BNET Energy Industry

• The Company: First Solar, a manufacturer of solar electric power modules using a proprietary thin-film semiconductor technology.
• The Filing: FORM 10-Q filed with the SEC on October 30, 2008.
• The Finding: First Solar is striving to open new markets that do not depend on traditional photo-voltaic (PV) subsidiaries, such as feed-in-tariffs, and can offer significant long-term growth, such as the California Renewable Portfolio Standards market for utility scale generation. Despite good intentions, approximately 70 percent of 2008 module volumes and an estimated 60 percent of 2009 module volumes will be deployed in Germany.

The Upshot: Irrespective of its desire to reduce its dependency on subsidy programs, the sun is not expected to set on feed-in-tariff programs in Europe. In fact, with stable incentive regimes in place, PV development activity is expected to ramp-up beyond the borders of Spain and Germany. Chairman and Chief Executive Michael Ahearn told analysts on the company’s third-quarter 2008 earnings call that in the last three weeks management had met or spoken with officials across the continent, and talks with political and regulatory authorities confirmed that there were no plans to cut programs in any of these markets and that material, near-term subsidy reductions across these markets were unlikely.

Given its established geographic footprint on the continent, First Solar is ideally positioned for first-mover advantages in emerging PV markets with major feed-in tariff programs, including Italy, France, Czech Republic, and Greece.

The one shadow crossing the company’s European landscape is turmoil in the credit markets — customers’ abilities to secure adequate capital to finance solar PV projects. Based on its customers’ 2009 projected market and application mix, Ahearn was confident that up to 85 percent of Germany volumes in 2009 could be fully financed through the German Reconstruction Bank (KFW) on attractive loan terms.

As previously referenced, up to 40 percent of 2009 project volumes may be deployed in other European markets. Ahearn candidly admitted solar projects lending outside of Germany had essentially stopped for the time being. Nonetheless, he believed that most of First Solar’s European (independent power producers) outside of Germany had sufficient balance sheet strength to bridge any near term projects delays and to comply with their obligations under the company’s take-or-pay contracts.

First Solar expects to have an annual global manufacturing capacity of approximately 1.1-gigawatts by the end of fiscal 2009 (based on run rates for the third quarter of 2008).

The Question: Will First Solar be able to re-allocate contracted volumes to customers unable to secure adequate financing — identified to be about 15 percent to 20 percent of planned sales in to Europe in 2009?

• The Company: Tidewater Inc, the world’s largest provider of offshore supplies vessels to the energy industry.
• The Filing: FORM 10-Q filed with the SEC on October 27, 2008.
• The Finding: Tidewater has 57 vessel commitments of various class and type, ranging from offshore tugs to deepwater vessels, scheduled for delivery from November 2008 through 2012. Given uncertainties in the credit and energy markets, the company is in the process of re-assessing its previous strategy of fleet expansion and replacement plans.

The Upshot: To date, of the total $1.2 billion of capital commitments for vessels currently under construction, the company has expended $377.9 million as of September 30, 2008. The company has financed its vessel commitment programs from current cash balances, operating cash flows, and $300 million in senior unsecured notes.

At September 30, Tidewater had total available liquidity of about $445 million, which included an unused revolver capacity of $300 million (which matures in May 2010). If customers cut back on shallow water exploration and development activities, future operating cash flows might not be sufficient to fund the existing gap in contractual obligations of $377.1 million. In the context of current conditions, Chairman and Chief Executive Dean E. Taylor conceded to analysts on the second-quarter 2009 earnings call that the company had scaled back its expectations in terms of what can be funded out of existing resources.

To date, the company had expended $169.7 million for the construction of 23 anchor handling and towing-supply vehicles, with $285.2 million in capital commitments outstanding. In the second-quarter 2009, average utilization rates of Tidewater’s anchor handling and towing-supply vehicles fell year-on-year 8.6 percent to 48 percent — no surprise, as the majority of its fleet of 257 vessels of this class was more than 25 years of age. Management anticipates using future operating cash flows company to fund its replacement needs — but again, what happens if operating cash flow turns negative?

Although many U.S. based energy companies have cut capital spending on domestic exploration projects, Taylor said on the conference call that it was his feeling “activity in the international markets [would] not be impacted as much or as soon as domestic activity.”

In addition, of the vessels scheduled for delivery through 2009, only about 52 percent are contracted for some term. Nonetheless, even if day rates turn south, Tidewater intends to take delivery and pay the outstanding monies owed on all 57 vessels, said Taylor.

As of the six-months ended September 30, free cash flow generated by Tidewater was $(58.9) million.

The Question: If operating cash flow remains negative, will the company successfully be able to navigate the credit or equity markets for necessary capital financing?

Tenaska closes its TRF II fund above $2.4 billion — Tenaska Capital Management recently closed its TPF II fund above $2.4 billion. The fund was started earlier this year with an original target of just $1.5 billion. The fund will be used for traditional and renewable power generation, natural gas storage, pipeline and other gas midstream assets, natural gas and power infrastructure goods and services. [Source: AltAssets]

Chevron commences new project offshore Brazil – Chevron, which has invested an unprecedented $3 billion in a Brazilian deep water offshore drilling project over the past seven years, will begin drilling soon. Chevron believes it can extract about 270 million barrels (about 3 days worth of oil) out of the Frade (”Frah-day”) region over the next 18 years. Did someone say “peak oil?” [Source: Rigzone]

Marathon backs two new Gulf of Mexico projects — Marathon’s Board sanctioned two Gulf of Mexico development projects, Droshky and Ozona, together estimated to cost $1.6 billion. Marathon believes it can extract about 29 million barrels of oil from the areas. [Source: Rigzone]

U.S. gets even windier in third quarter — In the third quarter of 2008, 1,389 megawatts worth of wind turbines were installed in the U.S., bringing the 2008 total to 4,204 megawatts, according to the American Wind Energy Association’s third quarter market report. By year’s end, the report says, some 7,500 megawatts worth of turbines should be in place. That should bring U.S. wind capacity to about 24,300 megawatts. That leaves only about a zillion more megawatts to go. [Source: Renewable Energy Focus]

Hedge fund star Paulson betting on Cheniere — Hedge fund manager John Paulson, who heads the $35 billion Paulson & Co., has taken a larger stake in liquefied natural gas supplier, Cheniere Energy, recently upping his position there by 2.7 million shares to claim more than 14 percent of the company. Cheniere’s stock recently plummeted to 95 cents per share on a net loss of $41.1 million in the second quarter, down from $42 per share in late 2007. Is Paulson just bargain hunting? Maybe. Or maybe energy’s still a good bet. [Source: N.Y. Post]

Bahrain opens bidding on natural gas exploration — The tiny Persian Gulf island kingdom of Bahrain — “The Kingdom of the Two Seas” — has opened a round of bidding for exploration of its onshore natural gas fields. Twenty-five international companies have expressed interest in a process that is set to go from now into the second quarter of 2009. Officials said the move was made to help the kingdom keep pace with domestic demand.  [Source: Oil and Gas Journal]

First Solar to supply 100 megawatts of thin film to U.S. residents — Tempe, Arizona-based First Solar has entered into a five-year deal to supply 100 megawatts of thin-film solar modules to SolarCity, a solar installer, for use in U.S. residences. First Solar is to take a minority $25 million equity stake in SolarCity. This is the traditionally commercial thin film supplier’s first major foray into the residential market. [Source: Reuters via Scientific American]

Aquaflow teams with Honeywell’s UOP on algae biofuels — Aquaflow Bionomic has partnered  with Honeywell subsidiary, UOP, to make biofuel from algae harvested in open-air sludge ponds and waste streams. UOP’s traditional business has been petrochemcial refining, but has recently moved into biofuels, launching its Renewable Energy & Chemicals business in 2006. [Source: Earth2Tech]

Avantium wins $23 million in private financing — European biofuel and bioplastic producer, Avantium, has announced the completion of a EUR 18 million ($23 million) private financing round. Investors included: Aescap Venture, Cleantech Fund, ING Corporate Investments and Navitas Capital. [Source: TickerTech]

• The Company: Ensco International, a provider of offshore contract drilling services.
• The Filing: FORM 10-Q filed with the SEC on October 23, 2008.
• The Finding: Returning an attractive 17.2% on shareholder equity, on average, over the last five years, the Board of Directors obviously felt that repurchasing its own shares on the open market was a prudent investment. Like many of its peers in the drilling sector who made similar fiduciary decisions, however, Ensco International overpaid for its own stock.

The Upshot: During the nine-month period ended September 30, 2008, Ensco repurchased 3.7 million shares of its common stock at a cost of $256.0 million (an average cost of $69.92 per share) under a 2007 authorization plan. In total, the company had purchased 16.5 million shares at a total cost of $937.6 million, or an average price of $56.79 per share.

Acclaimed movie director Billy Wilder once said: “Hindsight is always twenty-twenty.” At October 27, 2008, with the common stock of Ensco trading at $33.40 a share, the company had lost about $386.5 million, or almost 41 percent, of the cash invested in the repurchase programs. Pursuit of its own shares was probably not a meaningful tool in building value for Ensco stockholders.

In September 2008, the Board of Directors authorized the repurchase of an additional $500 million of Ensco common stock.

The Question: Might reinvesting the money on expanding its core offshore drilling business — opportunistic purchases of rigs on the cheap from smaller companies unable to compete in the current environment — be a better spend?

Abu Dhabi set to invest $20 billion to increase crude output — The Abu Dhabi government plans to invest some $20 billion through 2010 to increase its crude output 30 percent. Current crude production is 2.7 million barrels per day. Abu Dhabi hopes to raise that to 3.5 million barrels per day. In addition, the emirate plans to invest a further $25 million in its natural gas industry over the next half decade. Remember: The early bird catches the worm. [Source: Oil and Gas News Worldwide]

71 Gulf rigs still idle after storms — According to the U.S. Minerals Management Service 71 production platforms in the Gulf of Mexico are still evacuated after last month’s hurricanes Gustav and Ike, or a little over 10 percent of the 694 manned production platforms. About 28 percent of the oil production and 33 percent of the natural gas production in the Gulf is still “shut-in.” [Source: Energy Current]

T. Boone’s investors bailing — Earth2Tech reports that after famed oil man and energy security crusader, T. Boone Pickens’ appearance on “60 Minutes” Sunday night, in which he admitted his funds are down a brisk $2 billion, investors are jumping ship – or rather rig. About half of the investors in Picken’s energy fund have scrammed. [Source: Earth2Tech]

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Offshore wind power turbine service craft lost at sea — A “jackup lift boat,” Titan-1, owned by KS Energy Services was lost at sea while crossing the Atlantic from Pascagoula, Miss. to Liverpool, U.K. Titan-1 was being sent to the North Sea under contract with Siemens Wind Power for installation and maintenance work of wind turbines in the North Sea off of Denmark and the U.K. The craft slipped off the M/V Ancora when the semi-submersible encountered engine trouble. Rough seas caused the Titan-1 to shift and then capsize. A subsidiary of KS Energy is in talks with Siemens to substitute another vessel, most likely the identical Titan-2. The value of the 817-day contract was $43.9 million. [Source: Energy Current]

Intel investing in energy, too – Not to be outdone by Google, who has recently dived into the energy business with considerable gusto, Intel Capital, owned by the computer chip company of the same name, will invest $20 million in Chinese solar and wind power equipment provider, Trony Solar Holdings. “The world economy is in a very difficult position, but innovation is the way to help companies out of financial crisis,” said Cadol Cheung, managing director of Intel Capital for Asia Pacific. “Intel Capital is still committed to investing in innovative companies.” So far the alternative energy sector seems to be weathering the crisis. Can it continue? [Source: Sydney Morning Herald]

Green crunch leads venture capitalists to double down despite downturn — Yesterday we reported that falling fossil fuel prices could be putting the kibosh on alternative energy initiatives. But, as Earth2Tech blogger, Katie Fehrenbacher, points out lowered company valuations can be a boon for VCs. She writes: “Last week at the Dow Jones Alternative Energy, a panel of investors highlighted those types of positives in a bear market. Lee Bailey, managing director of U.S. Renewables Group, said that even over the past few weeks, valuations have gone down dramatically, resulting in better deals. It’s proof that the market works, Bailey said. Raj Atluru, managing partner with Draper Fisher Jurvetson, said that this is actually the time when great returns can be made. ‘If anything, we’re doubling down,’ said Atluru.” [Source: Earth2Tech]

• The Company: McMoRan Exploration, an oil and gas explorer engaged in offshore production in the Gulf of Mexico.
• The Filing: FORM 8-K filed with the SEC on October 20, 2008.
• The Finding: McMoRan’s exploration strategy focuses on the deep gas plays, drilling to depths of 15,000 to 25,000 feet in the shallow waters of the Gulf of Mexico and Gulf Coast area, and on ultra-deep gas plays below 25,000 feet. Drilling in deep water is not without risk, however, as assessments following Hurricane Ike identified several platforms with significant structural damage. Based on current information, McMoran currently expects fourth-quarter production to average approximately 180 MMcfe per day, down from a production average of about 296 MMcfe/d in July and August.

The Upshot: Co-Chairman of the Board, Richard Adkerson, said on the company’s third-quarter 2008 earnings call that McMoRan production is now at 140 MMcfe a day, with the drop off in production mostly due to repairs necessary in getting third-party pipeline facilities and refineries back online, for its damaged platforms comprised only three percent of daily operations. The company expects production to return to pre-hurricane levels sometime in first half 2009.

Adkerson explained why the company was willing to assume the hurricane risk associated with drilling for hydrocarbons in the Gulf of Mexico shelf and in deep water: “There is no place else on shore where you can find these reservoirs that are conventional reservoirs that are what we call soft rock. They don’t have to be frac [fractured]. They don’t have to do any abnormal stimulation. And the recovery from those sands can be drawn from areas because you don’t have to reach out with horizontal wells and track and do some of the things you have to do in a tight gas play.”

Design improvements made to both new and existing structures in the Gulf of Mexico following the disastrous 2005 hurricane season has increased platform survivability. Adkerson said most of the damage done to its drilling platforms was in deeper waters, where underwater currents caused an “undertow rip tide.”

Financial results for the third-quarter ended September 30 reflected charges of $152.6 million related to hurricane Ike, including about $22 million to reduce the net book value of property damaged in the storm and approximately $124 million to adjust future abandonment costs associated with the damaged structure and well abandonment. The company should recover substantially all its hurricane-related costs — less $50 million in deductibles — under existing insurance programs.

The Question: Going forward, when insurance companies are done tallying their hurricane-related losses for 2008, will offshore drilling companies and operators pay larger premiums — with higher deductibles — for their coverage?

Gazprom teams with Petrovietnam to explore Vietnam coast – Russia’s Gazprom and Petrovietnam have inked a deal to explore for oil and gas in Vietnamese waters. Russian President Dmitry Medvedev was on hand at the signing ceremony at the Kremlin, along with Vietnamese President Nguyen Minh Triet. The Kremlin said that it aims to increase trade with Vietnam eventually to $10 billion. Western oil companies are also operating offshore Vietnam, with Chevron reporting a 6 trillion cubic foot natural gas strike last March. [Source: Upstream Online]

Will lower fossil prices nix interest in renewables? — With oil prices less than half what they were at their peak in early July ($64 a barrel on October 25 vs. $145 July 3), interest in renewables appears once again to be on the wane. Some market watchers believe that they are seeing déjà vu all over again, à la the 1970s oil crunch, when high prices gave alternatives a boost which quickly subsided when prices went back down. [Source: San Francisco Chronicle]

Solar EnerTech completes facility two months ahead of schedule — Photovoltaic provider, Solar EnerTech has completed the build out of its second cell production line in Shanghai two months ahead of schedule. The new line increases EnerTech’s cell production by 100 percent to 50 megawatts. [Source: Energy Current]

HelioVolt and DoE win R&D magazine award for “revolutionary” technology – Thin film innovator, HelioVolt, which last week open the doors on its new Texas facility, and U.S. Department of Energy’s National Renewable Energy Laboratory, have won R&D Magazine’s Editor’s Choice Award for Most Revolutionary Technology. The two organizations won for their joint development of a simpler, faster process for printing thin film photovoltaic systems. [Source: CompoundSemi]

Regulatory delays put the bite on BrightSource — Well-heeled solar startup BrightSource is facing possible regulatory delays in its attempts to erect a set of massive solar projects in the Southern California desert that could cost as much as $3 billion. The hold-up seems to come from the California Energy Commission and the federal Bureau of Land Management, which have yet to conduct environmental assessments and give approval. The company had hoped to break ground this month. BightSource is well funded, with $160 million in the kitty. Backers include Google.org, BP Alternative Energy, StatoilHydro Venture, Black River, VantagePoint Venture Partners, Morgan Stanley, DBL Investors, Draper Fisher Jurvetson and Chevron Technology Ventures. [Source: Earth2Tech]

Diablo Canyon nuclear fights off attack of jellyfish — Pacific Gas & Electric’s Diablo Canyon Nuclear Power Plant near San Luis Obispo, Calif., is running on reduced capacity due to “an influx of jellyfish.” The nebulous critters appear to have snuck up a pipe from the Pacific Ocean, from which the plant draws water to cool its reactors. The federal Nuclear Regulatory Commission said that the reactor’s protection systems “operated as designed and the system was stable.” Could Al Qaida terrorists have tamed the sylph-like sea creatures to nefarious purpose? Too early to speculate at this juncture. [Source: San Jose Mercury News]

• The Company: Diamond Offshore Drilling, the world’s second-largest offshore contract oil and natural gas driller.
• The Filing: FORM 8-K filed with the SEC on October 23, 2008.
• The Finding: Even amidst declining energy prices and the uncertainty in the credit markets, the recent Diamond Offshore Drilling contract with Total E&P Angola for its fourth generation deepwater semi-submersible, the Ocean Valiant, at record rates in excess of $620,000 per day, signals major oil and gas exploration companies are still willing to commit and more forward with drilling plans.

The Upshot: The Total E&P Angola contract is convertible into either a 2-1/2 year or a three-year agreement at the option of the operator at day rates that could earn maximum total revenue, excluding mobilization fees, totaling between $552 million and $646 million.

In July, the company signed a letter of intent at an expected day rate of approximately $520,000 for its deep water unit Ocean Star, under current contract with Anadarko at a day rate of about $410,000 until November 2008.

Chief Executive Larry Dickerson told analysts on the company’s third-quarter 2008 earnings call that its offshore customers appear less vulnerable to lower oil prices, save for some of the lower-return, more mature markets in the world, such as the North Sea and shallow regions in the Gulf of Mexico. In addition, most of the company’s fleet is contracted to 2010.

The Question: The lock-up language in existing contracts is unknown. Should the price of oil find a floor below $65 a barrel, can customers re-negotiate (for lower day rate prices) or cancel new contracts without financial penalty?

John W. Rich, Jr.: OPEC production cuts are economic terrorism – True to its word, the OPEC cartel cut production Friday by some 1 million barrels per day. Always outspoken coal-to-liquid advocate and WMPI PTY President, John. W. Rich, Jr., was quick to react, labeling the move nothing less than “economic terrorism.” Oh, snap.  [Source: Macroworld]

Venezuela to announce licensing round for oil blocks in Orinoco region — Venezuela’s oil minister has said that next week he will announce that his ministry will put several oil blocks in the Orinoco up for licensing in a bid to diversify Venezuela’s oil trading partners. Venezuela’s anti-American President Hugo Chavez has vowed to make oil available to clients other than the U.S., the country’s largest customer. [Source: Rigzone]

Small world: Turkish Petroleum seeks deal with Japanese to drill in Iraq — Turkish Petroleum, Turkey’s state-run oil company, is seeking a deal with Japanese companies to form a consortium to apply for the first round of bidding for contracts to develop Iraqi oil fields. [Source: Rigzone]

HelioVolt opens new thin-film solar plant – Austin, Texas.-based HelioVolt held a ribbon-cutting ceremony for its first thin-film solar factory. The company expects to start selling material made at the 122,400-square-foot factory in early 2009. [Source: Earth2Tech]

Huge coal-to-liquid project abandoned — An $800 million coal-to-liquid project in West Virginia was abandoned after falling short of capital. The plant was a joint effort between mining giant Consol Energy and the gasification company Synthesis Energy Systems. It was to produce about 100 million gallons per year of gasoline from coal. [Source: Earth2Tech]