NEW YORK – Big Oil is ready to go back to work in the Gulf of Mexico, even with the U.S government promising to rule the waters with a heavier hand.
Chevron, Exxon, Royal Dutch Shell are willing to endure the additional time to secure permits and extra costs that will result from new government regulations because they've come to depend on deepwater drilling to replenish their reserves. The companies outlined plans for the Gulf this week as most of them reported improved earnings for the third quarter.
These big oil and gas companies know the geology of the Gulf much better than other parts of the world. Taxes and royalties for projects in U.S. waters are considered to be much lower than foreign operations, and it's much easier and cheaper to deliver the oil to the consumer.
"It's one-stop shopping," said Fadel Gheit, an analyst with Oppenheimer & Co. "When you're working in the Gulf, you're sitting in the belly of the largest energy-consuming economy in the world."
Wells in the Gulf can be very profitable. Drilling projects there typically break even when oil sells for $50 to $60 per barrel. It's currently trading near $82 per barrel.
The oil companies' reliance on the oil-rich deposits below the Gulf grew as they became more adept at pumping crude from the sea floor. In March, a month before BP's well ruptured, the industry produced 52.6 million barrels of oil from Gulf wells. That's the highest total for that month in records dating back go 1981.
Shell's got 7 percent of its total oil and gas so far this year from wells in the Gulf. And before the Deepwater Horizon explosion in April, BP's wells accounted for about 10 percent of its overall production.
The U.S. drilling moratorium brought well-drilling activity to a relative standstill over the summer. New production wells were put on hold.
As a result, Chevron expects Gulf production to fall as much as 10,000 barrels per day in the second half of the year. Shell predicts a similar drop and expects a further decline of 10,000 barrels per day in 2011.
"There could be further impacts into 2012," said Shell's Chief Financial Officer, Simon Henry. "We just don't know yet."
All the companies that reported third-quarter earnings this week, except Chevron, said profits improved thanks to higher oil and gas prices.
Exxon's net income rose 55 percent while ConocoPhillips' profit doubled. Higher prices helped Royal Dutch Shell increase earnings even though it booked more than $1 billion in asset write-downs. Chevron lagged its peers, however, reporting earnings of $3.77 billion, or $1.87 per share, down from $3.83 billion, or $1.92 per share, in the year-ago period.
And they all said it's time to get back to work in the Gulf.
The Interior Department ended its drilling ban on Oct. 12. New agency requirements will make it much harder for companies to obtain offshore drilling permits. The companies must submit to additional inspections on their rigs and they might need to add new equipment and train crew members. They'll also re-examine the worst-case scenario for a ruptured well. CEOs must certify that a company has met the new regulations.
Chevron said Friday it already has submitted one permit application to the government to drill again in the deep water, and expects to file several more in the next few months.
Exxon Mobil Corp. said earlier in the week that it's preparing to develop its Hadrian project in the Gulf, while Royal Dutch Shell said it filed a number of requests for offshore projects shortly after the moratorium was lifted earlier this month.
Analysts expect that BP, which hasn't yet disclosed its plans for the Gulf, should also report a decline in production. BP reports its results on Tuesday.
Analysts expect the British company will miss out on the bump in profits that Exxon, Shell, Total SA and Conoco enjoyed because of its huge costs related to containing and cleaning up the Gulf spill and paying damages.
Barclays Capital analysts say BP probably will add as much as $3 billion to its forecast for spill-related expenses. The company in July put that figure at $32 billion over the next several years.
NEW YORK – The dollar gave up most of its overnight gains against the euro and inched closer to its weakest point against the yen in decades Friday after a report showed tepid U.S. growth, underscoring the Federal Reserve's case for more support for the economy.
The U.S. economy grew 2 percent from July to September, the Commerce Department said, faster than the 1.7 percent pace from April-June. But economists say that's too slow to get employers hiring enough to bring down the 9.6 percent unemployment rate.
Because of weak hiring and the threat of dropping prices, investors expect that the Fed will announce a program of bond buying at its Nov. 2-3 meeting aimed at stimulating the economy. The lower interest rates resulting from such a program would weigh down the dollar against other currencies that have higher rates. The dollar has been trading heavily near multi-month and multiyear lows in the past week as investors gird themselves for the central bank's action.
In late trading in New York Friday, the euro was worth $1.3897 from $1.3926 late Thursday. It had dropped as low as $1.3806 in earlier trading in Europe. The euro has been traded heavily in a range from $1.37 to $1.40 since hitting a nine-month high of $1.4157 on Oct. 15.
The dollar slid to 80.49 Japanese yen from 81.07 yen. The dollar is hovering just above a 15-year low of 80.42 yen struck on Monday, and the U.S. currency is close to its weakest point since World War II of 79.75 yen, reached on April 1995.
The yen has continued to rise despite efforts to curb its gains. Japanese officials intervened in foreign exchange markets last month. The Japanese central bank cut interest rates to almost zero in October. Alongside dropping demand for the U.S. dollar, investors continued to push up the yen, putting pressure on Japan's big exporters and the country's fragile recovery from the recession.
A rising currency cuts into profits of goods sold overseas. It can also make a country's exports pricier compared to goods from countries with weaker currencies.
Elsewhere Friday, the British pound rose to $1.6021 from $1.5931, while the dollar fell to 1.0203 Canadian dollars from 1.0212 Canadian dollars. The U.S. currency rose to 0.9855 Swiss francs from 0.9832 Swiss francs.
The dollar also remained lower against emerging-market currencies in Latin America, the Scandinavian currencies and the Australian and New Zealand dollars.
401(k) contribution limits will remain the same next year, the IRS announced today. Employees who participate in 401(k), 403(b), and 457(b) plans and the federal government's Thrift Savings Plan can save up to $16,500 in these accounts in 2011. The catch-up contribution limit for those age 50 and over will remain $5,500, as it has been since 2009. Here's a look at how retirement savings tax breaks will change next year.
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401(k)s. The savings limits for employer-based retirement accounts are not increasing next year because inflation was too low to trigger an increase. The cost-of-living index used to calculate increases in 401(k) savings limits is currently greater than it was in 2009, but it is still less than the measurement for the third quarter of 2008. The maximum amount investors can contribute to 401(k)s will not be raised until the September inflation measurement climbs above where is was in 2008. Contribution limits cannot be reduced under current law.
Traditional IRAs. Certain income ceilings determine who is eligible for a tax break for contributing to an IRA. Individuals who have a retirement plan at work can contribute the full amount to an IRA until their modified adjusted gross income (AGI) reaches $56,000. The amount eligible for tax deferral is then gradually phased out until income reaches $66,000 in 2011, the same amount as this year. However, married couples filing jointly will get higher income limits next year. For a spouse who participates in a retirement plan at work the income phase-out range will be $90,000 to $110,000 in 2011, up from $89,000 to $109,000 this year. For IRA owners who do not have access to a retirement account at work, but are married to someone who does, the deduction will be phased out if the couple's income is between $169,000 and $179,000, up from $167,000 and $177,000 this year.
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Roth IRAs. More high income retirement savers will be eligible to make Roth IRA contributions next year. Married couples filing jointly can contribute to a Roth IRA until their AGI reaches between $169,000 and 179,000 next year, up from $167,000 to $177,000 in 2010. The AGI phase-out range for singles and heads of household will increase from $105,000 to $120,000 this year to between $107,000 and $122,000 in 2011.
Saver's credit. The AGI limit to get the saver's credit will be $56,500 for married couples filing jointly in 2011, up from $55,500 in 2010. For heads of household the income limit will increase from $41,625 this year to $42,375 in 2011. Single people and married individuals filing separately can earn up to $28,250 and still get the saver's credit, up from $27,750 this year.
[See 5 Retirement Tax Deadlines to Plan For.]
Traditional pensions. Workers fortunate enough to get a traditional pension at work can get a payout of up to $195,000 annually in 2011, unchanged from this year. However, that amount is not fully insured by the federal government if the pension plan fails. The Pension Benefit Guaranty Corporation, the government agency that insures private sector pensions, will pay out up to $54,000 per year to pension participants whose traditional pension plans terminate in 2011 if they claim their due at age 65. The maximum insurance amount is unchanged since 2009.