Daily Archives: October 16, 2011

Analysis: Rocky start for Uganda’s oil sector

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Posted by Daniel Berhane
Saturday, October 15, 2011

Uganda has yet to produce a single barrel of oil, but with three senior ministers accused of accepting bribes from oil companies and the government seemingly ill-prepared for imminent large-scale oil production, the phrase “resource curse” is already being bandied about.
Prime Minister Amama Mbabazi has been accused of receiving funds to lobby for oil production rights on behalf of the Italian oil firm ENI, which eventually lost its bid for exploration rights to British firm Tullow Oil. Along with Mbabazi, Foreign Affairs Minister Sam Kutesa and Internal Affairs Minister Hilary Onek are both accused of taking bribes from Tullow Oil worth over US$23 million and $8 million respectively.

The ministers and Tullow Oil deny all the allegations, but MPs on 11 October demanded the ministers’ resignations and formed an ad hoc parliamentary committee to investigate them; Kutesa has now stepped aside from his ministerial position to allow investigations into separate charges of abuse of office and causing financial loss relating to the Commonwealth Heads of Government Meeting held in Uganda in 2007.
Oil exploration began in Uganda’s northwestern Lake Albert basin nearly a decade ago; the Energy Ministry estimates the country has over two billion barrels of oil; Tullow operates three oil blocks in the region, and had sold off part of its stake to Total and China’s CNOOC. However, following the allegations of bribery, parliament has halted the sale.

The revelations of possible large-scale graft have caused outrage in the population. The discovery of oil had given hope to a country that despite more than 25 years of relative stability, remains poor. The UN Development Programme reports that 51 percent of the population lives below the poverty line.
“We were so excited when we heard about oil, we knew we would at least get roads, better electricity supply and better hospitals but now it seems that, as usual, all the money is going into the pockets of a few,” said Asuman Kasule, a taxi driver in the capital, Kampala.

No regulatory framework
Analysts say that while the allegations of corruption are troubling and must be addressed, Uganda has bigger problems when it comes to its nascent oil industry. Oil production is due to begin as early as 2013, but the country has not put in place a regulatory framework for the oil industry; the existing legislation on oil and gas exploration was passed in 1993, and analysts say it is not sufficient to deal with the current dynamics.

In addition, the country has not put in place measures to ensure transparency, inclusion of local communities, revenue management and the mitigation of environmental damage. A 2008 National Oil and Gas Policy was intended as a road map for the handling and use of the oil, but critics say many of its recommendations have not been followed.

“As of today, Uganda does not have an oil revenue management framework,” Richard Businge, senior manager at International Alert, a peace and conflict NGO, told IRIN. “Government’s argument is that the country has sufficient income and tax laws, which is not necessarily the case because the oil industry is a unique one, which requires a more specific revenue management law. The oil development process has been shrouded in secrecy, breeding confusion and suspicion.”

Transparency
Parliamentarians say oil production sharing agreements dating as far back as 2001 were only shared with them in September 2011. Attorney-General Peter Nyombi Thembo has said the agreements contain confidentiality clauses that prevent the government and parliament from disclosing their contents to third parties.

During a heated debate on 11 October, parliament passed a resolution banning confidentiality clauses in any future oil contracts with foreign companies.
“A lot has gone on in the oil industry without the knowledge of the Ugandan public, and a lot is still going on,” Tony Otoa, a researcher with Advocates Coalition for Development and Environment (ACODE), a public policy think-tank, told IRIN. “This sort of secrecy – which covered up patronage, corruption – is what preceded the problems Nigeria had in the early stages of its industry.”

Otoa said it would be crucial for Uganda to join international mechanisms for transparency in the oil and gas sector such as theExtractive Industries Transparency Initiative (EITI), an international scheme that attempts to set a global standards for transparency in oil, gas and mining. Implementation of EITI would mean regular, accessible publication of all payments by oil companies to governments and all revenues received by governments from oil companies. The National Oil and Gas Policy recommends that Uganda participate in EITI.
Another such mechanism is Publish What You Pay (PWYP), an international network of civil society organizations that call for oil, gas and mining revenues to form the basis for development and improve the lives of ordinary citizens in resource-rich countries.

“The oil industry is still young, but payments in the millions of dollars have already been made to the government in signing bonuses, licensing fees and so on, but the government has so far been unwilling to share the amounts that have been paid nor the way the money has been spent,” said Winfred Ngabiirwe, of PWYP’s Uganda chapter. “There has been some flip-flopping by the government on whether it will join EITI, but so far there has been no firm commitment.”

Local communities
Ngabiirwe said transparency and open revenue management would be key to ensuring that the local populations in the oil producing areas were able to benefit from the proceeds of the production and lift themselves out of poverty. “As it is, the local populations are not really informed of their rights and we are often blocked by politicians from visiting these areas to enlighten them,” she said.
In the areas where PWYP has been allowed to operate, they have set up grassroots chapters of the organization to allow communities to understand and communicate their needs and demand that the oil revenues be used for the development of their areas.

“It’s true that fishing and farming have been interrupted; some communities… have been asked to relocate while others… were notified to prepare to leave,” said International Alert’s Businge. “The compensation given to them is inadequate – this is determined by government – while those who have to put up with oil activity have to regulate their activities either on farm or on lake. Most of the corporate social responsibility work that companies are doing to kind of buy the `social ticket’ is on infrastructure development and not necessarily responsive to key pressing survival needs of the local communities.”

According to a study by Uganda’s Makerere University on managing oil expectations, local communities have “expressed hope that oil revenues will result in a better road and railway network, high quality education and health care, a regional technical and university infrastructure, and considerable employment opportunities”. However, the study also found that local communities were not involved in the drafting of the National Oil and Gas Policy and were not informed of the oil companies’ activities in their region.
And according to ACODE’s Otoa, while it is important for parliament to go after corrupt individuals, it is equally important that they stand up for the rights of local communities and urge environmental caution.

Getting prepared
“Our parliamentarians are largely uninformed about the oil sector, so we regularly hold workshops to try and ensure that when the time comes for them to debate an oil bill, they are aware of the key issues that need to be taken into consideration,” he said. “Bodies like the National Environment Management Authority also need their capacity boosted, because they too are inexperienced in the type of environmental damage caused by the oil industry.”

Another important area, according to Henry Banyenzaki, minister for economic monitoring, would be ensuring that Ugandans are trained and employed in various aspects of the oil industry, and that local businesses are geared towards supplying the oil industry.

“We are not moving as fast as we should in government because of bureaucracy, but we need to prepare the private sector as well so that they can get the maximum benefit from the industry,” he said.

Banyenzaki said the government would need to ensure that other key resources – including agriculture and tourism – did not suffer as a result of the focus on oil, a concept known as “Dutch disease”.
“Uganda’s oil wealth can be transformational for Uganda’s economy but this largely depends on how well it is managed… [but] in the absence of proper revenue management and critical forward thinking, the exploitation of oil does not necessarily translate into sustainable socio-economic transformation,” said Businge. ”

Source

Uganda: Minister aims to present oil bills this year

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By Elias Biryabarema

KAMPALA (Reuters) – Uganda‘s energy minister said she expects to send three petroleum bills to parliament by the end of the year as the government moves quickly to put laws in place to regulate the country’s nascent oil sector before the start of production.

Earlier in the week, President Yoweri Museveni said he would discuss a parliamentary vote to delay UK exploration company Tullow Oil‘s planned sale of stakes in local oil fields, pledging to defend the country’s interests in the case.

Earlier this week, Uganda’s parliament passed a resolution urging the government to withhold consent for Tullow‘s proposed deal with France’s Total and China’s CNOOC until laws were in place to regulate the industry.

“We’re working very hard, and we expect that by the end of this year we’ll have brought the three bills — Resource Management Bill, Revenue Management Bill and Value Addition Management Bill — to parliament,” Energy Minister Irene Muloni told a news conference on Saturday.

“The problem is that I can’t control the process thereafter. So how fast the bills will be debated and passed into law will depend on parliament, but at least on my side we’re moving very quickly.”

Last year, Tullow agreed to sell stakes in its Ugandan assets to Chinese group CNOOC and French oil company Total for $2.9 billion.

In March, Tullow said Uganda had assessed taxes of $472 million on its earnings from the sale, and it was disputing that figure. It has since begun an arbitration process before a tax appeals tribunal in Kampala.

The company, meanwhile, has been awaiting final government approval for the partnership, which would allow it to move ahead with a project to develop oil reserves.

Endorsement of the deal is expected to kick start a $10 billion investment to develop the country’s oil fields and start production.

Muloni said government officials expected to extract more favourable terms from companies in future oil deals because the discovery of oil has diminished the exploration risk for oil firms.

“Before the discovery we didn’t know what we had. We didn’t know whether we had oil or not, and for an oil company to bring in a big investment they needed stabilisation clause,” she said.

“Now we’re operating with certainty, we have the oil. So when we’re negotiating new deals, we’ll put up tough positions on the table.”

Hydrocarbon deposits were discovered along Uganda’s border with the Democratic Republic of Congo in 2006.

Original Article

Why U.S. military in Uganda? Soros fingerprints all over it

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By Aaron Klein
© 2011 WND

After President Barack Obama announced earlier this week that he would be sending American troops into Uganda, WND uncovered billionaire activist George Soros‘ ties both to the political pressure behind the decision and to the African nation’s fledgling oil industry.

Soros sits on the executive board of an influential “crisis management organization” that recently recommended the U.S. deploy a special advisory military team to Uganda to help with operations and run an intelligence platform, a recommendation Obama’s action seems to fulfill.

The president emeritus of that organization, the International Crisis Group, is also the principal author of “Responsibility to Protect,” the military doctrine used by Obama to justify the U.S.-led NATO campaign in Libya.

Soros’ own Open Society Institute is one of only three nongovernmental funders of the Global Centre for Responsibility to Protect, a doctrine that has been cited many times by activists urging intervention in Uganda.

Authors and advisers of the Responsibility to Protect doctrine, including a center founded and led by Samantha Power, the National Security Council special adviser to Obama on human rights, also helped to found the International Criminal Court.

Several of the doctrine’s main founders also sit on boards with Soros, who is a major proponent of the doctrine.

Soros also maintains close ties to oil interests in Uganda. His organizations have been leading efforts purportedly to facilitate more transparency in Uganda’s oil industry, which is being tightly controlled by the country’s leadership.

Soros’ hand in Ugandan oil industry

Oil exploration began in Uganda’s northwestern Lake Albert basin nearly a decade ago, with initial strikes being made in 2006.

Uganda’s Energy Ministry estimates the country has over 2 billion barrels of oil, with some estimates going as high as 6 billion barrels. Production is set to begin in 2015, delayed from 2013 in part because the country has not put in place a regulatory framework for the oil industry.

A 2008 national oil and gas policy, proposed with aid from a Soros-funded group, was supposed to be a general road map for the handling and use of the oil. However, the policy’s recommendations have been largely ignored, with critics accusing Ugandan President Yoweri Museveni of corruption and of tightening his grip on the African country’s emerging oil sector.

Soros himself has been closely tied to oil and other interests in Uganda.

In 2008, the Soros-funded Revenue Watch Institute brought together stakeholders from Uganda and other East African countries to discuss critical governance issues, including the formation of what became Uganda’s national oil and gas policy.

Also in 2008, the Africa Institute for Energy Governance, a grantee of the Soros-funded Revenue Watch, helped established the Publish What You Pay Coalition of Uganda, or PWYP, which was purportedly launched to coordinate and streamline the efforts of the government in promoting transparency and accountability in the oil sector.

Also, a steering committee was formed for PWYP Uganda to develop an agenda for implementing the oil advocacy initiatives and a constitution to guide PWYP’s oil work.

PWYP has since 2006 hosted a number of training workshops in Uganda purportedly to promote contract transparency in Uganda’s oil sector.

PWYP is directly funded by Soros’ Open Society as well as the the Soros-funded Revenue Watch Institute. PWYP international is actually hosted by the Open Society Foundation in London.

The billionaire’s Open Society Institute, meanwhile, runs numerous offices in Uganda. It maintains a country manager in Uganda, as well as the Open Society Initiative for East Africa, which supports work in Kenya, Tanzania and Uganda.

The Open Society Institute runs a Ugandan Youth Action Fund, which states its mission is to “identify, inspire, and support small groups of dedicated young people who can mobilize and influence large numbers of their peers to promote open society ideals.”

U.S. troops to Uganda

Obama yesterday notified House Speaker John Boehner, R-Ohio, that he plans to send about 100 military personnel, mostly Special Operations Forces, to central Africa. The first troops reportedly arrived in Uganda on Wednesday.

The U.S. mission will be to advise forces seeking to kill or capture Joseph Kony, the leader of the rebel Lord’s Resistance Army, or LRA. Kony is accused of major human rights atrocities. He is on the U.S. terrorist list and is wanted by the International Criminal Court.

In a letter on Friday, Obama announced the initial team of U.S. military personnel “with appropriate combat equipment” deployed to Uganda on Wednesday. Other forces deploying include “a second combat-equipped team and associated headquarters, communications and logistics personnel.”

“Our forces will provide information, advice and assistance to select partner nation forces,” he said.

Both conservatives and liberals have raised questions about whether military involvement in Uganda advances U.S. interests.

Writing in The Atlantic yesterday, Max Fisher noted the Obama administration last year approved special forces bases and operations across the Middle East, the Horn of Africa and Central Asia.

“But those operations, large and small, target terrorist groups and rogue states that threaten the U.S. – something the Lord’s Resistance Army could not possibly do,” he wrote.

“It’s difficult to find a U.S. interest at stake in the Lord’s Resistance Army’s campaign of violence,” continued Fisher. “It’s possible that there’s some immediate U.S. interest at stake we can’t obviously see.”

Bill Roggio, the managing editor of The Long War Journal, referred to the Obama administration’s stated rationale for sending troops “puzzling,” claiming the LRA does not present a national security threat to the U.S. – “despite what President Obama said.”

Tea-party-backed presidential candidate Michele Bachmann also questioned the wisdom of Obama’s move to send U.S. troops to Uganda.

“When it comes to sending our brave men and women into foreign nations, we have to first demonstrate a vital American national interest before we send our troops in,” she said at a campaign stop yesterday in Iowa.

Soros group: Send military advisors to Uganda

In April 2010 Soros’ International Crisis Group, or ICG, released a report sent to the White House and key lawmakers advising the U.S. military run special operations in Uganda to seek Kony’s capture.

The report states, “To the U.S. government: Deploy a team to the theatre of operations to run an intelligence platform that centralizes all operational information from the Ugandan and other armies, as well as the U.N. and civilian networks, and provides analysis to the Ugandans to better target military operations.”

Since 2008 the U.S. has been providing financial aid in the form of military equipment to Uganda and the other regional countries to fight Kony’s LRA, but Obama’s new deployment escalates the direct U.S. involvement.

Soros sits in the ICG’s executive board along with Samuel Berger, Bill Clinton’s former national security advisor; George J. Mitchell, former U.S. Senate Majority Leader who served as a Mideast envoy to both Obama and President Bush; and Javier Solana, a socialist activist who is NATO’s former secretary-general as well as the former foreign affairs minister of Spain.

Jimmy Carter’s national security advisor, Zbigniew Brzezinski, is the ICG’s senior advisor.

The ICG’s president emeritus is Gareth Evans, who, together with activist Ramesh Thakur, is the original founder of the Responsibility to Protect doctrine, with the duo even coining the term “responsibility to protect.”

Both Evans and Thakur serve as advisory board members of the Global Center for the Responsibility to Protect, the main group pushing the doctrine.

As WND first exposed, Soros is a primary funder and key proponent of the Global Centre for Responsibility to Protect.

Soros’ Open Society is one of only three nongovernmental funders of the Global Centre for the Responsibility to Protect. Government sponsors include Australia, Belgium, Canada, the Netherlands, Norway, Rwanda and the U.K.

Samantha Power, Arafat deputy

Meanwhile, a closer look at the Soros-funded Global Center for the Responsibility to Protect is telling. Board members of the group include former U.N. Secretary-General Kofi Annan, former Ireland President Mary Robinson and South African activist Desmond Tutu. Robinson and Tutu have recently made solidarity visits to the Hamas-controlled Gaza Strip as members of a group called The Elders, which includes former President Jimmy Carter.

WND was first to report the committee that devised the Responsibility to Protect doctrine included Arab League Secretary General Amre Moussa as well as Palestinian legislator Hanan Ashrawi, a staunch denier of the Holocaust who long served as the deputy of late Palestinian Liberation Organization leader Yasser Arafat.

Also, the Carr Center for Human Rights Policy has a seat on the advisory board of the 2001 commission that originally founded Responsibility to Protect. The commission is called the International Commission on Intervention and State Sovereignty. It invented the term “responsibility to protect” while defining its guidelines.

The Carr Center is a research center concerned with human rights located at the Kennedy School of Government at Harvard University.

Samantha Power, the National Security Council special adviser to Obama on human rights, was Carr’s founding executive director and headed the institute at the time it advised in the founding of Responsibility to Protect.

With Power’s center on the advisory board, the International Commission on Intervention and State Sovereignty first defined the Responsibility to Protect doctrine.

Power reportedly heavily influenced Obama in consultations leading to the decision to bomb Libya, widely regarded as test of Responsibility to Protect in action.

In his address to the nation in April explaining the NATO campaign in Libya, Obama cited the doctrine as the main justification for U.S. and international airstrikes against Libya.

Responsibility to Protect, or Responsibility to Act, as cited by Obama, is a set of principles, now backed by the United Nations, based on the idea that sovereignty is not a privilege, but a responsibility that can be revoked if a country is accused of “war crimes,” “genocide,” “crimes against humanity” or “ethnic cleansing.”

The term “war crimes” has at times been indiscriminately used by various United Nations-backed international bodies, including the International Criminal Court, or ICC, which applied it to Israeli anti-terror operations in the Gaza Strip. There has been fear the ICC could be used to prosecute U.S. troops who commit alleged “war crimes” overseas.

Soros: Right to ‘penetrate nation-states’

Soros himself outlined the fundamentals of Responsibility to Protect in a 2004 Foreign Policy magazine article titled “The People’s Sovereignty: How a New Twist on an Old Idea Can Protect the World’s Most Vulnerable Populations.”

In the article Soros said, “True sovereignty belongs to the people, who in turn delegate it to their governments.”

“If governments abuse the authority entrusted to them and citizens have no opportunity to correct such abuses, outside interference is justified,” Soros wrote. “By specifying that sovereignty is based on the people, the international community can penetrate nation-states’ borders to protect the rights of citizens.

“In particular,” he continued, “the principle of the people’s sovereignty can help solve two modern challenges: the obstacles to delivering aid effectively to sovereign states and the obstacles to global collective action dealing with states experiencing internal conflict.”

‘One World Order’

The Global Center for the Responsibility to Protect, meanwhile, works in partnership with the World Federalist Movement, a group that promotes democratized global institutions with plenary constitutional power. The Movement is a main coordinator and member of Responsibility to Protect Center.

WND reported that Responsibility doctrine founder Thakur recently advocated for a “global rebalancing” and “international redistribution” to create a “New World Order.”

In a piece last March in the Ottawa Citizen newspaper, “Toward a new world order,” Thakur wrote, “Westerners must change lifestyles and support international redistribution.”

He was referring to a United Nations-brokered international climate treaty in which he argued, “Developing countries must reorient growth in cleaner and greener directions.”

In the opinion piece, Thakur then discussed recent military engagements and how the financial crisis has impacted the U.S.

“The West’s bullying approach to developing nations won’t work anymore – global power is shifting to Asia,” he wrote. “A much-needed global moral rebalancing is in train.”

Thakur continued: “Westerners have lost their previous capacity to set standards and rules of behavior for the world. Unless they recognize this reality, there is little prospect of making significant progress in deadlocked international negotiations.”

Thakur contended “the demonstration of the limits to U.S. and NATO power in Iraq and Afghanistan has left many less fearful of ‘superior’ Western power.”

Original Article

History of ENSCO

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Founding the Company in 1975

ENSCO was incorporated in 1975 as Blocker Energy Corporation by longtime oilman John R. Blocker. After graduating from Texas A&M in 1948 he worked on a Gulf of Mexico oil rig for several years before establishing a South Texas drilling company with his father in 1954. When an oversupply of oil on the market crippled the contract drilling business the company was dissolved, and in 1958 Blocker went to work for Dresser Industries as operations manager for the oil equipment division in Argentina and Venezuela, a natural fit because he had grown up in South America, learning Spanish before English. Over the next several years he learned the political and financial realities of the foreign oil business, lessons that would later serve him well with Blocker Energy. In 1965 he moved to Dresser’s Houston office and ultimately rose to the level of a senior vice-president. When he left Dresser in the mid-1970s Blocker bought a small drilling company that became the core of Blocker Energy, a venture he planned to run with his son along with a ranch he purchased. His attention, however, was soon fixed on the drilling company, due to a domestic exploration boom that resulted from the 1973-74 Arab oil embargo. In recent years the major oil companies had sold off their drilling operations and were now forced to turn to contract drillers like Blocker Energy. Blocker took advantage of his South American experience to position the company in the international market, believing it was less risky than the domestic market, where he would have to contend with some 800 to 900 competitors. Not only were there only a handful of international competitors, Blocker hoped to shield his company from the volatility of the oil business, notorious for boom-or-bust cycles, by placing his drilling rigs around the globe. Blocker Energy expanded rapidly to meet the demand for its services and as a result soon found itself $44 million in debt. Blocker took the company public to pay down some of the debt and fund further expansion. By the early 1980s Blocker Energy was the world’s 15th largest contract drilling company, operating in eight countries with 54 rigs. Starting in late 1978 Blocker Energy made a major commitment to exploration by investing more than $50 million. Committing further millions to the effort, however, did little more than to distract the company from its core contract drilling business. The company restructured itself in the early 1980s but was devastated by a slump in oil drilling that put it on the verge of bankruptcy by the summer of 1984.

Richard Rainwater‘s Investment in 1986

After Blocker Energy lost nearly $3 million in 1985, it found much needed help from multimillionaire Richard Rainwater, whose BEC Ventures made an initial investment in the company in 1986. He then commenced negotiations with Blocker Energy and its creditors to acquire a controlling interest in the company. Rainwater would one day become known for his relationship with George W. Bush and their ownership of the Texas Rangers, which provided the latter with his fortune and the political platform for his successful election as governor of Texas and one day the presidency of the United States. At the time he was buying into Blocker Energy, Rainwater was already well known in financial circles as the financial advisor to the wealthy Bass brothers, heirs to a Fort Worth, Texas, oil fortune. Rainwater himself had grown up in more modest circumstances in Fort Worth. After majoring in math and physics at the University of Texas he went on to the Graduate School of Business at Stanford University, where he became friends with Sid R. Bass. Rainwater served two years at Goldman, Sachs, & Co. as a trader, and then in 1970 went to work for the Basses as a financial advisor. Over the next 16 years his advice proved so beneficial that the Basses’ net worth increased from $50 million to more than $5 billion. In particular, Rainwater was responsible for the Basses buying into Disney before its dramatic increase in value. Rainwater also did well for himself, so that by the time he decided to strike out on his own he had accumulated a $100 million stake. Blocker Energy was his first solo deal, followed by a string of other investments that would result in making him a billionaire.

In December 1986 Rainwater-led BEC Ventures acquired a controlling interest in Blocker Energy. In May 1987 John Blocker stepped down as chief executive officer, although he remained chairman until his retirement in November of that year. He was replaced as CEO by Carl F. Thorne, a partner in BEC Ventures. He grew up in the oil industry, born in Texas, the son of an electrical engineer who worked for Mobil Oil Corp. for 46 years, and was raised in a Mobil field camp. After receiving a degree in petroleum engineering at the University of Texas, Thorne worked briefly as a drilling and production engineer for Tenneco Inc. before continuing his education at Baylor University School of Law, earning a juris doctor degree. He returned to the oil business, serving as assistant general counsel for Sedco Drilling Co., eventually becoming president of the company. When Sedco merged with Schlumberger in 1984, Thorne became president of the resulting drilling group. Two years later, and only in his mid-40s, Thorne retired, but soon decided to join Rainwater, taking over the running of Blocker Energy, which subsequent to the acquisition by BEC changed its name to Energy Service Company Inc., its abbreviation becoming ENSCO. The company assumed the name ENSCO International Incorporated in 1992.

ENSCO, well positioned because it possessed little debt, immediately announced plans to expand its presence in the oil drilling industry, which appeared ready to rebound after one of the worst down cycles in U.S. history. It attempted to acquire Anson Drilling Co. as well as Gearhart Industries but failed. ENSCO was more successful, however, in the transportation area, in 1988 paying $22 million to acquire Golden Gulf Offshore Inc. for ten boats that supplied offshore oil rigs and another four vessels that moved the rigs’ massive anchors. Finally in 1993 ENSCO completed a major acquisition, buying Penrod Holding Corporation in 1993 and adding 19 rigs to its fleet. Penrod was owned by the Hunt family, which during the 1980s had invested heavily in the fleet, but massive debt, a downturn in drilling activity, as well as an ill-fated attempt at silver speculation, forced the Hunts to seek bankruptcy protection for Penrod and eventually led to the business being sold to ENSCO.

ENSCO began to withdraw from secondary endeavors to focus solely on offshore drilling rigs. In 1993 the company sold its supply business, and then in 1994 and 1996 sold off its land-based drilling rigs. ENSCO’s technical services business was divested in 1995. Anticipating increased demand for premium jackup rigs, ENSCO initiated a rig enhancement program in 1994. It also kept an eye out for attractively priced rigs that became available from other drilling companies. Rigs were purchased from J. Lauritzen in 1994, Transocean in 1995, and Smedvig in 1997. A much larger transaction took place in 1996 when ENSCO acquired Dual Drilling Company in 1996 from Mosvold Shipping A.S. of Norway, adding 15 rigs and other holdings in a stock swap transaction valued at approximately $200 million. The company now consisted of 52 drilling rigs, divided among four subsidiaries operating in the United States, the United Kingdom, the Caribbean, and Asia. In addition, ENSCO boasted a large fleet of support vessels, including tug, supply, and anchor hauling ships. The company changed the composition of its rig fleet somewhat in 1998 when it sold off four Venezuelan barge rigs.

Business Dropping Off in 1999

At the end of 1998 ENSCO had posted five consecutive years of improved earnings. The company produced record revenues of $813.2 million in 1998 and net income of $253.9 million. The following year, however, proved difficult. Economic troubles in Asia, a drop in oil prices, and cutbacks in exploration activities combined to create a major reduction in the demand for contract drilling rigs. But ENSCO, which had always taken a conservative approach to doing business, was well positioned to wait out the downturn. Although it had long-term debt of $375 million it also had $330 million in cash at the end of 1998. Management cut operating costs and essentially broke even in 1999. Matters improved significantly in 2000, when ENSCO earned $85.4 million on revenues of $533.8 million.

Even as it was retrenching during a down cycle, ENSCO was making plans for the future, becoming increasingly more committed to deep water operations, in keeping with an oil industry trend. In a 1999 interview with Oil & Gas Investor, Thorne explained: “The industry’s movement into the deep water is an evolution, not a revolution. In the continuous search for hydrocarbons, we’ve evolved from land drilling to offshore shallowwater drilling, to drilling on the continental shelf and beyond. At the same time, the cost structure of many companies has become such that they now have to look for the bigger elephants in deeper water, where their unit finding and lifting costs are much less. If one accepts that we’ve got to bring on large volumes of hydrocarbons to meet rising demand, then the deep water is going to play an increasingly important role.”

To support deepwater development efforts, ENSCO upgraded platform rigs acquired from Dual. All told, in the late 1990s the company invested some $500 million in rig upgrades. Moreover, it invested in the construction of a deepwater semisubmersible rig, able to drill in water depths of 8,000 feet. It was the first deepwater drilling unit ever built in the United States, a project that was completed on time and within budget. In December 2000 the rig went into service in the Gulf of Mexico. ENSCO also invested in harsh environment jackup rigs, completing the construction of a unit in 2000. It built a second harsh environment rig in partnership with Keppel FELS Limited, holding an option to purchase a 100 percent interest. In light of the company’s shifting priorities in the composition of its rig fleet, ENSCO elected in 2001 to remove four less competitive rigs from operation. Two of its platform rigs were retired and two barge rigs were put up for sale.

Financial results continued to improve in 2001, with revenues growing to $817.4 million and net income soaring to $207.3 million. ENSCO added to its fleet in 2002 when it acquired Chiles Offshore Inc., paying $578 million in stock and cash, and the assumption of $140 million in debt. It was a deal that made sense for both parties. ENSCO picked up the kind of state-of-the-art jackup rigs it preferred, and in the process stifled some Wall Street critics who expressed concern that the company had not been as aggressive as its competition in making acquisitions. Chiles was simply too small to compete in the current marketplace, and as part of the deal its president and CEO, William E. Chiles, secured an executive position with ENSCO. In addition, the sale to ENSCO was profitable for Chiles’s shareholders, who received close to a 20 percent premium, based on the price at which Chiles was trading before the transaction was announced.

ENSCO’s balance sheet suffered somewhat in 2002, due to a weakened demand for drilling rigs in the Gulf of Mexico and a resulting drop in day rates. For the year, the company generated revenues of $698.1 million and net income of $59.3 million. Early in 2003 management announced that it was selling its 27-vessel fleet of support ships located in the Gulf of Mexico to New Orleans-based Tidewater Inc., owner and operator of more than 550 vessels used to support offshore drilling. Although the subsidiary, ENSCO Marine Company, was a profitable venture, it would require a significant investment to keep the business viable. Instead ENSCO elected to make an even greater financial commitment to its offshore rig fleet.

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GULF OIL CORPORATION

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GULF OIL CORPORATION. The Gulf Oil Corporation was an expansion of the J. M. Guffey Petroleum Company, which was organized in May 1901, and which acquired the interests of Anthony F. Lucas and John A. Galey in the Spindletop Oilfield. In this company, organized to exploit the new oil discovery, Guffey had a seven-fifteenths interest, while A. W. and R. B. Mellon and some of their associates including James H. Reed, William Flinn, J. D. Callery, T. H. Given, and Joshua Rhodes owned the balance. Later in the same year the same men organized the Gulf Refining Company of Texas for the purpose of refining and marketing the crude oil produced by the Guffey company, and a refinery was built at Port Arthur. By the fall of 1902 approximately $6 million had been invested in the two companies, and the dwindling production at Spindletop made necessary a reorganization. W. L. Mellon was placed in active charge of the Guffey and Gulf operations, although J. M. Guffey remained the nominal head for five years more. Only the most efficient management kept the two companies from going bankrupt during the period 1902 to 1907, when Texas crude production continued to decline. In January 1907 the Gulf Oil Corporation was formed with A. W. Mellon as president, and Guffey’s interest was purchased for about $3 million. The Gulf Oil Corporation then built a 400-mile pipe line from Port Arthur to the Glenn Pool field in Oklahoma, which had been discovered in 1906, and began refining Oklahoma crude in September 1907. A subsidiary, the Gypsy Oil Company, was organized under Frank A. Leovy to handle production operations in Oklahoma. Altogether the reorganization and expansion program required an additional investment of $7 million, but by the end of 1908 Gulf’s position had become relatively strong. In less than two years following the opening of the Glenn Pool pipeline Gulf’s production had more than doubled and had exceeded the refinery throughput of 11,000 barrels daily. During the next twenty years Gulf’s growth was steady, the company expanding its production operations into nearly all of the major oilfields in the United States and into Mexico and Venezuela. In West Texas Gulf became the leading producer. A network of pipelines connected Gulf’s production with refineries at Port Arthur, Fort Worth (built in 1911), Bayonne, New Jersey (1925), Philadelphia, Pennsylvania (1926), and Sweetwater, Texas (1928). By 1928 the company’s assets had grown to an estimated $232 million, while crude production rose to 78 million barrels annually.

Gulf’s organization was characterized by integration from production of crude to retailing of refinery products. In 1929 it was decided to expand the retail business, which had been concentrated in the south and east, into Ohio, Illinois, and Michigan. At the beginning of the Great Depression a $90 million expansion program was undertaken, which included the building of refineries in Cincinnati, Toledo, and Pittsburgh, the construction of an 800-mile pipeline from Oklahoma to Ohio, and the acquisition of more than 400 marketing facilities. Partially because of the expansion program the depression severely affected Gulf; for the first time in its history the company operated at a loss in 1931. The depression period brought about retrenchment and some internal reorganization of the company. In general the policy of maintaining and operating service stations was abandoned in favor of leasing them to independent operators, and each of the four major departments (production, transportation, refining, and marketing) was placed on a separate accounting basis. By the mid-1930s the company began to prosper again, and the dramatic increase in demand for oil during World War II further fueled the company’s expansion. In 1950, with a capital investment of $1,075,000,000 and owned by more than 32,000 persons, the Gulf Oil Corporation had 43,000 employees, carried on extensive production in the United States, Venezuela, Kuwait, and Canada, operated 10,000 miles of pipelines and a large fleet of tankers, and sold the products of its refineries through more than 36,000 service stations in the United States and nearly as many others in foreign countries. In 1951 Gulf Oil Corporation completed one of the world’s largest (at the time) catalytic cracking units in Port Arthur, Texas, and in the same year began construction of plants in Port Arthur for the manufacture of ethylene and isooctyl alcohol, a major move in developing its petrochemicals capacity. While the Fort Worth, Sweetwater, and Pittsburgh (Pennsylvania) refineries were dismantled in the 1950s after the facilities had become obsolete, the Port Arthur and Philadelphia refineries continued to expand and the Toledo and Cincinnati refineries were modernized. New refineries were built or acquired in the United States, with additions at Purvis, Mississippi, Santa Fe Springs, California, and Venice, Louisiana.

Increasing its capital expenditures in the 1950s, Gulf joined with B. F. Goodrich Company to form a new company, Gulf-Goodrich Chemicals, Incorporated, through which Gulf maintained an important position in the manufacture of synthetic rubber from petroleum-derived feedstocks. It also acquired Warren Petroleum Corporation in 1956 and that same year increased its interest in British American Oil Company by trading Gulf’s Canadian properties for 8,335,648 common shares of British American stock, bringing Gulf’s interest in that company to 58 percent. Gulf also extended its exploration and production operations in the 1950s, including an extensive program for exploration of underwater leases in the Gulf of Mexico off Louisiana, which became one of the company’s leading domestic producing areas. With the conclusion of World War II, Gulf, as a 55-percent participant in Kuwait Oil Company, resumed operations in Kuwait to put into production petroleum discovered there about the time of the war’s outbreak. Production from these vast reserves climbed steadily and yielded for Gulf’s interest an average of more than 1.3 million barrels per day in 1967. Gulf owned or had an interest in twenty-two refineries in addition to those in the United States. Adding to its European refining capacity, refineries at Milford Haven, Wales, and Huelva, Spain, went on stream in 1968 and a permit was obtained for construction of a refinery at Milan, Italy, to further strengthen Gulf’s capacity to supply products for its growing European markets. Discoveries in Bolivia and Nigeria were developed in the 1960s and added significantly to Gulf’s foreign oil production. Production from discoveries in Colombia and Cabinda was expected to begin before the end of 1968, and substantial discoveries were made in Ecuador. Gulf was producing oil and gas from eleven nations as its explorations continued in thirty countries. A milestone in Gulf’s marketing operations was reached in 1966. With the acquisition in 1960 of Wilshire Oil Company of California and in 1966 of mid-continental retail outlets and storage and distribution facilities of Cities Service Oil Company, Gulf for the first time had service station representation in all forty-eight adjoining states of the continental United States. Gulf’s transportation facilities moved more than a million barrels of crude oil daily from oilfields to refineries throughout the world by pipelines and tankers. In 1968 the world’s largest ship, the 312,000-deadweight-ton tanker, Universe Ireland, was placed in service for Gulf. It was the first of six such tankers planned for use by the company to deliver Middle Eastern and West African crudes to deepwater terminals at Bantry Bay, Ireland, and at Okinawa for transshipment to European and Far Eastern refineries by smaller vessels. Refining capacity was increased along with Gulf’s expansion in other petroleum operations. The company owned full or partial interest in thirty United States and foreign refineries. In 1967 the company processed an average of 1,295,000 barrels of crude oil daily. By the 1960s Gulf had become a major producer of petrochemicals, plastics, and agricultural chemicals. In 1967 Gulf entered the field of nuclear energy. In this program it began uranium exploration and acquired the General Atomic Division of General Dynamics Corporation, renaming the subsidiary Gulf General Atomic Incorporated. At the end of 1967, with total assets of $6.5 billion owned by more than 163,000 shareholders, Gulf Oil Corporation had 58,000 employees working in more than fifty nations to provide the world with petroleum and other energy-producing products.

Gulf fell on hard times in the 1970s. Several of its key management figures were implicated in illegal political contributions in the early 1970s, and their successors, in the eyes of many in the oil community, failed to provide clear and aggressive leadership. The company’s long and valuable association with Kuwait ended in 1975, when Gulf’s operations there were nationalized by the Kuwaiti government. In spite of costly attempts to find new sources of oil, the company’s reserve supply was rapidly dwindling by the late 1970s, declining by 40 percent between 1978 and 1982. In 1983 Gulf was still the sixth largest oil company in the United States and managed to turn its oil reserve crisis around, replacing 95 percent of its reserves by the end of the year. Because of what many perceived to be its weak and excessively bureaucratic management structure, Gulf seemed a good candidate for a takeover. In August of 1983 Thomas Boone Pickens’s Mesa Petroleum Corporation, rebounding from an unsuccessful attempt to acquire General American Oil Company, began to buy up shares of Gulf Oil. After Mesa had gained control of 11 percent of Gulf’s stock, Pickens engaged in a proxy fight for control of the company. Gulf executives fought Boone’s takeover and eventually invited takeover offers from other companies and collections of investors. On March 5, 1984, the Gulf board voted to sell the company to Chevron (Standard Oil of California) for $13.2 billion. Gulf operations were merged into Chevron in what was the largest corporate merger to date.

BIBLIOGRAPHY:

Craig Thompson, Since Spindletop: A Human Story of Gulf’s First Half-Century (Pittsburgh: Gulf Oil, 1951). Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1991).

Original Article

HOS Centerline gives new meaning to multi-purpose vessel

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Blue Dolphin and HOS Centerline

The Blue Dolphin and HOS Centerline are used to pump mud to the Q4000 for the “Static Kill”, on-site MC 252 in the Gulf of Mexico, 3 August 2010.

Published: Mar 1, 2010

When Hornbeck Offshore Services Inc. introduced its 370-ft (113-m) HOS Centerline last year, it not only gave the Gulf of Mexico the world’s largest support vessel, but also one designed to transport everything from drilling fluid to crude oil. With a more than 8,000-dwt (7,258-metric ton) capacity, the Centerline brings multi-purpose support vessels to an entirely new dimension. Not only is the triple-certified newbuild designed to transport supplies for drilling and production, it can be “flipped over” in two to three days and work as a crude oil tanker, says Todd M. Hornbeck, chairman, president and CEO of the Covington, Louisiana-based company that also operates the HOS Port in Port Fourchon. What’s more, Hornbeck says the newest entry to the company’s global fleet also is fully certified to haul hazardous wastes.

“It’s the only time in the world this has been done,” he says of his new support vessel/tanker combination. A sister-vessel, the HOS Strongline, was expected to join the Hornbeck fleet in February and is destined to receive the same regulatory pedigree.

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The HOS Centerline is not only the world’s largest multi-purpose supply vessel, it also is the most versatile, says Hornbeck.

Hornbeck says the uniquely engineered vessels can transport more than 30,000 bbl of liquid drilling mud and fuel. The vessels’ 400 kW of available propulsion, power, and DP-2 capability allows it to work safely in sea and weather conditions that keep smaller vessels in port. The design of the vessel reduces fuel consumption in half, he adds.

“These vessels really provide a wider weather window, and they are equipped and designed to safely transfer cargo in high seas,” he says. “They really give us a cradle-to-grave approach to serving our customers, from spud to production.”

The HOS 370-class cargo deck is 240 ft x 58 ft (1,287 sq m) and is complemented by an additional 30 ft x 58 ft (9 x 18 m) of covered deck space, which is unprecedented. The large deck and living quarters for 78 crew members also makes the Centerline functional for subsea construction.

While the commissioning of the Centerline, gives Hornbeck 85 vessels working worldwide, he says the company will continue to focus on the Gulf of Mexico.

“Any place we look at first has to pass the smell test and convince us it is a better place to be than in the Gulf of Mexico.”

Original Article

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