Friday PM November 3rd, 2006

Conference looks at expansion of Gulf Coast refining...Continental and other U.S. airlines raise some U.S. fares by $10 per round trip...FCC delays vote for third time on whether to allow AT&T to acquire BellSouth...

The Gulf Coast will remain the country's gasoline refining hub because of economics, logistical infrastructure and favorable political climate, according to speakers at the University of Houston's Global Energy Management Institute. But GEMI Executive Professor Stephen Arbogast says with the industry enjoying record profits, people are wondering why more firms aren't expanding their plants.

"The industry, after many years of not making very much money, started to make a lot of money in the last three years. All the criticism about high gas prices and so forth focused attention on the fact that the refining industry hadn't built a lot of new capacity for 20, 30 years. So the question was put to the U.S. refining industry 'are you going to invest? You're making good money now, and are you going to invest?' And that's really the focus of the conference."

Arbogast says there are challenges, including building sufficient new refining capacity and finding ways to limit dependency on foreign imports.

"The economic outlook for the industry is going to continue to be good, there'll be incentives to invest, and that the industry is going to continue to invest in the conversion of difficult-to-refine crudes, but that the bulk of refining investment is going to be in Asia Pacific and not in the United States. Ed: We do have Citgo that's announced plans for an expansion. You're also talking about expansion of existing facilities, too, right?." Oh, yeah. When we talk about expansions in capacity, we're talking predominately about expansions of existing refining sites. They're much more economic than just starting from scratch."

Arbogast says the energy industry also faces the need to adapt to greater supplies of hard-to-run crude oils and the opportunity to employ new technologies that might enable refiners to manufacture biofuels.


The three-month uninterrupted fall of retail gas prices statewide ended in some markets this week. That's according to the weekly AAA Texas gasoline price survey released today. The survey finds the average retail price of regular, self-serve gasoline in Texas increased by almost a penny to $2.09 per gallon. The national average for regular, self-serve rose half a cent to $2.20 per gallon. Houston's average is up eight-tenths of a cent to $2.02 per gallon. The state's biggest increase is in Fort Worth, where the average price increased two cents per gallon to $2.06. Auto club spokeswoman Rose Rougeau says oil industry analysts blame the sprouting price increases on OPEC's announcement last month that it's cutting crude oil production. But the increases aren't statewide. The biggest price decrease this week came in the Austin-San Marcos area, where the average price fell almost two cents per gallon to $2.16. That's still the highest average gas price in Texas. The lowest average gas price is still in Corpus Christi, where it fell almost a penny a gallon to $1.99.


American, Delta and Continental Airlines have raised many U.S. fares by $10 per round trip. The fare increases implemented include business fares and advance-purchase tickets bought by many leisure travelers. J.P. Morgan analyst Jamie Baker says that if last night's increase sticks, it would be the 22nd broad fare increase by U.S. airlines in the past two years. A leading Wall Street analyst predicts that unlike a failed effort to raise prices last week, the newest fare increase will stick. Low-cost carriers have balked at some fare increases. That's occasionally caused the older, traditional airlines such as American and Delta to rescind increases. But Baker says most of the increases this time are on routes not flown by the discount carriers, meaning they can't play spoiler. Fort Worth-based American and Atlanta-based Delta led the latest increase. At the same time, American cut fares to and from the Dallas area in response to a fare sale Dallas-based Southwest Airlines announced this week. A Continental spokeswoman confirms that the Houston-based carrier has matched fares on routes where it competes with the other two. Chicago-based United Airlines was still mulling the increase, but separately it raised last-minute fares on about 50 routes by $25 to $50 each way. The airline competes with Southwest on many of those routes.


The Federal Communications Commission has delayed for a third time its vote on whether to allow AT&T to acquire BellSouth--because it can't decide what conditions should be placed on the deal. The vote was scheduled for Friday, but the agency sent a notice last night saying the item had been removed from the agenda. The agency was working with San Antonio-based AT&T toward a compromise that would avoid a two-two vote deadlock. The apparent standoff raises the possibility that the fifth and newest commissioner, Robert McDowell, may be pulled in to cast a tie-breaking vote. McDowell's a Republican appointee who until now has taken no part in the proceeding. The Justice Department's antitrust division cleared the roughly $80 billion deal on October 11th. But lack of imposed conditions sparked a sharp response from the two Democratic FCC members, who accused the Justice Department of failing to protect consumers.


British bank Barclays said today it's agreed to settle litigation over the bankruptcy of Enron. London-based Barclays says it'll pay $144 million in cash to Enron to settle all claims asserted against the bank. Enron, meanwhile, will allow Barclays' $310 million in claims filed in Enron's bankruptcy. The settlement was agreed to in a New York City bankruptcy court. Barclays says it agreed to a negotiated settlement because it was preferable to the time, expense and unpredictability of litigation. It says the settlement won't affect earnings in 2006. The bank was one of a group of financial institutions--including Merrill Lynch--accused of helping Enron create financial structures that hid the company's true financial condition. Enron crumbled into bankruptcy proceedings in December 2001 when years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

Arthur Andersen and Chicago-based Kirkland & Ellis law firm will pay a combined $86 million to settle with investors who lost billions when Enron collapsed. Arthur Andersen agreed to $72.5 million. The settlement amounts were agreed to in late 2005, but were not made public until they were entered into record this week, according to Bloomberg. Arthur Andersen, Enron's former auditor, discontinued operations after being convicted in 2002 of obstruction of justice. The conviction was later overturned by the U.S. Supreme Court.


A South Korean court rejected prosecutors' request for the arrests of three Lone Star Funds executives for alleged stock price manipulation. Prosecutors immediately challenged the decision. They're seeking the arrests of Lone Star Advisors Korea head Paul Yoo, Lone Star Funds Vice Chairman Ellis Short and General Counsel Michael Thomson. Local media reports cited Judge Min Byung-Hoon as saying the court rejected the prosecutors' request because "more investigation was needed.'' The court did grant prosecutors' request for an arrest warrant of Steven Lee, the former head of Lone Star Advisors who's no longer with the Dallas-based private equity firm. Lone Star has been under investigation in South Korea since March. The firm's accused of acting with former Korea Exchange Bank and government officials to misrepresent the bank's financial health and cut Lone Star's purchase price for the lender. Lone Star acquired a controlling stake in the bank in 2003. In May, Lone Star signed a deal to sell that stake to South Korea's top lender, Kookmin Bank. But the investigations have prevented the deal from closing.


The Houston Police Department is conducting an open house Saturday at HPD headquarters on Travis on the 13th floor. New police officer candidates can apply, and current officers from other law enforcement agencies seeking a new career path can apply for the December Lateral Entry Class.


Baker Hughes in Houston says the number of rigs actively exploring for oil and natural gas in the U.S. dropped by five this week--to reach 1,739. One year ago the rig count stood at 1,496. Texas lost nine rigs in the new count.


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