Wednesday January 18th, 2006

Texas PetroIndex notes stability in post-hurricane oil and gas pricing...Study finds more people rode subways, buses and trains last summer after gasoline prices spiked...Olis re-sentencing may wait until summer...

The Texas PetroIndex 2005 Review and 2006 Forecast suggest that there may be more stability to the volatile world of oil and gas pricing. Economist Karr Ingham uses statistics gleaned from the more than 20 oil and gas industry economic indicators tracked by the Texas Alliance of Energy Producers.

"That graph suggests a 40-month expansion in the oil and gas production economy of Texas. We've seen oil from below $9 in the latter part of 1998 and now up to $70 at times. These have always been volatile markets. The oil and gas production industry has always endured some absolutely brutal cycles. This thing that we're witnessing now is, frankly, a thing of beauty--a long period os sustained growth, driven by sustained favorable prices from a production standpoint. Price stability--even at $60 a barrel for oil--is not horrible for the consuming world because it kinds of brings us into line in terms of with where we ought to be in terms of pricing, relative to what our incomes have done over the last 20 or 30 years or so."

Damage to rigs and platforms in the Gulf of Mexico caused by the recent hurricanes is still being repaired.

"The condition of the production mechanisms and the distribution mechanisms and the refining mechanisms and processing certainly all enters into the picture. The insurance scenario, I don't have too much knowledge about that. There's still, as you suggested, considerable production disruption, but it doesn't seem to be affecting us all that much, to the average consumer out there. I mean, you can still pull up to a gasoline station and gas up your car for basically less than you could prior to the hurricanes. So we've managed, I think, to weather that storm and every passing day, every passing week, every passing month, we're repairing those production mechanisms and distribution mechanisms and gradually getting ourselves back to normal."

Ingham also watches world politics in assessing the state of the oil and gas business climate in Texas.

"There are just so many potentially troublesome things going on that certainly do cause investor worry. I mean, our prices for oil and natural gas are set far outside the boundaries of the state of Texas. These are certainly global markets. Russia to the Middle East to Iran to Nigeria to Venezuela--all of these things have great potential to affect the markets one way or the other, depending on events in those locations, and of course, markets are forever impacted by things that we are just unable to see. I mean, a year ago, we wouldn't have been able to suggest that we were going to get pounded by two monstrous hurricanes back-to-back."

The Texas PetroIndex looks at rig counts, oil and gas prices and production statistics, drilling permits and other indicators in assessing the industry.


The Federal Reserve says the U.S. economy was still growing late last year. In its latest "Beige Book'' survey of regional economic conditions, the central bank says retail sales in late November and December continued to rise during the year-end holiday period amid generally stable prices. The fed report also says spending on travel and tourism spending "was generally strong,'' and increases in manufacturing activity "were widely reported.'' The Beige Book says both wholesale and retail prices were widely reported as "rising only moderately or remaining stable.'' It says most districts reported "moderate'' growth in employment and labor cost pressures. And there were reports of "strong demand for both skilled and unskilled labor, in part boosted by storm-recovery efforts'' in many hurricane-damaged regions.


One of Hurricane Katrina's legacies may be--crowded commutes. A study finds more people rode subways, buses and trains last summer after gasoline prices spiked. The American Public Transportation Association reports many people continued with mass transit even after gas prices fell. Katrina slammed the Gulf Coast in late August, prompting several hundred thousand Louisiana residents to flee to Texas. Then Hurricane Rita hit Southeast Texas on September 24th. Some Gulf Coast refineries suffered damage. APTA reports--from July through September--there were 3.3 percent more trips on public transportation than there were during the same period in 2004. More than 25 transit systems showed double-digit ridership increases from November of 2004 to November 2005, including nearly 15 percent each in Dallas and Houston.


Former Dynegy executive Jamie Olis may have to wait until summer to be re-sentenced. U.S. District Judge Sim Lake indicated he'll hold off re-sentencing until experts hash out how long Olis should remain behind bars. His 24-year prison sentence on a 2003 fraud and conspiracy conviction was thrown out by an appeals panel. A government expert says he needs more time to study the case and suggest an appropriate prison term. At issue is the amount of investor loss stemming from a 2001 deal that disguised debt as cash flow. The 24-year prison term was one of the stiffer white-collar prison sentences in recent corporate scandals until last year, when a WorldCom executive was given a 25-year term.


El Paso Corporation expects to return to profitability this year, expecting improvements in oil and natural gas exploration and production. The Houston company told investors in New York it has completed a restructuring of its exploration and production business, with a greater emphasis on less risky onshore projects. Last year was the end of a three-year restructuring effort by Chief Executive Doug Forshee, after energy scandals under its prior leadership badly damaged its stock price.


The Fort Worth-based parent of American Airlines today announced a wider fourth-quarter loss than the previous year's quarter. The nation's biggest airline company blames high fuel costs and competition with low-cost rivals. Chairman and Chief Executive Gerard Arpey said the company is "dissatisfied with our financial results.'' Losses totaled $604 million for the three months ended December 31st. The latest period includes $191 million in special items. Without the special items, AMR Corporation would have posted a $413 million loss. In the previous year's quarter, AMR posted a $387 million loss. AMR revenue rose 14 percent to $5.17 billion. That's short of the $5.24 billion Wall Street expected. For the full year, AMR's losses widened to $861 million. That's up from the previous year's loss of $761 million. Revenue rose 11 percent to $20.71 billion.


Southwest Airlines today reported a fourth-quarter profit 54 percent greater than the year before. That's despite an unexpected security expense, driven by higher revenue and its cost control efforts. Net income rose to $86 million for the three months ended December 31st. Excluding one time items, net income was $98 million. Revenue increased 20 percent to $1.99 billion. That beat Wall Street estimates of $1.95 billion. The air carrier said results were hurt by $24 million in added 2005 federal airport security expenses. That was due to an unexpected retroactive assessment by the Transportation Security Administration. The Dallas-based low-fare carrier says it intends to contest that assessment. For the full year 2005, net income totaled $548 million. That was well ahead of the previous year's $313 million. Excluding items, the 2005 profit totaled $489 million. Full-year revenue rose 16 percent to $7.58 billion. The company says its 2006 outlook is "favorable,'' but said the shift in timing of the Easter holiday into April this year versus March last year will weigh on its first-quarter results.


The Coast Guard says part of the Sabine-Neches waterway shut down after a barge accident--has reopened. The area had been closed about two miles south of the State Highway 87 bridges yesterday after a barge lost its load of more than 90 concrete pilings in the channel. Each of the pilings is about 95 feet long. The waterway was reopened last night to tug and barge traffic. The Coast Guard says other shallow-draft vessels are being allowed by on a case-by-case basis. Nobody was hurt in yesterday's predawn accident, but concerns were raised that the pilings could damage passing vessels. Salvage crews are working to clear the waterway.


An audit finds the Health and Human Services Commission didn't adequately monitor a contractor hired to take over its payroll and human services operations. The state auditor's office reports the situation led to delayed or incorrect paychecks and other problems at the Texas agency. The commission in 2004 hired Ohio-based Convergys to provide human resources and payroll services for the agency's 46,000 workers. The report criticized the commission for delegating planning and monitoring of Convergys activities to the contractor itself and for limiting its involvement in the development, testing and validation of the interfaces between the state's computer applications and the contractor's. Commission spokeswoman Stephanie Goodman said problems were bound to crop up, but state officials have been able to deal with them effectively.


Patterson-UTI Energy will revise financial statements for the years a former chief financial officer worked for the company. Former CFO Jonathan Nelson now faces embezzlement charges. Company director Curtis Huff says Patterson-UTI's financial statements will be restated to reflect the fraud Nelson allegedly committed. Nelson's accused of using a "bogus invoice scheme'' to bilk $70 million from company coffers between 2001 and 2005. Authorities allege he sent the money to companies he controlled, then spent it on an airplane, an airfield, a cattle ranch, homes, vehicles and a truck stop. His trial is set to start May 1st. Meanwhile, he's under house arrest at his parents' home in Lamb County, northwest of Lubbock. Nelson also faces a Securities and Exchange Commission civil lawsuit pertaining to his alleged embezzlement. Snyder-based Patterson-UTI is North America's second-largest land-based oil and gas drilling rig fleet. The South Plains-based company provides contract drilling services to oil and natural gas operators in Texas, New Mexico, Oklahoma and other states and in Western Canada. It also has exploration and production operations in Texas and New Mexico.


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