantee, which to date is inoperative.
According to February 2011 report by Barclays analysts on Noble Energy (NBL), an exploration and production player, Noble management agreed that permits are definitely slow to come by. But with regards to their application to restart drilling their Santiago and Deep Blue wells, Noble believes they will be passed quickly because they have a lot of oil in those wells. We are drilling in the Gulf. It is coming back. Brazil is not a substitute for that, it is a compliment from a reliable and non-dramatic source.
Sadly, but surely no surprise, Cavuto brought up the George Soros story line again. Soros was a Petrobras bull and announced big share purchases just prior to the Ex-Im $2 billion agreement.
Cavuto:
“I’m wondering, and I know you don’t get into the political intrigue here, but it is interesting that Petrobras, one of major investors being one George Soros. Do you think that had anything to do with this White House move?
Hornbeck didn’t take the bait. Soros’ involvement in Petrobras is as a common shareholder. There is no foul play. If there was insider trading involved, he would have had to purchase Petrobras shares prior to the material fact, and then sold shortly after the material fact. The thing is, there was no material fact becuase two years after the Ex-Im waved $2 billion in front of the very rich Petrobras, not a dime has been lent to the company, nor guaranteed by the Bank. And, again, if that money does ever exchange hands, Petrobras will be required to use that money to buy goods and services from US companies. Good for those companies. Maybe even good for jobs.
Cavuto’s concern over lackluster drilling in the US has its merits, but it more to do with promoting the drill-baby-drill narrative than the more cumbersome facts. Those facts are that it costs more to drill in the US than in Brazil; and a disastrous oil spill by BP was punitive on the sector in the Gulf of Mexico. The new regulations are going to cost more, and take more time to work into the system. Lending money to Petrobras, if it ever happens, is not keeping America from drilling for oil and natural gas.
No comments :
Post a Comment