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UPDATE 1-BP sells UK LPG distribution business to DCC
Wed Aug 8, 2012 9:30am BST

LONDON, Aug 8 (Reuters) – BP said on Wednesday it has agreed to sell its liquefied petroleum gas (LPG) distribution business in Britain to DCC, a support services group, for $63 million.

The British oil company’s UK LPG business supplies industrial, commercial and domestic customers, with annual sales of approximately 87,000 tonnes of bulk and cylinder LPG.

It employs 116 and operates from 13 locations throughout Britain with a fleet of 62 delivery vehicles.

BP said it was retaining its automotive LPG business, which will move into its UK Fuels Value Chain, which runs the company’s fuels business including service stations.

(Reporting by James Davey; Editing by Paul Sandle)

Panetta Says All Options Must Be Tried Before Iran Strike

U.S. Defense Secretary Leon Panetta said all possible means must be tried before a military strike against Iran and that the U.S. is prepared to use force if needed to stop the Iranian development of an atomic bomb.

“We have to exhaust every option, every effort before we resort to military action and that’s important,” Panetta said while visiting an anti-missile battery in Ashkelon, southern Israel. Still, “if they continue and make the decision to proceed with a nuclear weapon, we have options we are prepared to implement to ensure that does not happen.”

Israeli Prime Minister Benjamin Netanyahu expressed doubts that Iran will back down quickly and said time “is running out” for a peaceful solution.

Their comments today showed that U.S. and Israel continue to disagree about what constitutes grounds for a military strike, said Gerald Steinberg, a professor of political science at Bar-Ilan University near Tel Aviv. For Israel “it’s not a decision by Iran that matters because that may not be knowable, but it’s Iranian capability,” Steinberg said.

While the U.S. and Israel both suspect that Iran is covertly seeking nuclear-weapons capabilities through uranium enrichment and other activities, the two allies have disagreed openly about how much time to give economic sanctions and negotiations to try and persuade Iran to give up its nuclear program. Iran has denied it aims to build nuclear weapons.

Sanctions Impact

Netanyahu and Defense Minister Ehud Barak told Panetta today that even if sanctions were to cripple Iran’s economy they wouldn’t slow down the country’s nuclear program.

Expanded sanctions announced yesterday by President Barack Obama “will have an even greater impact on Iran’s economy” than previous rounds, Netanyahu told Panetta at a meeting in Jerusalem today. “But unfortunately it is also true that neither sanctions nor diplomacy have yet had any impact on Iran’s nuclear weapons program.”

Iran believes that “the international community does not have the will to stop its nuclear program. This must change, and it must change quickly because time to resolve this issue peacefully is running out,” Netanyahu told Panetta.

Barak said that while talks and sanctions may have some impact, they will give Iran more time to proceed with uranium enrichment.

Immunity Zone

“We in Israel see the probability that it will lead the ayatollahs to gather around a table, look at each other and tell each other that ‘we have to give up the nuclear program,’ the probability of that is extremely low,” Barak said at a press conference with Panetta.

Barak in February warned that Israel would need to act militarily within months, before Iran reaches a “zone of immunity” where its underground enrichment facilities would be invulnerable to Israeli air strikes.

Under pressure from Israel as well as from the U.S., where Obama’s Republican rival Mitt Romney is accusing the president of being weak on Israel’s security, the Obama administration appears to have stepped up talk of military options against Iran, said Steinberg in a phone interview.

“There’s a more consistent message out of Washington for the potential for military action after all options have been exhausted,” Steinberg said. The increased number of U.S. officials visiting Israel in recent weeks and statements from both sides “indicate that Israeli and U.S. officials agree that sanctions impact is moving slowly,” he said.

Nuclear ‘Capabilities’

Still, Panetta’s statement that the U.S. would take military action if the Iranians decide to proceed with a nuclear weapon reflects the differences between Israeli and American officials on what constitutes a red line, Steinberg said.

The U.S. position was summarized by James Clapper, director of national intelligence, in February congressional testimony when he said, “We assess Iran is keeping open the option to develop nuclear weapons, in part by developing various nuclear capabilities that better position it to produce such weapons, should it choose to do so.” Clapper went on to say, “We do not know, however, if Iran will eventually decide to build nuclear weapons.”

“That’s a point of friction that has continued for two years,” Steinberg said. Although the differences “have not been fully bridged” the U.S. has taken actions including positioning two aircraft carriers in the region to show military strength, he said.

Iron Dome

Panetta’s visit to Israel follows trips here this month by U.S. Secretary of State Hillary Clinton, White House National Security Adviser Tom Donilon and Deputy Secretary of State Bill Burns.

Panetta said the Obama administration would continue to seek funds to bolster Israel’s Iron Dome anti-missile defense system noting that the U.S. has provided $270 million toward the system including $70 million that Obama authorized last week.

He spoke at an Iron Dome site about five miles from the Gaza Strip, from where rocket and mortar attacks are launched against Israel.

The last such rocket attack was five weeks ago on a Saturday at about 9 p.m., and the system successfully intercepted the rockets, Colonel Zvika Haimovich told reporters. The system has an 80 percent success rate in intercepting short- range rockets, Barak said.

The Pentagon also has agreed to allow “a package of enhancements” to the fleet of Lockheed Martin Corp.-made F-35 jets that Israel is buying so that the Jewish state has “unquestioned air superiority,” Panetta said. Measures like the Iron Dome and F-35 give Israel a “qualitative military edge,” he said.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; John Walcott at jwalcott9@bloomberg.net

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BTG Pactual Said to Invest $1 Billion in Sete Oil-Rig Operator

Banco BTG Pactual SA’s private-equity funds invested $1 billion in Sete Brasil Participacoes SA, more than doubling their stake in the oil-rig operator to 30 percent, according to four people with direct knowledge of the deal.

EIG Global Energy Partners LLC, a Washington-based private- equity firm, also invested in the Rio de Janeiro-based company as part of a 5.4 billion-real ($2.7 billion) capital increase, said the people, who asked not to be identified because the shifts in ownership haven’t been announced.

BTG, Banco Santander Brasil SA and Banco Bradesco SA (BBDC4) all held 13.7 percent stakes before the offering, according to Sete Brasil. Santander’s holding declined to 6.9 percent, while Bradesco, which didn’t buy additional stock, had its participation reduced to about 3 percent, the people said.

Sete Brasil is seeking capital as it plans to spend about $27 billion by 2020 building deep-water drilling platforms that will be rented by Petroleo Brasileiro SA (PETR4) in pre-salt fields off Brazil’s southern coast. The reservoirs are under about 6,500 feet of water and beneath 16,400 feet of sub-sea bedrock, sand and salt. Petrobras, as the state-controlled petroleum company is known, has said it holds oil reserves of as much as 8.5 billion barrels in five pre-salt fields.

Pension funds Petros and Funcef each held 19.2 percent before the capital increase, while Previ and Valia, which are also pension funds, had 10 percent and 5.5 percent, respectively. Petrobras held the remaining 5 percent and is keeping its stake.

BTG, Bradesco and Santander officials declined to comment, asking not to be named in accordance with company policies. Sete Brasil and EIG didn’t immediatly respond to e- mails requests for comment.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Buffett Railroad Beats Coal Slump With 75% Gain in Oil: Freight

Warren Buffett’s Burlington Northern Santa Fe railroad and Union Pacific Corp. (UNP) are combating a drop in coal cargoes by catering to the industry responsible: the hydraulic fracturing of shale formations.

BNSF, Union Pacific and their peers are hauling in energy producers’ gear to extract crude oil and gas from shale, then shipping out petroleum products. BNSF’s petroleum carloads rose 75 percent in the second quarter from a year earlier while Union Pacific saw a 12 percent gain in the unit where it groups fracking-related freight.

“This is a whole industry that just sprung up on all the rail properties,” Jeffrey Kauffman, an analyst at Sterne Agee & Leach Inc., said in a telephone interview. “It’s a new growth source that helps to mitigate what’s probably a temporary dislocation of an old energy source.”

The dislocation has come with a hefty cost, as many North American utilities stopped generating power from coal in favor of cheaper natural gas released by fracking. Coal cargoes at Class I railroads, North America’s largest, dropped 11 percent in the second quarter. Neither Union Pacific’s chemicals segment nor BNSF’s petroleum shipments rival their coal volumes.

“The shale opportunity has been a double-edged sword for the rails,” Ben Hartford, a Robert W. Baird & Co. analyst in Milwaukee, said in a telephone interview. “The abundance of natural gas domestically has pressured prices, and the resulting degradation to the coal demand has been palpable.”

‘Double-Edged Sword’

Union Pacific’s shale business will probably grow to almost 400,000 carloads in 2012, Chief Executive Officer Jack Koraleski said on a July 19 conference call. That’s roughly double the number of carloads the Omaha, Nebraska-based company moved from the Bakken shale formation in the northern U.S. in 2011.

“While the coal business, which is our largest book of business, has softened, we’ve been able to offset that with strength in crude oil, in frack sand, in automobiles, in pipes and domestic intermodal,” Koraleski said in a telephone interview last month.

BNSF and Union Pacific transport most of their Bakken region crude shipments to Oklahoma, California, Louisiana, New Mexico and Texas. The companies are more insulated from risk associated with the abundance of natural gas than eastern rails since coal in the Powder River Basin of Wyoming and Montana costs less to mine than in the Appalachian region.

Stock Performance

Union Pacific has climbed 15 percent this year, surpassing gains of 6.9 percent by CSX Corp. (CSX), the biggest eastern U.S. railroad, and 0.6 percent by Norfolk Southern Corp. (NSC) The Standard & Poor’s 500 Industrials Index rose 5.8 percent.

Union Pacific, the biggest North American railroad, lacks direct access to the Bakken shale oil field. It benefits from interchanges with traffic originated by BNSF and Canadian Pacific Railway Ltd. (CP) bound for Louisiana and Texas terminals.

The largest contiguous oil deposit in the continental U.S., the Bakken includes parts of North Dakota, South Dakota and Montana in the U.S. and Saskatchewan and Manitoba in Canada.

“People are just getting their heads around how large the opportunity will be for the next year or two,” David Vernon, a New York-based analyst with Sanford C. Bernstein & Co., said in a telephone interview.

BNSF is “seeing strong double-digit type growth” in all markets related to shale fracturing, CEO Matt Rose said in an interview in May. Buffett’s Berkshire Hathaway Inc. (BRK/A) spent $26.5 billion in 2010 to acquire the 77.5 percent of Fort Worth, Texas-based BNSF it didn’t already own in the billionaire investor’s biggest takeover.

‘It’s Phenomenal’

“Everything to do with drilling, horizontal drilling, frack sand, pipe, oil, it’s phenomenal,” Rose said.

Once more pipeline capacity comes online, in part through the reversal of the 150,000-barrel-a-day Seaway pipeline to carry crude south, rails will be hauling less out of the Bakken region.

“You are seeing a huge amount of growth right now, but as that pipeline capacity increases, the cost advantage of pipe to rail will take some of it back by 2014, 2015,” Vernon said.

Railroads should still see some growth from natural gas drilling, said Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey.

“The pipelines can take out oil but they can’t bring in sand and water,” he said.

To contact the reporter on this story: Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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Tony Hayward Loads Trucks With Kurdish Oil Awaiting Pipe: Energy

Tony Hayward, the former chief executive officer at BP Plc (BP/), is now loading a fleet of as many as 500 trucks a day while he waits for a new pipeline to carry oil from his fields in northern Iraq.

Since joining Genel Energy Plc (GENL) last year, Hayward has pushed the semi-autonomous Kurds to finish building a link to neighboring Turkey so he can find buyers outside the local market. Kurdish contractor Kar Group said it has completed 23 percent of the first 48-mile (77-kilometer) section of the line north to the border, though Turkey hasn’t said publicly it will take the oil.

Kurdish authorities, feuding with the central government over sharing oil revenue, plan in the next two years to complete the 175-mile export link that will start at a Genel-operated field and move as much as 1 million barrels a day, equal to a third of Iraq’s output now. Following Hayward into the region are Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), bolstering the Kurdish plan to break Baghdad’s control of shipping crude from the landlocked territory that’s ruled itself since the U.S.-led invasion ousted Saddam Hussein in 2003.

“This will be a transformational development for companies operating in the region,” Hayward, who ran Europe’s second- biggest oil company until 2010, said in an e-mailed response to questions. “It will allow the direct export of crude oil production to Turkey and international markets and accelerate the monetization process for resources” in the Kurdish region.

Course for Independence

Iraq’s Kurds, who historically have resisted control by Arab-dominated central governments, are charting a course to independently develop oil reserves that the Kurdistan Regional Government calculates at 45 billion barrels — larger than BP’s estimate for the U.S. or Nigeria, Africa’s biggest producer.

The Kurdish region plans to increase output to 2 million barrels a day by 2019, Michael Howard, an adviser to Kurdistan Natural Resources Minister Ashti Hawrami, said in a June 10 phone interview. It has signed energy agreements with about 50 companies and plans to increase output to 1 million barrels a day by 2015 from about 300,000 barrels a day now, he said.

Kurdish authorities recognize production-sharing agreements, which give investors a share of any oil they may produce, whereas Iraq’s Oil Ministry offers only fee-based service contracts. This has attracted interest from investors such as Norway’s Statoil ASA (STL) that are unhappy with the central government’s contract terms for exploration and production.

Exxon Mobil Corp., Chevron Corp. and Total SA (FP) are flouting warnings by the government against seeking separate deals with the Kurds, whom Iraq’s Oil Ministry accuses of “smuggling” oil from the country.

Chevron Entry

Chevron, the second-largest U.S. energy company, said July 19 it will buy a majority stake in two Kurdish blocks. The Oil Ministry responded five days later by barring Chevron from doing business in the rest of Iraq. Similarly, the ministry punished Exxon for investing in the Kurdish region by excluding it from an energy-licensing round in May.

Separate deals between the Kurds and foreign investors are “illegal and illegitimate,” and Chevron “should feel ashamed about what it did,” the ministry said July 24 in an e-mailed statement. “These agreements grant the oil companies a large share of crude production and are thus a squandering of the national wealth.”

The Kurdish pipeline project resembles one that enables the United Arab Emirates to circumvent politically inspired shutdowns of oil exports. The U.A.E., also a member state of the Organization of Petroleum Exporting Countries, began shipping crude on July 16 through a pipeline from Abu Dhabi to the Indian Ocean port of Fujairah, bypassing the Strait of Hormuz, the transit corridor Iran threatened to shut earlier this year in response to sanctions on its nuclear program.

Revenue Dispute

DNO International ASA (DNO) is among companies pumping crude at Kurdish fields that have one main export route, the central government’s pipeline from the city of Kirkuk in northern Iraq to the Mediterranean port of Ceyhan, Turkey. A dispute over oil contracts and revenue-sharing prompted Kurdish authorities to halt flows into this network on April 1. Producers now must sell their oil locally or send small loads by truck into Turkey.

Kar Group expects to complete the Kurdish pipeline’s first section, linking the fields of Taq Taq and Khurmala, by the end of the year, the company’s project manager Besoon Jalizada said in a telephone interview on July 17. Kurdish authorities will probably seek bids for construction of the remaining part of the system, from Khurmala to the Turkish border, he said.

Pipeline Capacity

The first phase will have a capacity of about 200,000 barrels a day, a Genel official said on July 23, declining to be identified because the pipeline is being built and financed by Kurdish authorities and not Genel.

The pipeline plan “seems quite provocative,” Ivor Pether, a fund manager at Royal London Asset Management which oversees $60 billion of securities, said in a June 26 e-mail. “The risk is obviously that it may take a long time to agree how to divide the oil revenues, or even that the relationship between Kurdistan and Baghdad breaks down.”

The Kurds are seeking closer cooperation with Turkey amid a political impasse in Baghdad, where opposition groups accuse Prime Minister Nouri al-Maliki of abusing power. Al-Maliki and other Iraqi leaders have said they worry that the planned pipeline may make the Kurds economically self-sufficient and embolden them to seek independence.

Iraq has faced a series of violent attacks since the pullout of U.S. troops in December, including the killing of 115 people in a wave of nationwide bombings claimed by an Al-Qaeda affiliate group on July 25.

Turkey’s Role

Turkey, with its own restive Kurdish minority, is ready to work with Iraq’s Kurds on the construction of oil and natural- gas pipelines provided the central government in Baghdad agrees, Turkish Energy Minister Taner Yildiz said in an interview in Ankara on July 5.

At the same time, he said, the Turkish and Iraqi governments have committed to repair a link to Kirkuk from Basra in southern Iraq to help boost the amount of oil sent into Turkey through the established Kirkuk-to-Ceyhan network.

Hayward said he’s not surprised that Exxon, Chevron, Total or Eni SpA would be interested in Kurdistan. “This only serves to reaffirm our long-held belief in the enormous opportunities that exist,” he said.

To contact the reporters on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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