Daily Archives: October 31, 2011

And the next Solyndra is . . . Beacon Power

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By Katie Fehrenbacher

Flywheel maker Beacon Power declared bankruptcy on Sunday, first reported by Reuters, after winning a $43 million loan guarantee from the Department of Energy in the Summer of 2009. This is the second company to declare bankruptcy that had a loan guarantee from the DOE program, following solar maker Solyndra’s bankruptcy about two months ago.

Beacon Power makes flywheels, which are energy storage devices in the form of large spinning discs contained in a vacuum that keep electricity flowing over the power grid at a steady frequency. The technology has struggled to reach a mainstream market, but the idea is that flywheels can help stabilize the grid, allow it to run more efficiently, need little maintenance over their 20-year-plus life span, and don’t have some of the toxic chemicals found in many batteries. Flywheels are most commonly used as backup power for emergency power systems — what’s called uninterrupted power supply, or UPS — and facilities like data centers sometimes use them for when grid power is halted.

Beacon Power received the $43 million loan guarantee to help build a 20 MW flywheel energy storage plant in Stephentown, NY — the first full-scale commercial deployment of the company’s technology. The Stephentown energy storage plant was built to absorb and discharge energy to the electric grid, making it possible to use more variable renewable energy sources like solar and wind.

Reuters reports that Beacon drew down on $39 million of the loan for the Stephentown plant, and reports that the plant is still operating. And unlike in the case of Solyndra, where private investors are set to get paid back a portion of the funds first (before the government), Beacon Power will be paying back the government first, says Reuters.

Flywheel technology has struggled for years, and Beacon, in particular has continued to face problems. In late 2008, Beacon said it was delaying  expansion of its commercial project, and back in 2006 the company faced technology malfunctions. Flywheels have had difficulty finding the right market and have faced competition from batteries, which have received a good amount of funding and support.

Earlier this month Beacon Power received a notice for potential delisting from the Nasdaq for trading under $1. Reuters reports that Beacon has $72 million in assets and $47 million in debt, and that Beacon blamed its bankruptcy partly “on its inability to secure additional investments due to the financing terms mandated by the Department of Energy.”

No doubt, House Energy Commerce Committee Republicans, and right-leaning media will have a field day with the bankruptcy of Beacon Power. Already, electric car maker Fisker has been deemed the next Solyndra. But turns out Beacon Power is actually the next Solyndra.

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CNOOC Boasts High Shale Production in US Partnerships

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China’s largest offshore oil producer, China National Offshore Oil Corp (CNOOC), said unconventional oil and gas production in its United States partnerships totaled 3 million to 4 million barrels this year.

“We expect annual production to hit 8 million barrels as we put more capital into the wells,” said Zhu Weilin, executive vice-president of CNOOC Ltd.

China is estimated to hold more natural gas trapped in shale than the US, according to the US Energy Information Administration in April. Shale gas is among the largest onshore energy prospects in China.

CNOOC paid $570 million for a 33.3-percent stake in Chesapeake Energy Corp’s Niobrara shale project in Colorado and Wyoming in February this year. Last November, the company made a $1.8-billion purchase for a one-third stake in Chesapeake’s Eagle Ford project in south Texas.

He said his company is looking for opportunities with US companies in deepwater exploration as well as shale gas and oil.
“CNOOC has 19 offshore blocks in China that we are looking for foreign partners to co-develop,” said Zhu at the recent China-US Relations Conference.

“We see other small Chinese companies coming to the US for partnerships and supply agreements in unconventional oil and gas fields,” said Christine Ehlig-Economides, professor of the Petroleum Engineering Department at Texas A&M University. “This is one area they want to learn from.”

Industry analysts said China is paying a high premium for the partnerships while others have said Chinese is learning new exploration techniques through the projects.

The prices China’s State-owned oil companies have paid for assets are mixed; in some cases, they may have paid above market value but recent economic conditions, good financial performances, and growing experience with international deals have benefited the companies, according to a report by the International Energy Agency.

Two-thirds of the USD 70 billion invested in 144 projects overseas by China’s three oil giants, Sinopec Group, China National Petroleum Corp and CNOOC, have not turned a profit thus far, according to a recent report by the China University of Petroleum and the China Petroleum and Chemical Industry Association.

“Natural resources are one of the few sectors where the US government has stringent scrutiny because they are the strategic industries,” said Huang Yasheng, professor at the Sloan School of Management at the Massachusetts Institute of Technology.

In 2005, CNOOC dropped its USD 18.5-billion bid for Unocal Corp because of opposition from US lawmakers.

It would have been the largest overseas acquisition by a Chinese company.

“Chinese companies should position themselves globally, rather than nationally,” said Xiang Bing, founding dean of the Cheung Kong Graduate School of Business, one of China’s leading business schools.

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Magnolia Petroleum Company

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The Magnolia Petroleum Company, founded as an unincorporated joint-stock association on April 24, 1911, was a consolidation of several earlier companies, the first of which, the J. S. Cullinan Company, began operating a refinery at Corsicana, Texas, on December 25, 1898. The Corsicana Petroleum Company, planned as a crude-oil producer for the Cullinan plant, was organized in 1899. The George A. Burts Refining Company, organized in 1901 to absorb much of the crude oil from the Spindletop oilfield, became the Security Oil Company. In 1909 both the Navarro Refining Company, successor to the Cullinan Company, and the Security Oil Company were purchased by the John Sealy Company, which in 1911 became the Magnolia Petroleum Company, with Sealy as president (see SEALY, JOHN HUTCHINGS).

The Magnolia Company was originally capitalized at $2,450,000–24,500 shares at $100 each. In 1925 the company purchased the Corsicana Petroleum Company. Capitalization was $185 million in 1925. As Magnolia Petroleum Company became increasingly important in the southwestern states, the Standard Oil Company of New York began acquiring some of its stock. In December 1925 all of the Magnolia stock was exchanged for Standard Oil Company of New York stock, and the Texas properties were transferred to Magnolia Petroleum Company, chartered under Texas law on November 21, 1925, as a corporation to replace the former joint-stock association. The Magnolia Pipe Line Company was organized in November 1925, as a transporting subsidiary of the petroleum company. In 1931, when the Standard Oil Company of New York and the Vacuum Oil Company merged to form Socony-Vacuum Oil Company, Magnolia became an affiliate of the new company.

In 1949 Magnolia had a capitalization of $125 million, all shares owned by Socony-Vacuum except for qualifying shares owned by members of Magnolia’s board of directors. Magnolia Pipe Line Company was capitalized at $16.5 million, its stock being owned by Magnolia Petroleum Company except for qualifying shares held by directors of the pipeline company. Gross fixed assets of the company on December 31, 1948, were nearly $700 million, including the assets of the pipeline company, which had 8,670 miles of pipeline extending into nine states. General offices were in Dallas in 1949, when the company had permits to do business in twenty states and had some 12,500 employees. The Magnolia Petroleum Company merged with Socony Mobil Oil Company on September 30, 1959. Its operations became part of Mobil Oil Company, which had been formed in March 1959 as an operating division of Socony Mobil, responsible for all operations except marine transportation in the United States and Canada. Magnolia Pipe Line Company was not absorbed into Mobil Oil Company but remained a common carrier affiliate of Socony Mobil.

BIBLIOGRAPHY:

John M. Duncan, An Eye-Opener: The Standard Oil-Magnolia Compromise: The Whole Cold Truth (San Antonio, 1915). History of Petroleum Engineering (Dallas: American Petroleum Institute, 1961).

J. L. Terrell and James A. Clark

Timeline of Texas History – Magnolia Petroleum Company

Australia: Tap Oil Gets Several Enquiries for Zola Stake

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Tap Oil Ltd. said Monday it will consider selling its 10% stake in the Zola gas discovery offshore Western Australia before any liquefied natural gas development occurs, and has already received several enquiries about its plans.

Tap has recently received several enquiries from large overseas industry players about Tap’s plans for Zola,” the company said in a statement to the Australian Securities Exchange.

The Zola-1 exploration well in the WA-290-P permit area in the Carnavon Basin discovered a mean contingent resource of 378 billion cubic feet of natural gas. The block is operated by U.S. producer Apache Corp. .

The entire Zola structure–located south of the giant Gorgon gas field being developed by a Chevron Corp.-led consortium–contains a mean 2.33 trillion cubic feet of gas, according to a report by independent experts RPS Energy Services Pty Ltd.

It is appropriate for a company of Tap’s size and funding capabilities to consider monetizing an asset like Zola prior to the incurrence of the large scale LNG development costs which are likely required to bring the asset into production in a timeframe of at least five years,” Tap said.

Tap, which has a market value of A$170 million, said it is “confident that it can maximize the value of Zola by monetizing the asset on attractive terms at the right time.”

(businessweek)

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Santos: Only Way to Meet Eastern Australia Gas Demand is Allow CSG

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The only way to meet a tripling in natural gas demand in eastern Australia is by allowing unconventional gas projects, including CSG, Santos says.

The oil and gas company’s eastern Australia vice president James Baulderstone told a conference that he expected gas prices to more than double within two decades, driven by demand and linking it to oil prices.

Soaring global demand for liquefied natural gas (LNG) is expected to contribute to Australia’s wealth and make it one of the world’s biggest exporters of the commodity.

However the use of fracking to access coal seam gas (CSG) or shale gas is strongly opposed by many Australians and Americans, including farmers, who say it contaminates prime agricultural land.

Santos insists that is false and gas is a safe, low-carbon alternative to coal for providing energy, with eastern Australia potentially having enough gas to supply it for a century.

The five LNG trains already sanctioned, with more planned, represent a quantum change in eastern Australian natural gas demand,” Mr Baulderstone told the Opportunities and Challenges for Australian Gas conference on Monday.

Provided natural gas development activity is allowed to proceed at the right pace, and the market is willing to pay the increased cost of extraction, there is sufficient gas in Eastern Australia to meet this demand.”

But he added that it was not viable to develop much of the gas reserves to meet the new demand at current Australian gas prices of about $4 a gigajoule.

Australian gas prices were some of the cheapest in the developed world, Mr Baulderstone said.

Comparatively modest price increases driven by this anticipated stronger demand will make the development of extensive additional resources economic for the first time.”

Domestic users would be able to absorb such increases as gas prices had been flat for a decade and a rise was long overdue, he said.

He predicted prices would move to $6 to $9 a gigajoule.

Industrial customers like Rio Tinto, BHP and Xstrata have benefited greatly over the past decade from basically flat east coast Australian gas prices while their commodity prices (iron ore, copper, silver, coal) have increased in some instances nearly ten fold during the same period,” Mr Baulderstone said.

Santos is heavily invested in CSG through the $US16 billion ($A15 billion) Gladstone Liquefied Natural Gas (GLNG) project it is leading and is also developing shale gas projects in the Cooper Basin in central Australia.

It is also close to finalizing a $924 million bid for NSW-based Eastern Star Gas, which controls NSW’s largest CSG resource.

Even if the development of Santos’ CSG business in NSW was a third of the size of our Queensland project, $2 billion would be added to NSW state revenues and over 1,000 direct jobs would be created,” he said.

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