A strong City is not just in Britain's interests

The Author of this Article, Mark Jago is a semi-regular contributor to this Blog, however his insights on issues of the day, are to be increasing found in the comments section of articles published online by the better UK Newspapers.

The above headline is borrowed from an article written by the Chancellor of the Exchequer Alistair Darling on the 2nd December 2009 in the online Times paper laying out a case for the City of London to remain a prominent European financial center.   This is in response to City concerns about Gordon Browns agreeing to new European market oversight and the appointment of Michel Barnier as the new EU Single Market Commissioner to oversee regulatory reform.   It makes an interesting read into the thinking of a Government attempting to create an impression that is 180 degrees out of step with reality.
You can read the article here: A strong City is not just in Britain's interests

The Chancellor fails to mention that the Royal Bank of Scotland was allowed by his Government to leverage itself up to become the world’s largest bank with perhaps the largest exposure to toxic mortgage assets.  Also that Banks outside the UK and US were the victims of US and UK financial policies of exporting systemic risk which caused the freezing and failure of the world economy.  While he talks about having a safe market place, financial regulation and ensuring taxpayers and customers do not pay for bank failures.  We all know that he and his Government have created an environment where the opposite is true.  In terms of doing business in the UK companies, small business, investors and customers face a very high risk of loss due to the Government and financial industry.

With the advent of online electronic banking there is now little reason to use UK institutions. Companies and traders can trade stocks 24/7 on various exchanges around the world.  Large corporate funding is generally funded by multiple Banks and can be arranged in jurisdictions like Canada where there is better downside protection against systemic risk.  By any measure given the current UK economic and political situation the cost of doing business in the UK could turn out to be an unacceptable risk.  It remains to be seen if Europe is willing to take on the City once they have a full understanding of the risks involved.

My comment as published the Times is as follows:
 It's simply stunning to see that people are still attempting to rewrite history in order to carry on as before.   The world made the mistake in putting its trust in the large UK and the US financial centers.

It was debt issued through these financial centers classified by their regulators as AAA that turned out to be toxic.  This debt contained risky packaged mortgages that were sold in a similar way that resulted in the previous failure of the London insurance market.  Mortgage brokers were paid large fees to sell mortgages to people who had no hope of even being able to pay the interest on the loan.   The world made the mistake in putting its trust in the large UK and the US financial centers.

The US and UK Governments were instigators who dismantled financial oversight.  They miss-managed their economies and created the housing bubbles that caused the financial crisis and recession.  Both countries have massive Government borrowing requirements facilitated by funding through their financial centres.  In simple terms they have built a money machine that takes the wealth created by ordinary people around the world and concentrates it in the hands a few greedy advantaged individuals in London and New York.

Had there been a shred of honesty within the institutions of this land there should have been an admission of fault and help for the honest people and businesses that have been damaged by their actions.   As usual Government politicians have put their own interests ahead of those of the country and deflected responsibility by blaming others, stonewalling and whitewashing the facts.

The City would have you think that they are an indispensible part of the world economy. In fact they have brought about their own eventual demise.

Today's Oil Facts of Life

The Author of this Article, Mark Jago is a semi-regular contributor to this Blog, however his insights on issues of the day, are to be increasing found in the comments section of articles published online by the better UK Newspapers.

An article in The Times "Oil companies in rush for London Stock Exchange listings" during the weekend paper got me thinking that while there is much hype over energy there is very little factual information made available to the public.  The UK Government does not freely give out information about consumption and North Sea production. What UK figures I have is gleaned from various sources.  Other information I have found on the following web sites:
Energy Information Administration (US Government), CommodityOnline and Platts.

Those of you that have seen my previous blogs about Oilexco will understand that I am an investor with vested interests and definite opinion on the conduct of the UK Government and the Royal Bank of Scotland.  The Times weekends article highlights the North Sea energy resource as little more than an opportunity for the Government and financial industry to make quick money at the expense of the Oil Companies, investors and UK energy consumers. My comment attached to the Times article implies that it's all little more that a shell game, you can guess what I mean by that….

There are an estimated 22 billion barrels of possible oil equivalent energy resources in the UK North Sea. Much of this is high grade Brent crude combined with significant quantities natural gas.  While Oilexco was a relatively small company it operated drilling rigs partnered with a number of other oil companies that made up a large portion of the North Sea development.  Oilexco production was just coming on line at a cost around $15/barrel when the RBS forced it into bankruptcy protection.   A six month extension of the RBS loan at minimal cost would have seen Oilexco through its difficulties, a fact that the Government was made aware of but failed to offer its support.

When you read the following information, be aware that during tight energy demand periods 200 additional barrels of daily production can make the difference between $80US and $160US/barrel oil pricing.  China, US combined daily oil consumption accounts for roughly one third of daily world production. UK consumers pay double the price that North Americans pay for their energy as a consequence of Government policies and practises.     

It is important to understand that oil storage in tankers is insignificant (140 million barrels est.) when compared with current world oil consumption.   Chinese daily oil consumption was estimated to be 7.9 million barrels in June 2009 and oil consumption was up 12 percent over the period from 2007 to 2008. China's population is 5 times size of the US, Chinese new car sales are currently estimated to be running at one million a month and the economy is expanding annually at a rate estimated to be between 8 to 10 percent. Peak US daily oil consumption was between the years 2004 and 2005 at a rate of 20 to 21 million barrels, current daily consumption is between 18.5 and 19 million barrels and is expected to start to increase again in 2010.  World daily oil production for the first three months of 2009 is estimated to be 8o million barrels down from a peak of 87 million barrels.

Oil consumption is expected to increase next year by 1.26 million daily barrels.  Currently increasing Asian oil demand is offsetting other areas of world demand destruction.  World oil production last year was closely in line with consumption. 

The UK Government had expected to see 2010 North Sea Oil production increase to 3 million barrels of oil equivalent per day.   Their mismanagement of the resource will see UK production down to between 1.5 and 1.2 million barrels per day.

Much of the new oil production now coming on line is low quality which many refineries find difficult to refine and has to be mixed with higher grade oil.  This leads to a problem, whilst much of the 'new oil' is low grade, new sources of premium oils of the quality of Brent Crude from the North Sea are becoming increasingly scarce. 
Add to these woes, is that many of the new oil fields now starting production have short estimated production lives of eight to ten years. But of course new oil field discoveries are often announced, but it is important to understand it can take up to ten years for these to put into production, even in normal times.
But the financial crisis has had a significant negative effect on companies engaged in oil field exploration and even on the development of those fields already discovered and that should be in the process of being brought on line.

The increasing future demand for oil is unlikely to be met by the current level of new development. Like it or not, the world is going to have to come to terms with consuming less oil at higher prices. The UK is not "well placed" to deal with this growing problem.

UK facing 'energy crunch' as North Sea oil and gas cash dries up

Not my headline but one from an Article with same title by Rowena Mason in the Daily Telegraph on Wednesday the 8th Jul 2009, which can be viewed here:
UK facing 'energy crunch' as North Sea oil and gas cash dries up.

I found this article both interesting (and recommend that visitors take the time to read it) and at the same time ironic as Mark Jago's article in this blog on the 5th January 2009 covered this in some detail:
Banks Risk Scottish North Sea Oil industry and Britain's Energy Future

Mark's article despite being six months old remains as valid as when it was written.

Included with Rowena Mason's article, but separate from it, is a Telegraph TV item with Robert Miller interviewing Liam Hallingan Chief Economist at Prosperity Capital Management and writer of the Economics Agenda Column is the Sunday Telegraph. Whilst this takes a broader view of the Global Situation the Video (republished below) is well worth watching!

The Idle Man

Gordon Brown's Britain - Surreal View of the Week

An Article by: Mark Jago - Published with his permission.
The Opinions Expressed are those of the Author, who assures me the article was written under the influence of nothing stronger than decaffeinated coffee:

Good news, the Government is working tirelessly to create jobs for those British citizens negatively affected by the global economic crisis brought on by outside forces that would seek to undermine the social fabric of the British state.

Our supreme leader Gordon Brown returned on the weekend triumphant from an EU meeting where he secured European autocratic socialistic "order in our time" by agreeing compromises that would see UK financial regulators have an expanded role as part of a new super European financial regulator with powers over the City of London financial system. He gained reassurances that the UK Government would retain "the right to bail out UK Banks when the Government thought it necessary". In exchange he has agreed a compromise package of sweeteners that would encourage the Irish to ratify the Lisbon Treaty making any renegotiation of the Treaty by a future Conservative Government more difficult. European commissioners are keen to maintain their support for the Prime ministers Government until the Lisbon Treaty is ratified.

This news was overshadowed by continued state sponsored media headlines detailing more parliamentary expenses revelations. That had in its wake brought about Government party purges, prompting our supreme leader to respond with an early re-shuffling of his cabinet. He also decided to increase the number of his non-elected members of cabinet to ten and at the same time said that he intended to bring about Parliamentary reform. The Government sanctioned Conservative party opposition has now become concerned that their party will lose out on reforms designed to smooth our supreme leader's re-election.

In a move designed to bring his supporters rushing out on to the streets in celebration, state media reported our supreme leader Gordon Brown has announced his intention to lead the Labour party into the next general election securing a fourth successive term for the party. The spontaneous demonstration however failed to materialize and we can now report that an un-named source has informed us that Chancellor Alistair Darling had failed to secure an EEC grant to pay for security forces to round up the necessary "volunteers". We also found that placards that were to be used in the demonstration did not materialise because the Government had failed to pay a previous printing bill. The placards were supposed to be pictures of the supreme leader with captions saying "God Save our benevolent leader", "You saved the World and we love you" and "one party one leader for life". This after our supreme leader had allegedly said that he could quite easily leave the trappings of leadership behind and go into teaching. Apparently he was misunderstood because he was a little incoherent due to the fact that he had lost his temper at the time. What we believe he said was "If a few malcontents think they are going to make me give up the trappings of power they have another think coming". When is my little red book "The teachings of your supreme leader Gordon" going to be available from the printer's? I'm going to make this book compulsory reading for all UK citizens!

The alleged rift between are supreme leader and Chancellor Alistair Darling seems to be getting worse after budget forecasts for tax revenues were publicly reported to be falling short of expectations. The governor of the Bank of England, not someone who normally likes to associate himself with common talk about money has let it be known that some fix-up of the Country's finances may be necessary? We understand that he got into a little bit of a sweat after workers who were printing new twenty pound notes started to demand to be paid their wages in foreign currency. Apparently there had been some minor Government miscalculations based on their assumptions that the City of London was "The financial capital of the World" and that the Prime Minister had already saved the World's financial system. Was there a general breakdown in the coordination and communication between Government departments? The Government is denying the oppositions assertion that tax increases would be inevitable. A anonymous spokesperson for the Government said that the first planned autumn petrol tax increase originally planned to be at four pence a litre could be increased "to say forty pence" without constituting breaking the Governments promise not to bring in any "new" taxes.

Unrest has again been reported in the energy industry following the firing of some 51 contract worker's some 650 other workers who walked out in sympathy were then also fired. The allegation being that cheap foreign workers were being brought in to complete the Total refinery project. We hear from an undisclosed source that these workers are going to be offered re-training and jobs in law enforcement, social services and the funeral service industry. This as a reward for not advertizing the fact that the government and their UK banking friends have exploited foreign Companies developing North Sea energy and have forced some of them either into bankruptcy or to drastically reduce expansion plans. The resulting loss of jobs and tax revenue is said to be substantial.

In other news our supreme leader announced this week an enquiry into the Iraq war to be held behind mostly in private although the public will get to hear some conclusions. The inquiry he said will look into lessons learned and not apportion blame. Someone not wishing to be named said that the government would be interested in gaining a better understanding of how they managed to invade another country and commit murder without being indicted for war crimes?

There has been some good news out of the National Health Service after it was found that the number of deaths from deadly infections introduced during surgery had declined. It has been found that deaths are now more commonly attributed to delays in transporting patients to hospital and simple mistakes during the admission process. An industry spokesperson said that this was a "Win Win" solution because patients no longer have to face the likelihood of a prolonged agonizing death at public expense. A rumour that the number of patients turning down National Health Surgeries was substantial was said to be exaggerated. However the spokesperson did admit that for some reason that hospital admissions and even attendance at doctors sugeries had suddenly declined substantially and that there was no longer a problem with waiting times. The spokesperson reiterated the health services commitment to provide a prompt humane service.

Finally this week, a first successful test run of Britain's first high-speed domestic train service using a Japanese-built train that hit a speed of 143 miles per hour on route between London and Ashford was rapturously announced by British Transport Secretary Lord Adonis. This is a real tribute to the policies of successive British Governments over decades of encouraging the export of innovative British industries and talented engineers and scientist to countries where their technologies and talents are more appreciated. The new "very" limited service is to start only thirty three years after train regular 170mph service was introduced in Japan and some decades after high speed rail services became common place in France.

The UK Government is beyond Contemptible

An Article by: Mark Jago - Published with his permission.
The Opinions Expressed are those of the Author.

It comes as a relief to hear that the rabble that call themselves politicians will be shortly shuffling off to their respective constancies for a long undeserved break from Parliament through to October.

It seems to me too much of a coincidence that the public should be subjected to a sordid little expenses scandal when there are other more critical issues that the Government should be held accountable for.

It's been long understood that the tabloid press is little more than a mouth piece used by politicians to communicate their positions and to influence public sentiment. There is an incestuous relationship between the press and their political insider informants. Over the last few days politicians have been using the press to communicate to each other their positions following the Labour Cabinet shake up.

It's my view that the Parliament expense scandal was deliberately encouraged as a relief valve in order to channel public attention and displeasure that has been building up over the past few months. The instigator and benefactor of this sordid little exposé is obvious. Gordon Brown, who now has all those people that would be his successor in Cabinet with him, where he can keep them busy and have them compete for his favour's as a possible successor. The hapless less intelligent politicians caught up in the coop that "really never was" having become collateral damage road kill. Convenient scapegoats that can be used to palm off past government failures onto, not many voters are going bother with semantics over these losers.

Mary Riddell's June 08th Telegraph Column:
"Gordon Brown: His enemies want him dead, but he is still Labour's only hope"
could in my view have been written by Gordon himself. It's difficult to imagine why she would of her own volition and while being of sound mind write such drivel?

Meanwhile the Government's sound bite politics and disastrous economic mismanagement continues quietly unchallenged and without democratic sanction.

Readers of my earlier Articles about Oilexco in this blog will not be surprised to hear Chancellor Alistair Darling in an interview is warning that the current high price for oil had the potential to be a huge problem as far as a recovery from the recession is concerned. (See: Oil prices could hold back recession recovery warns Chancellor).

He goes on to say that "we've got to convince everyone, including some of the Gulf states, who really have been badly affected by this downturn in their broader economies, it is in no one's interest that we allow a high oil price to impede recovery." The truth is that the Gulf States have suffered very little. He doesn't mention that the current run up in oil is largely due to commodity market speculation in which the City's commodities traders are intimately involved in and are active participants in siphoning off huge profits.

He also warned that getting banks lending again remained a problem, and that lenders were still struggling to build confidence. "If you don't fix the banking problem, you'll never fix the wider economy," Mr Darling said.

What is clearly understood by the World political community is that the US and UK are jointly responsible for the credit crisis and recession. They both benefited by usurping their trusted positions as regulators of their leading financial centers to allow for their own financial institutions to fraudulently manipulate investments and defraud the World community.

The fact that the British Labour Government has added to these problems with their own profligate spending and lack of banking supervision has in truth brought the UK to the brink of economic oblivion. They continue to blame others while failing to put their own house in order with corrective actions that protect their citizens from additional liabilities.

Those people in the UK that continue to support this Government because they themselves have been bailed out of a bad personal banking situation, or are reliant on the Government for a job, or for financial support should know the facts and rethink your motives.

Firstly, the amount of Government bailout money used to help individual depositors makes up only a small portion of the bailout funds given to the Banks. Much of the money has gone off-shore to cover the obligations that the banks created as part of their sub-prime involvement. The collapse of the car industry, other business and of the housing bubble is because the Banks withdrew their lone support in all these areas in order to save themselves from bankruptcy.

The amount of World toxic debt is many times larger than the amount of bailout and stimulus funds that have been committed to date. The UK Government may be working feverishly at this moment to size the exposure that they took on by taking over the UK banking system, but they still most likely have no idea of the cost of their commitment.

This is a major critical error the Government made is compounded by the fact that they persuaded the US to do the same. The action the Government should have taken was to support the good UK banks, those with non-subprime exposure to take on the retail business and industry lone businesses from the bad Banks who had the toxic lone exposure. The toxic debt would then be imprisoned within a few bankrupt banks and Government stimulus would be focussed on a quick recovery of the economy.

As we now know, successful businesses and families who through no fault of their own were at the time reliant on bank funding in the course of a normal banking relationship have been whipped out due to this extra ordinary catastrophe.

Last week's meeting G8 optimism about an end to the recession should be taken in context. On a global basis the world economy has gone from free fall to a bottoming process. The more robust economies and those with less exposure to toxic debt have begun to recover. The change in sentiment has seen funds that were put into the US as a safe haven are now being taken out again. This has resulted in the drop in the US dollar that has also seen other currencies including the pound rebound.

In the case of the UK, the major economic engines are Government spending and the City's financial business. These are both areas of economic activity that are not going to collapse over night, but will wither and die over time given a shift global sentiment.

This shift has already begun. Following on from the London G20 meeting there is a move to have the City's financial oversight come under European Common Market control. This will most likely fought by Gordon Brown who will try to postpone the inevitable however, his position is becoming weaker by the day. The Government has already requested Common Market banking help to save the North Sea energy industry, a move that's come too late. They are also asking for assurances that UK Vauxhall car plant production will remain operational under the new owners.

With a tax base that's shrinking by the day and a Bank of England reduced to printing money to keep the economy afloat the Government has only a short window of opportunity turn things around. Unlike the US they don't have a reserve currency to fall back on. Any special relationship they have with the US is fading fast and their attitude towards the EEC has not won them any friends. A rising tide will likely come too late to lift this UK boat.

The World does not owe this contemptible Government a living. The UK has made its own bed and now it must lay in it.

An intelligent World is no longer fooled by G20 Summit Theatre

Another thought provoking article by Mark Jago - Republished here with permission:

Most people are already aware of five point plan that is the substance of the Thursday event, as it has been made available to the media prior to the G20 summit. What remains is choreographed theatre that political leaders feel obliged to participate in as a PR exercise for consumption by their respective home audiences. For an increasingly isolated Gordon Brown it's likely one of his last opportunities to strut on the world stage in a vain attempt to cast him as a savoir rather than a central contributor to the financial crisis.

The governments of United States and the United Kingdom have yet to formally admit that it was their political leadership that was complicit in allowing state run institutions to be active partners with rogue financial institutions in the perpetration systemic fraud that created the credit crisis and global recession. It will be interesting to hear what the individual G20 leaders have to say beyond the confines of the carefully scripted summit media statements.

President Obama and his team in the just over sixty days since he became president has done a stunning job in putting in place measures to turn the US economy around. While it’s is too early to expect not to have additional economic bad news, for the US spring is bringing with it signs of a bottom and turn around with new hope of an economic recovery towards the end of this year. Corrective measures to “market to market” accounting and modifications to the stock market up-tick rule and government money to help home owners, tax cuts and funding for public infrastructure projects all helping to create renewed economic growth. Government regulators and the corporate managements have been brought before congress to account for their actions and there will be people that will eventually be held responsible and go to jail.

As Gordon Brown prepares to chair the G20 summit hoping to gain additional stimulus package funding, the outlook of the UK stands in stark contrast to that of the US. Changes in the US have been ongoing over the past 16 months, with the lowering of US interest rates, improvements in exports, home foreclosure measures and tax rebate cheque stimulus. The election of a new president has brought about the replacement of the previous governments powerful Washington State Department heads and a new approach to US policy.

Prime Minister Gordon Brown who presided over the unfettered excesses of the UK's financial service industry, sold the UK gold reserves at fire sale prices, and treated essential industries like the North Sea energy and tax payers as his personal piggy bank in order to pay for his profligate political agenda. Facing catastrophe has pumped billions of pounds into failed banking system and taken a 16 billion pound hit with an in effective 1 percent cut of the VAT tax. In recent weeks it's become apparent that tax payers will be paying billions of pounds to replace public sector pension money losses which will presumably include the cost of the now disgraced RBS chairman's pension. A man who it is reported that the Prime Minister used to invite to his weekend parties along with the others of the UK Banking fraternity. In addition to having to pay back over many decades the money borrowed to bail out the banks and for the stimulus package.

The Prime Minister will tell G20 leaders that a clampdown is necessary to curb tax havens by individuals and companies, is obviously desperate to raise money from any source that he can find. His Energy Minister Mike O'Brien last week said that the Government was looking at securing funds from the European Investment Banks and admitted that the North Sea is unlikely to meet production targets for 2010. This after the Government sat idly by and failed to act to prevent RBS from pulling a line of credit from major North Sea driller Oilexco. For which Canadian management and shareholders paid last week the ultimate price for putting their trust in a partnership with the UK Government and its Banks. O'Brian also said that he is waiting to hear back from the EIB and North Sea Energy Companies that may be experiencing difficulties. Could it be that these mostly foreign companies think that better odds can be had by teaming up with the mafia?

The Prime Minister who has continued to insist that the UK is "better placed" than others to weather the crisis was told last week by the Governor of the Bank of England Mervyn King that the Country had reached its limit on money it can borrow to spend its way out of the crisis. Former labour Lord Owen the put UK situation in to accurate prospective saying that "There is an air of breathtaking unreality in Westminster and Whitehall that reminds me of 1975," he wrote. "Hard choices need to be taken now, not postponed until after an election in 2010."

Many people would like to hear what is said behind closed doors at Thursdays G20 meeting. Could it be that the UK's next "special relationship" will be with the IMF? The world is quickly losing patience with this feckless selfish government.

Banks Continued Failure to Provide Loans makes a UK Depression Inevitable

Article Updated: 11th February 2009 at 0600 GMT

Having contacted the Author Mark Jago, he has given me permission to post his article.

In the financial world they have saying that a rising tide lifts all ships. US and UK government policies by deregulating financial industries and neglecting to provide responsible oversight, combined with Fed Chairman Greenspan's low interest rate policy has brought about an over stimulation of the world economy and the creation of market bubbles. In hind sight it's easy to see why this happened, the 2001 technology bubble should have been a wake-up call to US and UK policy makers. However, as we now know they did not heed the warnings.

Mortgage companies made money by selling large mortgages at low "teaser rates" without regard to the fact that their clients would not be able to make the monthly payments at normal interest rates. Banks made high profits by leveraging up their subprime mortgage loan portfolio and packaging them with high quality debt that was sold on as high quality debt into world debt investment markets.

US Federal Chairman Greenspan retired and was replaced by Dr Bernanke. Dr Bernanke immediately instituted a policy of interest rate hikes that led to the collapse of the US housing market bubble. This exposed the fraudulent excesses of the US and UK financial systems which in turn led to a rapid stock market crash and the freezing of global banking market liquidity.

Subsequent government bailouts of the banking system have been little more than a band-aid solution that have addressed some of the crisis symptoms but have done nothing to mitigate the consequences. The UK government bank bailout was a reactive response and a measure of last resort in an attempt to stave off a financial catastrophe. The US decision to bailout the banks rather than buying the toxic assets came about because there was no understanding about the size of the toxic lone problem.

The tide of global financial liquidity has disappeared the consequences of government's management of the UK economy has now been laid bare for all to see. The symbiotic relationship between the government and the City of London that allowed for the parasitic siphoning of wealth into the hands of a few is broken. However, old habits die hard and it's not surprising that it's been reported the Royal Bank of Scotland now owned by taxpayers intends to hand out a 1 billion pounds in staff bonuses. While at the same time they are calling in business loans, forcing companies into bankruptcy protection, destroying tax revenue and adding to UK workforce un-employment.

The North Sea oil Company Oilexco is an example of the damage being done by the UK banks and by the UK Government's failure ensure the integrity of the banking system. It was one of the UK's most active developers of UK oil and gas has been forced into bankruptcy protection after RBS withdrew its banking line of credit. The New technology that this Canadian oil company had been using had the potential of revitalizing North Sea energy production and providing the UK economy with much needed revenue.

What was initially primarily a US, UK financial crisis has now become a rapidly deepening global crisis. The UK has become an unreliable partner that can't be relied upon to do its part to support foreign investment and investments in the future of its own economy. The party is over in Britain, there is a limit to the number of times investors will accept being burnt. The world now understands clearly how things are in the UK and unless there is significant change in UK policy it is at risk of be viewed in the same way it views a certain failed African state.

The time for talk by the UK Prime Minister is over immediate government action is required NOW. It's clear that are funds available for bank bonuses, then funds MUST be made available to support companies like Oilexco and by doing so to support the UK economy and energy industry. The UK Government and banking industry track record is such that they clearly are un-qualified to make the judgement call on what merits an appropriate investment.


M.J

Related Posts:
5th January 2009:
Banks Risk Scottish North Sea Oil industry and Britain's Energy Future
7th January 2009:
Oilexco In Adminstration - Will other Dominos Fall

If you found this article interesting then the Idle Man recommends the following blogs:

BBC Blog: - Stephanomics - Stephanie Flanders, the BBC's economics editor

BBC Blog: - Peston's Picks - Robert Peston BBC Business Editor

BBC Blog: - Nick Robinson's Newslog - BBC Political Editor

Banks Risk Scottish North Sea Oil industry and Britain's Energy Future

Having contacted the Author Mark Jago, he has given me permision to post his article.

News that Oilexco one of the most innovative and technically advanced oil and gas exploration companies operating in the North Sea is almost certainly going to file a petition for Administration for its UK Subsidiary after funding has been withdrawn by a UK bank. This not a case of a company failing due bad management, but a 'sign written large' that the future is extremely bleak for other Oil and Gas Exploration Companies operating in the seas around Britain.

Whilst in Britain we are regularly shocked by the mega-profits of the major oil companies, we are rarely made aware of the other types of Oil Industry Companies, those who specialize in exploring for new reserves and applying advanced technology to existing fields to maximize their potential.

Taking the specific case of Oilexco which won the Technology Uptake prize at the 23rd Scottish Offshore Achievement Awards in March 2008,
This Company which is publicly listed on the London and Toronto Stock Exchanges and is based in Calgary Canada, specializes in fast tracking oil and gas development into commercial production, utilizing appropriate technologies to do this at the lowest possible per barrel cost.

Through its UK Subsidiary Oilexco North Sea Ltd the company has been in the process of taking over an existing Oil Production Platform and then upgrading it to take advantage of better technology and to use it to supply both oil and gas that would have been previously burnt off as gas waste. This in turn has required the company to fund and build a new pipeline for the Gas Production. These projects combined early ordering of hardware necessary to fast track future production expansion are expensive and therefore very large loans were required to carry them out.

This dependency on Banks loans as resulted in two interlined problems. Firstly that an over extended Bank, would place very onerous conditions resulting in the company not realizing most of the cash flow benefits from existing production and that as the overall global financial situation worsened and the oil price dropped, cut off funding altogether. .This is certainly what happened in the case of Oilexco and analysts are already intimating that other companies are in the same situation.

What effect would the total failure of Oilexco North Sea Ltd have?
Well during the first quarter of 2009 Oilexco would have started to add production that would have resulted in the more than doubling of oil production this year and added to UK supplies of natural gas. Significant oil field discoveries made during 2007 and 2008 would have resulted in a material increase in North Sea output over the next two and a half years.

Had the bank extended the existing funding through 2009 and committed to supporting existing operations Oilexco and shareholders would have had the time to commit the necessary capital to ensure successful survival of this company and its ongoing North Sea development. The bank would have also had the opportunity to continue profit from an ongoing successful relationship with company.

Last weeks Oilexco news came at a time when gasoline prices in the US hit a low for the week averaging around $1.61 a gallon or under 42 cents per litre with Oil consumption of 19.9 million barrels 70 percent used for transportation down 3.7 percent from more normal volume slightly above of 20.6 million barrels. According to government EIA data raw oil at 60 percent, tax at 19 percent, with sales and marketing costs accounts for the price consumers pay at the pump. Canada is the largest exporter of oil and gasoline products to the US much of it from oil sands oil produced below cost at under $50US per barrel. Canadian prices were down in some Ontario locations below 62 cents Can per litre. Pump prices and oil futures were up Friday on OPEC news that 1.2 million barrel per day production cuts were completed on announced cuts of 3.4 million barrels and shipbroker reports of an 8.9 percent decline in on board tanker oil shipments.

Successive British Governments have enjoyed massive tax revenues from North Sea Oil, now is the time to put some back into to those companies working to ensure a more efficient means of maximizing existing fields and using advanced technology to exploit new resources. As the banks seem to be unwilling to invest in the future, the Government should transfer some of the money earmarked for the rumored further bank bail-out into more equitable funding of North Sea exploration.

The alternative will risk Oilexco drilling rigs and talented personnel being move to energy development projects away from the North Sea. Other North Sea oil companies partnered with Oilexco will also be negatively affected with future development being delayed or shelved. Oil production in the North Sea will decline more rapidly and oil import costs will balloon on higher priced oil and a declining pound.

Related Posts:
7th January 2009:
Oilexco In Adminstration - Will other Dominos Fall
10/11th February 2009:
Banks Continued Failure to Provide Loans makes a UK Depression Inevitable