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Wednesday PM March 18th, 2009

Valero Energy buying seven ethanol plants in $477 million deal…Continental Airlines decries declining business travel…Former Dallas Mayor Ron Kirk confirmed as U.S. trade representative…


Valero Energy will buy seven ethanol plants from Verasun Energy for $477 million. The deal is the largest biofuel buyout in terms of production capacity. Verasun’s the country’s second largest ethanol producer, but it filed for Chapter 11 bankruptcy protection in October. San Antonio-based Valero won an auction for the assets in court. The sale is expected to close in April. Also involved in the bidding was agribusiness giant Archer Daniels Midland. Valero would become the first traditional refiner to cross over into ethanol production if the deal is approved. The sale could give other major energy companies a benchmark price for the assets of ethanol producers now under tremendous financial strain. Ethanol industry leader Poet is also shopping around. Valero Energy is the nation’s largest independent oil refiner. It’ll acquire plants in Aurora, South Dakota; Charles City, Fort Dodge, and Hartley, Iowa; Welcome, Minnesota; Albion, Nebraska; and a development site in Reynolds, Indiana.

Continental Airlines says declining business travel is hurting sales. The nation’s fourth-largest airline said drops in yield have been getting worse since January. It says the declines in the money it collects for each paying passenger flown one mile has become “significant.” Houston-based Continental had previously said that measure of revenue fell as much as 12.5 per cent last month compared with February 2008. Based on that estimate, UBS analyst Kevin Crissey estimated that Continental’s revenue per available seat mile might fall more than 18 per cent this month compared with March 2008. He noted that Continental also controlled its costs more than expected.

The United States has a new trade representative. The Senate confirmed the former mayor of Dallas, Ron Kirk, as the Obama administration’s senior official in charge of trade policy. The Senate vote was 92-5. As U.S. trade representative, Kirk is expected to oversee a shift in the nation’s trade priorities. While the Bush administration concentrated on expanding free-trade agreements, Kirk made clear in his confirmation hearing that one of his top goals will be ensuring that U.S. trading partners abide by existing agreements. Senate Finance Committee Chairman Max Baucus said he believed Kirk “will chart the right course.” But Republican Senator John McCain warned that the Obama administration is putting the country on a path to protectionism.

Consumer prices rose in February by the largest amount in seven months as gasoline prices surged again and clothing costs jumped the most in nearly two decades. The Labor Department says consumer inflation rose 0.4 per cent in February, the biggest one-month jump since a 0.7 per cent rise in July. Two-thirds of last month’s increase, which was slightly more than analysts expected, reflected a big jump in gasoline pump prices. Core inflation, which excludes food and energy, rose 0.2 per cent in February, slightly higher than the 0.1 per cent rise economists expected.

The Houston area is seeing a rise of 1.1 per cent in consumer prices during January and February—the first bimonthly increase since June and July 2008. Higher transportation costs are the biggest factor, but increased shelter and medical costs also contributed. Gasoline prices climbed 16.5 per cent during the first two months of the year after plunging nearly 60 per cent in the second half of 2008.

The government says the deficit in the broadest measure of U.S trade fell sharply in 2008 for the second consecutive year due to an increased surplus in services trade. The Commerce Department said the current account deficit, which includes investment flows and other transfers as well as trade, dropped to $673.3 billion in 2008 from $731.2 billion the previous year. Economists expect the improvement in the U.S. current account to continue this year, but mostly due to rapid falls in imports as the recession cuts into U.S. consumers’ buying power.

Crude oil and gasoline inventories jumped last week, according to a government report. The Energy Department says crude inventories rose by two million barrels, nearly 16 per cent above year-ago levels. Gasoline inventories rose by 3.2 million barrels, nearly six per cent below year-ago levels. Demand for gasoline over the past month was 1.1 per cent higher than a year earlier. Inventories of distillate fuel, which include diesel and heating oil, rose by 100,000 barrels.

High bids for offshore drilling rights in the central Gulf of Mexico fell by more than 80 per cent compared with last year, another example of how vastly the energy landscape has been altered during the global economic downturn. Energy companies bid $703 million for the right to explore for fossil fuels in the Gulf, compared with last year’s $3.67 billion in winning bids. Some companies are struggling to maintain spending on exploration and production. Companies affiliated with major oil producers, still flush with cash, did put out some sizable bids. A subsidiary of Royal Dutch Shell put up $65.6 million, the highest single bid on a tract. Crude prices have fallen from $147 in July to below $50 this week.

Home insurance rates for some 127,000 Allstate Fire & Casualty customers in Texas are rising four per cent as policies come up for renewal starting April 9th. That’s about $3.50 more per policy, on average. The new rates are in effect for new customers. Customers of Allstate Texas Lloyd’s are not affected by the increase.

Governor Rick Perry’s top appointee to the Texas Workforce Commission is working with lawmakers on a compromise to allow the state to accept federal stimulus money for unemployment. Perry said last week he planned to reject $555 million from $17 billion in federal stimulus funding for Texas. Perry said accepting it would require the state to permanently expand its unemployment insurance program and subject Texas employers to millions of dollars in tax increases. But Commission Chairman Tom Pauken has floated the idea of changing state law in order to accept the money, then reverting to current law after the money runs out. A bipartisan group of lawmakers has a similar plan that’s gaining ground in the Texas Senate.

Lockheed Martin has located its Altair program office in Houston, according to the Houston Business Journal. The office will provide support for Lockheed’s bid to work on NASA’s next-generation human lunar landing system. The Maryland-based firm submitted a proposal last month for the Altair conceptual design contract. The Altair lunar lander is part of NASA’s Constellation program—the spacecraft, launch vehicles, infrastructure and support systems needed to return to the moon.

In a new Web video, President Barack Obama is asking Americans to help him pass his $3.6 trillion budget. Obama asks views to “head outside this Saturday to knock on some doors, talk to some neighbors, and let them know how important this budget is to our future.” Obama said his budget will “lay a foundation for lasting growth and prosperity,” by investing in health care, education and renewable energy. The spending plan projects a federal deficit of $1.75 trillion this year, by far the largest in history. But Obama says he can get it down to $533 billion by 2013.

Noble Corporation shareholders have approved plans to switch incorporation to Switzerland. The Sugar Land-based firm had been incorporated in the Cayman Islands.

Iraq is inviting contractors to bid for the drilling of 30 oil wells in three key southern oil fields. State-run Maysan Oil has issued the tender to drill ten wells each in the Halfaya, Noor and Abu Gharab fields within 18 months from the start date. The company says bids must be submitted by April 15th. The announcement was posted on the company’s Web site. The fields have more than 5 billion barrels in reserves and are located around the city of Amarah. Iraq sits on the world’s third-largest reserves with 115 billion barrels, and it produces nearly 2.4 million barrels per day. It plans to add at least 300,000 barrels per day by the end of 2010.

The chairman of the House Financial Services Committee says he hopes to begin writing legislation by early May to overhaul federal regulation of the nation’s financial system. Congressman Barney Frank said opinions are still being heard on how to try to avert future financial meltdowns. Lawmakers and witnesses questioned whether the Federal Reserve was the best vehicle to oversee a consolidated regulatory system and debated whether more regulation was even needed. White House spokesman Robert Gibbs said President Barack Obama wants both financial regulation reform and a new “resolution authority” to deal with giants such as American International Group that get into complex financial trouble. He said the authority would be used “to break apart, unwind and finally resolve the issues that we face with systemic risk.”

Federal regulators have extended by four months a temporary rescue program guaranteeing hundreds of billions of dollars in U.S. banks’ debt. The government says it has boosted banks’ funding but the money flow in the financial markets still hasn’t attained normal levels. The board of the Federal Deposit Insurance Corporation voted to extend through October 31st the program established last October at the height of the financial crisis, intended to help thaw the freeze in bank-to-bank lending. The FDIC provides temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank.

The Federal Reserve says it will start buying long-term government bonds, opening a new front in its battle to lift the country out of recession. The Fed says it will buy up to $300 billion in long-term treasury securities over the next six months. Doing so could help the economy because many kinds of debt–from mortgages to corporate bonds–are linked to treasury rates. Fed purchases would boost treasury prices and drive down their rates. That would ripple through and lower rates on other kinds of debt. The Fed left a key bank lending rate at a record low of between zero and 0.25 per cent. The Fed also will buy more mortgage-backed securities and debt guaranteed by Fannie Mae and Freddie Mac in a move to help that market.

A trade industry survey shows mortgage applications jumped last week, as low interest rates fueled refinancing activity. The Mortgage Bankers Association reports its weekly application index climbed 21.2 percent for the week ended March 13th. The index came in at 876.9, up from 723.4 a week earlier. The group says the index rose 20.7 percent on an unadjusted basis compared with the previous week. About 72.9 per cent of applications came from borrowers seeking to refinance home loans at lower rates, rather than purchase homes. The MBA says the refinance rate was up from 67.9 per cent in the prior week. The index also shows refinance volume jumped 29.6 per cent while purchase volume edged up 1.5 per cent.

Fannie Mae said the volume of mortgage loans it refinanced in February totaled $41 billion, nearly triple January’s volume. The mortgage finance company said it was the largest figure in almost a year as a surge of homeowners took advantage of low interest rates and higher loan limits. The company expects volume to increase more under President Barack Obama’s housing plan, which expanded the criteria for who qualifies for a new mortgage backed by government-controlled Fannie and Freddie Mac. The pair own or guarantee almost 31 million mortgages worth about $5.5 trillion. That’s more than half of all U.S. home mortgages.

Fannie Mae is planning to pay retention bonuses of as much as $611,000 each to several top executives of the government-controlled mortgage finance titan. Sibling company Freddie Mac is planning similar awards. Fannie Mae disclosed in a recent filing with the Securities and Exchange Commission that it’s planning bonuses of $470,000 to $611,000 for four top executives, on top of their base salaries this year. Freddie Mac has a similar retention plan in place, but has yet to disclose how much money top executives are in line to receive. Both companies were seized by federal regulators last fall. Fannie has requested $15.2 billion in government aid, while Freddie has asked for nearly $31 billion in additional aid on top of the $13.8 billion it received last year.

The Web site Hotwire ranks Houston sixth in its Travel Value Index of affordable U.S. vacation destinations, based on airfare, hotel rates, car rental prices and entertainment offerings. The Greater Houston Convention & Visitors Bureau notes that average hotel room rates are about $127 in Houston, compared to $313 in New York City. Zagat says an average meal in Houston is $5 less than the national average of $33.67. A Houston CityPass, allowing admission to six Houston attractions, is $39, versus $70 in New York.

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