by Jasmina Kelemen (MarketWatch)
Shares of major oil companies were unable to hold onto the slight gains achieved early Wednesday and declined as oil prices reversed course and slipped into decline.
The Amex Oil Index
(XOI :1,158.40,
5.18,
0.4% ) was off 0.3% to 1,149.93 points as crude for April delivery dropped 17 cents to $56.68 a barrel.
The Amex Natural Gas Index (XNG : 456.53, 0.26, 0.1% ) slipped 0.3% to 455.07 points as natural gas rose 0.2% to $7.59 per million British thermal units. The Philadelphia Oil Service Index ($OSX : 195.37, 1.10, 0.6% ) was flat at 194.42 points.
Forecasts for warmer-than-average temperatures across the northeastern U.S. from now until March has kept the market in check, with few players willing to move sharply in either direction.
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Uncertainty over the market’s direction is also keeping the equity sector contained within a trading range.
"Stocks feel trapped between gas bulls / bears and deciding battle might not be waged until fall (when storage is either full or it isn’t)," said Dan Pickering, of Pickering Energy Partners in a pre-market note to clients.
"Nothing to catapult us [in] either direction…so we drift," he said.
On the oil index, over half of the eleven components were trading at a loss. The only issues to break out of the early session’s torpor were Sunoco Inc.
(SUN :63.62,
1.25,
2.0% ) and Valero Energy Corp.
(VLO :57.10,
1.13,
2.0% ) , which both rose 1.5%.
Friedman Billings Ramsey raised Valero’s 2007 and 2008 earnings forecast to $7.80 from $7.50 and $7.10 from $6.75, respectively. According to analyst Jacques Rousseu, Valero is likely to have significant cash flow due to a likely sale of its Lime, Ohio refinery and could "easily" repurchase up to 20% of its shares this year. On the natural gas index, which largely consists of exploration and production companies, Pogo Producing Co.
(PPP : 49.05,
0.32,
0.6% ) was again a loss leader, falling 1.1% to $48.83.
Bear Stearns downgraded the Houston-based company’s shares to peer perform from outperform after the company announced last week that it swung to a loss of 29 cents a share, falling well below the Street’s estimates.
Qatari Energy Minister Abdullah Al Attiyah said other projects in Qatar were not under threat and ground would be broken on Thursday for a multi-billion-dollar GTL plant with Royal Dutch Shell. Costs for that facility, which processes gas into refined products that are market-ready, have risen to as much as $18 billion from a 2003 estimate of around $5 billion. The Exxon/QP GTL scheme, signed in 2004, had an initial budget of $7 billion.
Exxon executives in Qatar and a spokeswoman in the US declined to say how high costs had risen for the plant which was to have churned out 154,000 barrels per day.
‘GTL technology is expensive and very technical,’ Al Attiyah said.
‘Technology for the other projects is proven … No other projects are under threat.’
GTL plants process gas into clean oil products like low sulphur diesel, demand for which is growing on the back of tougher limits on emissions.
QP has offered Exxon a role in the development of the Barzan gasfield, part of Qatar’s North field—the largest reservoir of non-associated gas in the world. QP also offered Exxon rights to participate in any future development at Barzan. Al Attiyah said it was too early to estimate the development cost of Barzan, which will pump 1.5 billion cubic feet per day of gas from 2012 to meet demand from the country’s rapidly growing domestic market.
‘We need the gas,’ he said. Exxon’s Qatar country manager Alex Dodds said the Barzan cost would be similar to the company’s Al Khaleej gas project, also at the North Field.
He did not say whether he was referring to the first stage of the project, which cost $1.1 billion, or the more expensive $3 billion second phase.
‘We are pleased to have been the only international oil company selected to participate in the Barzan Project and look forward to continuing our successful partnership with Qatar Petroleum,’ said Stuart McGill, senior vice-president of Exxon, in a statement released in the US.
A flurry of gas projects in Qatar have inflated labour and raw material costs, exacerbated by rising costs globally across an oil and gas industry straining to bring new capacity online to meet rapidly rising demand for energy. Other oil companies, including ConocoPhillips and Chevron, have also cut spending or delayed projects due to the increased costs.
‘It’s hard to say that Exxon is losing out,’ said Lysle Brinker, an analyst with John S Herold in Maine, who noted that in terms of overall production the two projects are quite close.
‘You have to take Exxon and Qatar at their word that the project is too costly,’ Brinker said. ‘Exxon is not going to throw money away—that’s their long term record.’
ExxonMobil, the biggest foreign investor in Qatar’s energy sector, also has stakes in Qatar’s huge Rasgas and Qatargas liquefied natural gas projects. Qatar is home to the world’s third largest gas reserves after Russia and Iran.
