Daily Archives: June 28, 2012

Banker to the Bankers Knows the Numbers Are Lying

By Jonathan Weil
 Jun 28, 2012 5:30 PM CT

The Bank for International Settlements, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them. What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies.

“The financial sector needs to recognize losses and recapitalize,” the Basel, Switzerland-based institution said in its latest annual report, released this week. “As we have urged in previous reports, banks must adjust balance sheets to accurately reflect the value of assets.” The implication is that many banks are showing inaccurate numbers now.

Unfortunately the BIS’s suggested approach is almost all carrot and no stick. “The challenge is to provide incentives for banks and other credit suppliers to recognize losses fully and write down debt,” the report said. “Supporting this process may well call for the use of public sector balance sheets.”

So there you have it. More than four years after the financial crisis began, it’s so widely accepted that many of the world’s banks are burying losses and overstating their asset values, even the Bank for International Settlements is saying so — in writing. (The BIS’s board includes Federal Reserve Chairman Ben Bernanke and Mario Draghi, president of the European Central Bank.) It fully expects taxpayers to pick up the tab should the need arise, too.

No Change

In this respect, little has changed since the near-meltdown of 2008, especially in Europe. Spain has requested 100 billion euros ($125 billion) to rescue its ailing banks. Italy, perhaps the next in line for a European Union bailout, is weighing plans to boost capital at some of the country’s lenders through sales of their bonds to the government.

Those bank rescues almost certainly won’t be the last. All but four of the 28 companies in the Euro Stoxx Banks Index (SX7E) trade for less than half of their common shareholder equity, which tells you investors don’t believe the companies’ asset values. While it may be true that the accounting standards are weak, the bigger problem is they are often not followed or enforced.

Government bailouts might be easier for the world’s taxpayers to swallow if banks were required to be truthful about their finances, as part of their standard operating procedure. Nowhere in its report did the BIS discuss the role of law enforcement, although the last time I checked it’s against the law in most developed countries to knowingly publish false financial statements. There have been few fraud prosecutions against executives from large financial institutions in recent years, in the U.S. or elsewhere, much to citizens’ outrage.

In the BIS’s eyes, it seems that it’s enough to merely encourage or incentivize banks to come clean about their losses, by dangling the prospect of additional taxpayer support before them. For example, on the subject of how to deal with overvalued mortgage loans: “One frequently used option is to set up an asset management company to buy up loans at attractive prices, i.e., slightly above current market valuations,” the BIS report said. “Alternatively, authorities can subsidize lenders or guarantee the restructured debt when lenders renegotiate loans.”

The BIS report got this much right: The lack of transparency and credibility in banks’ balance sheets fuels a vicious cycle. When investors can’t trust the books, lenders can’t raise capital and may have to fall back on their home countries’ governments for help. This further pressures sovereign finances, which in turn weakens the banks even more. The contagion spreads across borders. There is no clear end in sight.

Propping Up

To date, the task of propping up the economies in Europe and the U.S. has fallen largely to central banks. As the BIS wrote, easy-money policies also can make balance-sheet repairs harder to accomplish.

“Prolonged unusually accommodative monetary conditions mask underlying balance sheet problems and reduce incentives to address them head-on,” the report said. “Similarly, large- scale asset purchases and unconditional liquidity support together with very low interest rates can undermine the perceived need to deal with banks’ impaired assets.”

At some point, the cycle will break, only nobody knows when. This you can count on: It will take more than subtle inducements to make banks fess up to all their losses. Prosecutors must have a role. There’s nothing like the threat of a courtroom trial to focus a bank executive’s mind. The risk just has to be real.

To contact the writer of this article: Jonathan Weil in New York at jweil6@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net

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Recap: Worldwide Field Development News (Jun 22 – Jun 28, 2012)

Maersk-Bags-Gulf-of-Mexico-Contract-for-its-Under-Construction-Drillship

This week the SubseaIQ team added 4 new projects and updated 29 projects. You can see all the updates made over any time period via the Project Update History search. The latest offshore field develoment news and activities are listed below for your convenience.

Europe – North Sea

BP Sells Alba Stake to Mitsui

Jun 27, 2012 – BP is selling its interests in the Alba and Britannia fields in the UK sector of the North Sea to Mitsui & Co. for $280 million. Net BP production from the two fields averages some 7,000 barrels of oil per day. The sale comprises BP’s 13.3-percent stake in Alba and 8.97-percent stake in Britannia. Completion of the deal is anticipated by the end of 3Q 2012, subject to regulatory and other licensee approvals.

Project Details: Alba

Statoil Explores Brugdan Prospect

Jun 27, 2012 – Statoil has commenced exploratory drilling at its Brugdan prospect in License 006, Block 6104/21, in the Faroe Islands. The operator is using the COSLPioneer (mid-water semisub) to drill the well. Statoil expects drilling operations to take four to five months.

Project Details: Brugdan

Agora O&G Farms-In to Geite Prospect

Jun 27, 2012 – Bridge Energy has executed an agreement with Agora Oil & Gas for the farm-down of a 15-percent working interest in Production Licenses 497 and 497B. After the transaction Bridge Energy will hold a 15-percent working interest in the two licenses. Cairn will, as a consideration for the transaction, carry a substantial share of Bridge Energy’s well cost. Geite, the main prospect in the licenses is scheduled for drilling in 3Q 2012.

Project Details: Geite

Noreco Increases its Interest in Maja License

Jun 27, 2012 – Noreco has increased its interest in the Maja License (9/95) on the Danish Continental Shelf from 12 to 16.4 percent, and the license period has been extended for two years. The license contains part of the Gita discovery which was made in 2009. A new exploration well is now being planned in the license. The increase in ownership takes place at no charge, following a partner’s withdrawal from the license. Operator for the Maja license is Maersk Oil with 42.6 percent interest. Other partners are DONG Energy with 27.3 percent interest and Danoil with 13.7 percent interest.

Project Details: Gita

Aker Solutions Awarded Frame Agreement Contract for Norwegian Fields

Jun 27, 2012 – ExxonMobil awarded Aker Solutions a frame agreement for fields located on the Norwegian Continental Shelf. The frame agreement covers engineering, procurement, construction and installation of several fields, including Balder, Jotun A, Jotun B and Ringhorne. The fixed contract duration is five years from 2012 to 2017, with options for two additional five year periods. The frame agreement will be managed from Stavanger.

Project Details: Jette (Jetta)

Technip to Install Subsea Equipment for Alma/Galia Development

Jun 25, 2012 – EnQuest Britain awarded Technip a contract for the development of the Alma and Galia fields in the UK sector of the North Sea. The scope of work includes installation of two 10-inch production flexible flowlines, one 8-inch water injection flexible flowline and one further 8-inch production flexible flowline; installation of three 8-inch flexible risers; installation of two production control umbilicals/risers; installation of four power cables and associated dynamic risers; procurement, fabrication and installation of a 175-ton manifold structure; and associated trenching operations, tie-ins, testing and commissioning. The fields will be tied-back to the EnQuest Producer FPSO, which are located in a water depth of about 262 feet (80 meters).

Project Details: Alma/Galia

Premier to P&A Coaster Prospect

Jun 25, 2012 – Premier Oil will plug and abandon the Coaster exploration well at UK Block 28/10 as a dry hole. The operator commenced exploratory drilling in the beginning of June.

Project Details: Coaster

PA Resources Wins Contract Extension

Jun 25, 2012 – The Danish Energy Agency has extended PA Resources Licenses 12/06 and 9/06 by two years. License 12/06 is operated by the company with a 64% interest; and license 9/06 is operated by Maersk, wherein the company has a 26.8% stake. The 12/06 permit contains last year’s Broder Tuck gas/condensate and Lille John oil discoveries. PAR plans to drill an appraisal well at Lille John and is negotiating a drilling management contract. In 2009, the Gita 1X-well in license 9/06 encountered indications of hydrocarbons in the Middle Jurassic high-pressure/high-temperature (HP/HT) secondary target, but with low permeability. Subsequent studies have not lowered the producibility risk. There is no well commitment but a decision regarding drilling must be made by October 2013. In the meantime, further subsurface studies will be performed to evaluate prospectivity at Upper Jurassic and shallower Cretaceous and Tertiary levels.

Project Details: Lille John

Apache Reports Tryfan is Sub-Commercial

Jun 25, 2012 – Valiant Petroleum has completed drilling at the Tryfan prospect in UK Block 3/17. The well encountered both Frigg and Dornoch sandstones on prognosis with a small gas column present at the top of the Frigg formation interpreted to be sub-commercial. The well will now be plugged and abandoned.

Project Details: Tryfan

Hertel Offshore Signs EPC Contract for Draugen Platform

Jun 22, 2012 – Hertel Offshore has signed a contract for the EPC delivery of the Shell Draugen Additional Living Quarter, which will accommodate 44 people and will be designed according to the Norsok standards. Work has commenced and delivery of the module is scheduled for May 2013. Construction will be done at the Hertel Offshore premises in Rotterdam, The Netherlands.

Project Details: Draugen

S. America – Brazil

InterMoor Completes Conductor Fabrication, Installation Proj. for Shell

Jun 27, 2012 – InterMoor has completed the installation of the electrical submersible pump conductors for the artificial lift manifold as part of the Shell BC-10 phase two project. InterMoor was responsible for the fabrication and installation of four conductors in addition to one spare conductor for the project. Weighing in at more than 70 metric tons, the conductors measured 48 inches in diameter and 197 feet (60 meters) long with a 1.5-inch wall. The conductors were installed in water depths up to 5,600 feet (1,707 meters) off the coast of Brazil in the northern Campos Basin.

Project Details: Parque das Conchas (BC-10)

Australia

BHP Billiton Encounters Water at Banambu Deep Prospect

Jun 28, 2012 – BHP Billiton will plug and abandon the Banambu Deep-1 well as wire-line logs show that the well is water-bearing. The well, located in permit WA-389-P, lies in waters 1,050 feet (320 meters) deep. The well was drilled to 15,470 feet (4,696 meters) measured depth (mMD) on June 26, 2012, within the Mungaroo Formation.

Project Details: Banambu Deep

ConocoPhillips Set to Spud Boreas-1

Jun 28, 2012 – ConocoPhillips is moving forward with drilling of the Boreas-1 exploratory well in WA-314-P following the final function testing of the blowout preventers for the semisub Transocean Legend (mid-water semisub). The BOPs and marine riser were run to the sea floor, and after function testing, were pulled from the hole for further repair and maintenance. After passing all checks on the surface, they have been re-run to the seafloor for final subsea function testing. The company will drill the second well in the program, Zephyros-1, in permit WA-398-P approximately 4.9 miles (8 kilometers) southwest of the Kronos-1 discovery location. The third well, Proteus-1, will be drilled in WA-398-P approximately 8.6 miles (14 kilometers) southeast of the Poseidon-1 discovery location.

Project Details: Boreas

Apache Ready to Drill Balnaves Deep-2 Prospect

Jun 27, 2012 – Apache is ready to spud its Balnaves Deep-2 prospect offshore Australia, but is waiting on approval from the Australian government to move forward. The operator will use the Atwood Falcon (DW semisub) for drilling operations.

Project Details: Balnaves

Technip Pens Ichthys FPSO Services Contract

Jun 22, 2012 – Technip received a contract to provide services to the Ichthys FPSO, which will be located in the Browse Basin, Western Australia, at a water depth of 820 feet (250 meters). Under the agreement, Technip will provide engineering and procurement assistance for the topside facilities of the 1.2 million barrels storage capacity FPSO to South Korea’s Daewoo Shipbuilding & Marine Engineering. The Ichthys LNG project is expected to produce 8.4 million tonnes of LNG, 1.6 million tonnes of liquefied petroleum gas and 100,000 barrels of condensate.

Project Details: Ichthys

Nexus Energy Eradicating Longtom Producton Problem

Jun 22, 2012 – Nexus Energy Limited announced that the vessel to inspect and potentially rectify the electrical fault that caused the suspension of production on the Longtom field has arrived. Initial inspections have identified the fault to be contained within a specific section of the offshore system, which has enabled an engineering solution to be developed with implementation and associated production expected by month end. Given the mobilization of the specialized vessel, the opportunity is being taken to expand the inspection program to include additional sections of the offshore system, stated the company.

Project Details: Longtom

S. America – Other & Carib.

Edison Farms-In to Falkland Acreage

Jun 27, 2012 – Falkland Oil and Gas has executed a farm-out agreement with Edison International in relation to its licenses in the Falkland Islands. Edison will farm-in and earn a 25 percent interest in FOGL’s northern area license, which contains the Loligo prospect, in return for which it will contribute a pro-rate share of the costs of the 2012 drilling program – comprising two exploration wells. Edison will also farm-in and earn a 12.5 percent interest in FOGL’s southern area license, containing the Undine prospect, and will contribute to the 2012 work program. Meanwhile, Edison has agreed to pay its pro-rate share of certain historical costs incurred by FOGL during 2011 related to the 2012 drilling program. Edison’s share of these costs is expected to be around $50 million. FOGL expects to receive the Leiv Eiriksson (UDW semisub) in July to commence the drilling program.

Mediterranean

Eni Turns on Taps at Seth Field

Jun 28, 2012 – Eni has commenced gas production from the Seth field off the coast of Egypt. The field is expected to produce about 4.8 MMcm/d. The Seth project consists of a platform placed at a water depth of 262 feet (80 meters), two production wells and a pipeline of 6.8 miles (11 kilometers). The pipeline links the platform to the onshore processing facility in El Gamil.

Noa North Comes Online

Jun 27, 2012 – Noble Energy has begun gas flow from the Noa North field in the Mediterranean. The field was completed as a subsea tie-back to the Mari-B platform. Mari-B is the first offshore natural gas production facility in the State of Israel. Noble Energy is the operator of the project with a 47.059 percent working interest.

KBR to Execute Pre-FEED Study for Tamar Field

Jun 27, 2012 – KBR will execute a pre-FEED study for a project located off the coast of Israel. KBR will provide the pre-FEED study for the King liquefied natural gas-floating production storage and offloading (LNG-FPSO) facility currently being evaluated for Noble Energy’s Tamar gas field off the coast of Israel.

Project Details: Tamar

Africa – West

Rialto Awards FEED Contract to Petrofrac

Jun 27, 2012 – Rialto Energy has awarded Petrofrac a Front End Engineering Design (FEED) contract for Block CI-202, containing the Gazelle field, offshore Cote d’Ivoire. Work is scheduled for completion in October. Rialto is working to fast track first hydrocarbons. It expects to award further contracts before the end of this year. The field development plan and gas agreement has been approved by the Cote d’Ivoire authorities and the production facilities will consist of a fixed production platform at the Gazelle field with separate oil and gas pipelines from the platform to shore.

Project Details: Gazelle

BP Gets Govt Nod to Namibia Farm-In

Jun 25, 2012 – Namibia’s Minister of Mines and Energy has approved BP’s farm-in of 30 percent to Serica Energy’s offshore Luderitz basin license 0047. The agreement was first announced in March. BP will cover the entire cost of a 3D seismic survey over an area of up to 1.025 million acres (4,150 square kilometers) across the concession. Participants in the block are now Serica Energy (55%); BP (30%); National Petroleum Corp. of Namibia (10%); and Indigenous Energy (5%).

Asia – SouthEast

Otto Granted Extension to Explore Offshore Philippines Block

Jun 27, 2012 – Otto Energy reported that the Philippines Department of Energy has granted a nine-month extension to the third exploration sub-phase of Service Contract 69 in the offshore Visayan Basin. The extension will give the consortium additional time to evaluate three potential targets on the block – Lampos, Lampos South and Managau East. Otto said it will use the extension period to start planning for an exploration well.

Salamander to Conduct DST on Far East Prospect

Jun 27, 2012 – Salamander Energy reported that the Far East prospect on the Bualuang field in License B8/38 in the Gulf of Thailand has reached a total vertical depth of 4,580 feet (1,396 meters) and is currently being prepared for a Drill Stem test. The well encountered an 82 foot (25 meter) section of excellent quality T5 Miocene sandstones, the primary target on depth prognosis. However, following the acquisition of a full suite of wireline logs, these sandstones are interpreted to be water-wet, with no evidence of hydrocarbon saturation. The well was then deepened to test the secondary objective. The well penetrated a conglomeratic section overlying the Ratburi carbonates from 4,423 feet (1,348 meters) TVDSS to current total depth (“TD”). Oil shows were observed at 4,482 feet (1,366 meters) TVDSS and severe mud losses were experienced from 4,495 feet (1,370 meters) TVDSS. Interpretation of logging while drilling data shows zones of potential oil pay in highly porous section from 4,478 feet (1,365 meters) to current TD.

Project Details: Bualuang

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