Exxon, Shell: spare a subsidy sir, we're not rich enough yet

Possible Federal stake in pipeline 'still on table'
Claudia Cattaneo and Paul Vieira, Financial Post, 28-Oct-2005
Exxon, Shell gush to record profits
Steve Quinn, Associated Press, in Globe and Mail, 28-Oct-2005

COMMENT: More federal subsidies to oil and gas companies already engorged with obscene profits? Exxon and Shell want the Mackenzie Gas Pipeline because they'll make money operating it, it will open up new fields for development of lucrative oil and gas, and it will provide gas to the oil sands - where Exxon and Shell are also major players and need the valuable gas to extract the even more valuable oil from the sand. Oil sands operators are already greased up on subsidies, tax and royalty breaks. And so rich, it makes your head spin. In one of these articles, Exxon is reporting revenues of $100 billion in the quarter. Enough.

A proposal by Ottawa that it could take an equity stake in the Mackenzie Valley pipeline "is still on the table" despite being rejected by the companies behind the megaproject, highly placed sources confirmed yesterday.

"There's no denying the question of equity was used inside the umbrella discussion of subsidies," a senior source said. "And Imperial [Oil Ltd.], as soon as 'equity' was mentioned, they said 'no.' "

"It's certainly there in so far as the feds are concerned," the source said.

Anne McLellan, the Deputy Prime Minister and the minister responsible for the pipeline file, denied a National Post story that a formal offer has been made to try to move forward the stalled $7-billion project proposed by a consortium of oil companies led by Imperial.

Ms. McLellan told reporters yesterday the government has no intention of re-entering the megaproject business and emphasized that a "private-sector" solution is required when it comes to Mackenzie.

However, she did not rule out the idea.

"We have not put any proposal on the table," she said. "We have talked to Imperial because they came to us with the discussion around fiscal enhancements. In fact, there is a long, long, lengthy list of things that could or could not be done. It is way too soon to see whether this government will choose to take a serious look at a package that is defined as fiscal enhancements."

Several sources confirmed the Post report that the federal government has proposed taking a stake of about 20% in the pipeline.

The proposal was made because Ottawa is now very concerned that a rival US$20-billion line from Alaska is gaining momentum and wants the Mackenzie project back on track, although "in the end there may be other ways than outright ownership to help the project move forward," said one source.

A proposal for an equity stake "was put on the table and the producers' group, basically, said 'no thanks.' And [the producers'] position now is that we are not going to discuss it," said another source.

Secret negotiations between the companies backing the project and the federal government over fiscal terms are getting down to the wire.

Imperial has said it will decide by next month whether enough progress has been made so it can move forward with public hearings for the pipeline, which would bring to market much-needed supplies stranded in the Arctic and help cap soaring natural gas prices.

The talks have bogged down on fiscal terms with Ottawa and access and benefits deals with aboriginal groups along the Mackenzie Valley. Imperial and its partners, Shell Canada Ltd., ConocoPhillips and the Aboriginal Pipeline Group -- an aboriginal enterprise -- want a fiscal regime that recognizes that the up-front costs are huge and it will take years before profits are recorded.

But the government believes giving breaks to highly profitable energy firms would be politically unpopular at a time consumers are being squeezed by high energy bills. Ottawa's negotiators have advanced the equity proposal as a way of getting something in return.

Ottawa's ownership in the megaproject could be similar to the 20% interest the State of Alaska is seeking to hold in Alaska gas pipeline under agreements being negotiated with Alaska producers, the sources said.

Ms. McLellan confirmed that Imperial has approached the government about cutting a deal that would make the project more financially palatable.

"Absolutely no proposal has been made to Imperial in any form in relation to any fiscal enhancements," Ms. McLellan said.

"The one thing I will say is that we're all committed to making sure this project takes place but we clearly see this as a private sector-driven project in co-operation with the aboriginal communities along the valley.

"We know that Imperial has talked about fiscal enhancements. We have indicated we're willing to sit down and talk to them about that but the suggestion that there has been any proposal at any time from us in relation to this project on the fiscal enhancement side is completely false."

Tim Hearn, Imperial's CEO, said recently the oil companies are not looking for handouts, but terms that recognize that today's high gas prices are unlikely to continue as large quantities of liquefied natural gas come to North America from foreign sources in the next decade.

He said the terms should also take into account that the project is opening a new basin and requires huge capital investment that will not yield a return for many years.

The government sources said oil companies have asked for tax and royalty concessions of $1.2-billion to $2-billion and certainty on fiscal terms.

© National Post 2005

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By STEVE QUINN
Associated Press
inGlobe and Mail
Friday, October 28, 2005

DALLAS -- High prices for oil and natural gas propelled Exxon Mobil Corp. and Royal Dutch Shell PLC to their best quarterly results ever yesterday, with Exxon becoming the first U.S. company to ring up quarterly sales of $100-billion (U.S.).

To put Exxon's performance in perspective, its third-quarter revenue was greater than the annual gross domestic product of some of the largest oil-producing nations, including the United Arab Emirates and Kuwait.

The world's largest publicly traded oil company also set a record for U.S. companies by posting profit of almost $10-billion, according to Standard & Poor's equity market analyst Howard Silverblatt.

Both Exxon and Shell said their performances were buoyed by higher prices for crude oil and natural gas, even as output suffered due to a busy hurricane season in the Gulf of Mexico. The companies noticed slight decreases in fuel demand.

Exxon's profit ballooned 75 per cent to $9.9-billion, compared with $5.7-billion a year ago. Revenue grew to $100.7-billion from $76.4-billion in the prior-year period. The previous oil industry earnings record was Exxon's 2004 fourth-quarter profit of $8.4-billion.

At Shell, third-quarter profit grew 68 per cent to $9-billion, compared with $5.4-billion a year earlier. Revenue at the Anglo-Dutch company rose 8 per cent to $76.4-billion.

"We are capturing the benefits of high oil and gas prices and refining margins," Shell chief financial officer Peter Voser said, referring to the profit margin on each barrel of crude that is refined into gasoline, diesel and jet fuel.

Shares of Exxon fell 60 cents to $55.60 on the New York Stock Exchange, where U.S.-traded shares of Shell rose $1.15, or 1.93 per cent, to $60.65.

Excluding special items, Exxon's profit was $8.3-billion, or $1.32 a share, or slightly below the $1.38 per share expected by analysts polled by Thomson Financial.

With oil futures above $60 a barrel for much of the third quarter, Exxon's profit from petroleum exploration and production rose by $1.8-billion to $5.7-billion. Prices for gasoline, diesel and jet fuel lifted refining and marketing profits by $727-million to $2.1-billion.

However, income at the company's chemicals unit declined by $537-million to $472-million, a reflection of the higher prices for raw materials.

Exxon said the hurricanes slashed U.S. production volumes by 5 per cent from a year ago, while global daily production slipped to 2.45 million barrels of oil equivalent from 2.51 million barrels. By the end of the year, it will cost the company about $100-million after taxes, the company estimated.

Shell said its adjusted earnings -- arrived at by stripping out the fluctuating value of petroleum -- added up to $7.4-billion, sharply higher than analysts' forecasts.

Shell's profit from exploration and production increased by $2.6-billion to $5-billion in spite of an 11-per-cent decline in oil and natural gas output. Its refining and marketing profit climbed by $201-million to $1.7-billion. Its chemicals business saw profit decline by $251-million to $321-million.

Shell said hurricane damage would cost it about $350-million, although much of the expense would be covered by insurance.

Slick profits

High gasoline prices in the wake of hurricanes Katrina and Rita helped fuel record profits at Exxon Mobil and Royal Dutch Shell.

$106.7-billion Combined profits expected this year for the world's five biggest publicly traded oil companies -- Exxon Mobil, BP, Shell, Chevron and Total.

26% The estimated increase in profits at the Big 5 energy companies this year.

28% The rise in U.S. gasoline price in the past 12 months.

Although many polls show U.S. consumers are intent on altering their behaviour (i.e., driving less), we still have not seen significant structural shifts in behaviour.'

Man Financial analyst Edward Meir

SOURCES: BLOOMBERG NEWS, THOMSON FINANCIAL, ENERGY INFORMATION ADMINISTRATION

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