New Job

Well, it appears that after knocking on a lot of doors and tapping on a lot of windows I’ve found myself another job.  This should keep me in Sakhalin for another year or so, or at least until the economic situation in the rest of the world improves and the executives of various oil companies stop panicking over $50 oil and get their projects moving.

I start on Monday.

Russian Economics

An understanding of basic economics was always in short supply in the Soviet Union, and it is not exactly in abundance in modern Russia.

Natural gas is undervalued and its price less susceptible to producer influence than oil because long-term contracts dominate the industry, Gazprom deputy chief Alexander Medvedev said.

“Objectively, natural gas is undervalued,” Medvedev said. “The era of cheap energy is over.”

Natural gas futures on the New York Mercantile Exchange have dropped 21% this year and are down 69% since last year’s high of $13.694 per million British thermal units. Gas for March delivery fell 0.9% today to $4.447 per million Btu at 2 p.m. in New York.

The gas price is linked to the price of oil, which is also undervalued, Medvedev said. “Oil at $85 per barrel is more justified than $45 per barrel,” he said.

The spot value of oil and gas is whatever somebody is willing to pay for it right now.  The future value of oil and gas is whatever anybody is prepared to pay for oil and gas futures.  Clearly, those who are actually wanting to buy oil and gas do not agree with Mr Medvedev’s assessment as to what his products are worth.  I suppose if he tried to flog his car, he’d be complaining that buyers were undervaluing it by only offering $19,000 and “objectively” it was worth $23,000.  Somebody should tell Russia’s captains of industries that the days of their being able to assign arbitrary prices which everyone must pay ended almost 20 years ago.

From the same article, this also amused:

The global financial crisis may mean an opportunity for Gazprom to purchase more assets at low prices, including in North America, Medvedev said, declining to comment further. The company may borrow money for the purchases from Russia’s state-owned banks at low interest rates, he said.

So state-owned Gazprom, which is massively in debt and the recipient of government bailout money, is going to borrow yet more money from state-owned banks at artificially low interest rates to purchase foreign companies which are struggling financially?  Sounds like one hell of a business plan.

On a related note:

Gazprom Neft, the oil arm of Russia’s gas export monopoly Gazprom, may emerge as a new owner of mid-sized oil outfit Russneft, according to reports.

Moscow-based financial daily Vedomosti quoted a source close to Sberbank , Russia’s largest bank, as saying such a deal could take place because the current effective owner of Russneft, Russian businessman Oleg Deripaska, was struggling to service his debt.

Most of the debt belongs to Sberbank, which wants Gazprom Neft to take over Russneft and its debt.

Sberbank is state-owned.  Gazprom Neft is state-owned.  Little wonder that Gazprom Neft is Sberbank’s preferred buyer of the debt.  The consolidation of Russia’s banking and oil industry under a nationalised umbrella continues unabated.

Unrealistic Job Advert #3

This one was emailed to my wife:

We are looking for translators to translate Russia city names from English to Russian (Cyrillic alphabet). For the person who wins the project, we need a guarantee that you can complete this within 5 weeks but the earlier the better. Further, you should guarantee your work to be error free for up to 1 year. When our customers find translation errors, you agree to fix it within 10 days or less.

There are 190,418 cities in Russia that need translation.

The bid will be won based on cost and experience (the lowest bidder with the most experience wins the project so give us your best price). Please give us a project price, not a per city cost. We are looking for someone who can get started right away. Tell us about your translation experience.

Hmmm. 

5 weeks maximum.  190,418 cities. Assume a 60 hour working week, excluding breaks.  That gives us 300 hours to complete all 190,418 translations, which equates to one every 5.7 seconds.

Dream on.  They need a computer programmer, not a translator.

Compare and Contrast

Being faced with redundancy in 23 days time, it is interesting to sit back and look at how various supermajors have reacted to the global economic crisis and the collapse of the oil price:

Exxon-Mobil:

The head of US supermajor ExxonMobil said today the company is not planning to shrink its staff or cut back on investment because of the global economic downturn.

Boss Rex Tillerson said the world’s largest publicly traded oil company expects to spend $129 billion on new projects over the next five years.

That figure “spans across the entire scope” of the Irving, Texas-based company’s business, including oil and gas exploration as well as refining, he said in an Associated Press report.

“Our business plans are developed with a very long view in mind,” Tillerson said after the inauguration of a liquefied natural gas plant in the Persian Gulf state of Qatar. “So the fact that we’re in a temporary economic downturn, and it will be temporary; it will turn, really does not affect our business plans at all.”

“In terms of our employment levels, no change,” he said today. “We’re still hiring.”

Total:

Oil majors are making a big mistake if they cut staff and shelve projects because of low oil prices, Total chief executive Christophe de Margerie has warned.

He has no plans to do so, and told Upstream in an exclusive interview that the French giant has the financial health to weather the economic slump and benefit when oil prices eventually pick up.

“In our industry you cannot have a stop-and-go policy. You cannot say ‘I’ll invest when the price of oil is high and I stop when the price is low’,”he said.

“It is very important that we continue to invest. It will be good for everybody because it will limit the risk of shortage when the economy restarts, and it will be good for the company because we will get the benefit of the higher price.”

However, one thing de Margerie is not planning, is to cut staff. Many players in the oil industry have in previous downturns reduced staff levels, only to struggle to find qualified personnel when times got better. Only last month, Conoco- Phillips said it would remove 1200 jobs from its workforce.

“How can you say you want to keep a long-term investment strategy, and then destroy what is of value? What is of value for a company is its employees. Without your people you cannot do this. We need skills more than ever,”de Margerie said.

Shell:

Royal Dutch Shell Plc may trim its workforce with a plan to leave vacancies unfilled and to “ruthlessly” review its use of contract staff, according to an internal email seen by Reuters.

The email, sent by a senior executive in Shell’s core exploration and production division, told managers “the world has changed” after crude prices collapsed from over $147/barrel in July to around $40/bbl now.

“Do not fill vacancies … Reconsider how hard to hold on to securing current staff that may be on the fence re. retirement,” Chris Haynes, Vice President Technical, EPT Projects said in the email.

Contract staff, on which Shell, like other oil companies, relies heavily to help operate its facilities, are to be targeted in the cost-cutting drive.

“Ruthlessly review third parties costs … Review necessity of contract staff as contracts expire, renew by exception only.”

With oil now reasonably settled around $45-$50 per barrel, hardly a disastrous price, it looks as though somebody has panicked.  So much for 25-year visions and long-term planning.  A two week flirt at $35 per barrel and the whole lot goes out the window.

Reavealed Preferences in Venezuela

There’s nothing quite like like a dose of economic reality to reveal preferences: 

Venezuela increased oil shipments to the US in January, despite President Hugo Chavez’s anti-US rhetoric and a promise to Opec to cut output, the US Department of Energy said.

Crude shipments from Venezuela to the US rose to an average 1.2 million barrels per day in January, up 14% from December, according to data from the department. Venezuela had promised to cut exports to the US by 16% starting 1 January to comply with Opec cuts.

Chavez has often vowed to diversify Venezuelan oil markets, slashing its reliance on the US and boosting exports to allies such as China. When Opec asked its 12 members to reduce output by a combined 4.2 million barrels per day in January, Venezuela agreed to a 364,000 barrels-a-day cut, 11% of total production, and vowed the bulk of those cuts would come from exports to the US.

But tough times may now be stalling those plans, said [energy analyst Roger] Tissot, who suggested it would be easier for Venezuela to cut expensive, long-distance shipments to China, or discounted sales Latin American and Caribbean neighbors under Venezuela’s Petrocaribe pact instead.

Heh.

A spokesman for PDVSA declined to comment on the US report.

I bet he did.