Barclays’ analyst slashes natural gas price forecast — After warning that gas prices might fall to between $5 per one million British thermal units (MMBtu) and $6 per MMBtu to balance a glutted market, Barclays’ analyst, Tom Driscoll, has reduced his forecast 13 percent, to $6.75, per MMBtu for the rest of 2008, and by 14 percent, to $6.50 per MMBtu, for 2009. “Strong supply growth and a deteriorating demand outlook will likely weigh on gas prices,” Driscoll noted. (A single thermal is the amount of heat required to increase the temperature of a pint of water by one degree Fahrenheit.) [Source: Platts]

Now is the time for merger madness — Writing in Canada’s National Post, Zena Olijnyk says that “a steep decline in share prices, week commodity prices and tight credit markets provide the perfect conditions for consolidation in the junior oil and gas sector.” Olijnyk quotes Scotia Capital analyst, George Toriola, as saying: “In our opinion, companies with a cost of capital advantage [will] probably emerge as consolidators.” [Source: National Post]

Innovalight secures $5 million in funding — Thin-film solar startup Innovalight, which makes photovoltaic “silicon ink,” has won $5 million in debt financing from Silicon Valley Bank and Leader Ventures. This on top of the $5 million in had already won from ATEL Ventures in July. [Source: Earth2Tech]

Biofuels Capital Partners throws in the towel — Biofuels Capital Partners which wanted to San Francisco-based private equity firm was planning to “bridge the gap between early-stage cleantech venture capitalists and expansion stage project financiers in the biofuels market,” has abandoned its fund-raising drive, even though it had secured around half of its $250 million target. BCF’s founder, Bob Johnsen, is CEO of Promethegen Corp. a biofuel startup which he founded.

(Image courtesy Dolphin)

The Company: Linn Energy, an independent oil and gas company with core operations in the Brea Olinda Field of the Los Angeles Basin and the Texas Panhandle.

The Upshot: In the last two years, Linn Energy has spent more than $3.2 billion on oil and gas properties, principally in the Mid-Continent region of Oklahoma and the Texas Panhandle. The $229 million in proceeds from the announced sale will be used to strengthen a leveraged balance sheet, reflected in a working capital deficit of $330.3 million and total debt ($1.7 billion) almost 1.9 times shareholder equity at August 31, 2008.

Year-to-date, the company has completed approximately $1.0 billion in sales of oil and gas properties, including the July closing of $600 million in Appalachian Basin assets to XTO Energy. In addition to strengthening its balance sheet, management intends to re-deploy capital into lower risk, bolt-on acquisitions and/or drilling opportunities within its Mid-Continent assets, which hold approximately 87 percent of total reserves, or an estimated 1.7 trillion cubic feet of proved reserves (and a 21-year reserve life).

Going forward, the 2008 capex budget remains at $300 million, with anticipated drilling in the Texas Panhandle of 26 wells and 22 additional wells in the Granite Wash area and Brown Dolomite formation, respectively, during the remainder of the year.

Of interest, the company reported a non-cash loss on derivatives from oil and gas hedges of approximately $773.4 million for the second-quarter ended June 30, a result of the significant increase in commodity prices during the quarter. The average fixed price for existing 2008 gas and oil swap positions were $8.65 per MMbtu and $82.11 a barrel at June 30. As energy prices trend lower, these non-cash losses should reverse in coming quarters.

Lower energy prices, however, adversely affect credit metrics. For example, the total debt -to- proved reserve ratio ($/Mcfe) of $0.98 would increase as natural gas prices decline-projecting a weakened asset base profile. In other words, leverage is kinder to balance sheet health the higher energy prices climb! Ergo, there is limited economic value in maximizing acreage position as energy prices fall-which adds another dimension to asset sales!

The Question: If energy prices trend lower in coming months, will the value of shale leases decline (per acre), especially in expensive gas hotspots like Piceance Basin in Colorado and Uinta Basin in Utah?

Pemex awards $46 million contract to Global Industries — Global Industries, a Louisiana-based offshore services company, was awarded a $46 million contract from Mexico’s Pemex for pipeline work in the Ku-Maloob-Zaap field in Mexico’s Bay of Campeche. The project will begin in March 2009 and is to be completed by the end of July. [Source: Fox Business]

Galp Energia to form biodiesel venture with Petrobras — Brazil’s state-owned oil company, Petrobras, and Portugese oil company Galp Energia, are forming a joint venture to produce 500,000 tons of biodiesel a year. The venture will use 600,000 tons of vegetable oil produced in Brazil annually. [Source: StrategyEye Cleantech]

First ethanol pipeline — Iowa-based ALL Fuels and Energy, an ethanol firm, is set to partner with a pair of as-yet undisclosed infrastructure companies to plan a pipeline in the U.S. capable of transporting ethanol, biodiesel and liquid nitrogen. Helping secure capital for the first phase of the project is Trinity Ventures. [Source: StrategyEye Cleantech]

Massachusetts’ CTP Hydrogen folds – After failing to raise new funding for its technology, Westborough, Mass.-based CTP Hydrogen is set to close. The company had been spun off of CellTech Power in 2005 and had raised $4 million from investors, including the Massachusetts Green Energy Fund, Commons Capital and Sumitomo. But the money’s run out and there are no takers. The company’s technology was designed to convert propane- or kerosene-based fuels into hydrogen for fuel cells. Insufficient market demand has been blamed for the closure. (Still too early for fuel cells maybe?) [Source: StrategyEye Cleantech]

Soliant Energy wins $21 million in new funding — Soliant which makes rooftop concentrating photovoltaic systems, has raised $21 million in new venture capital, with GE Energy Financial Services pitching in $2.5 million. The Monrovia, Calif.-based startup made the announcement at the Solar Power International conference in San Diego. The money will be used to help get Soliant’s  modular solar product to market next year. [Source: Earth2Tech]

Government to the rescue!… of oil prices — The ongoing saga of the world economic crisis has prompted governments in America and Europe to consider various bailout packages. The upshot for oil? A sharp rise, today at least, as oil tops $82 a barrel. The bump could be short-lived however, “as Goldman Sachs… turned a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand. It warned that $50 oil was possible if the crisis deepened.” But can we really trust Goldman Sachs? [Source: Reuters via EasyBourse]

Canada’s Verenex strikes oil and gas in Libya — Canadian-based Verenex energy has confirmed an oil and gas discovery in the Ghadames Basin in Libya. The Libyan National Oil Corporation also announced the discovery. Verenex holds a 50 percent working interest in what is called “Area 47” in Libya and under terms would get an initial production allocation of 6.85 percent in any commercial development.[Source: Verenex via Yahoo, Canada]

Tenaska, Mach Gen acquire New Covert Generating Company — In move that will transfer ownership of a 1,100 megawatt natural gas plant in Michigan, the New Covert Generating Company has agreed to be acquired by Tenaska Capital in an agreement with Mach Gen. New Covert Generating Company sells power into the Midwest Independent System Operator. Amount of the deal has not been disclosed. [Source: Examiner.com]

China’s Anhui Province to build its first nuclear plant — China’s Anhui Province plans to build its first ever nuclear power plant in Wuhu, at an estimated cost of $7.3 billion, and has formed the Anhui Wuhu Nuclear Power Co. The new company will team with China Guangdong Nuclear Power Group, Anhui Province Energy Group, Shenergy, and Shanghai Electric Power.  CGNPG holds a 51 percent stake of the venture. The new plant will generate around 30 billion kilowatt hours of electricity. [Source: China.org.cn]

Think Piece: For ‘Net pioneer Metcalfe, “enertech” is the new black –  Bob Metcalfe, the father of Ethernet (an Internet and web precursor) and founder of 3Com, likes to call energy technology “enertech.” Apt, if not too original. In an article in Scientific American, the information superhighway pioneer outlines the four lessons of energy innovation:

1. With ethanol and algae, the old divides between things like feed, food and fuel are disappearing, just like they are between voice and data.
2. Like the Internet, energy will enjoy a “network effect.” People’s desire for energy will remain insatiable. We may not be able to drill our way out of the energy crisis, but neither will we be able to conserve our way out of it.
3. Be wary of energy politics and politicians, and be very careful what you ask of them, because otherwise you might get another DOE.
4. Energy technologies must be able to “scale,” just like Internet technologies.

[Source: Scientific American via Earth2Tech]

With stock markets tanking, a number of stocks bought on margin are being called in. Typically, an individual may take out a loan to buy stock, but if the value of the stock sinks below preset levels, the borrower must either liquidate the stock or come up with more cash to back it up.

Buying stock is, of course, popular for well-compensated CEOs and many show their commitment to their corporations by buying stock in their own firms on margin.

The nightmare scenario is when stock tanks, a margin call is made, and the cash-short CEO or other executive must sell thousands or millions of his company’s shares, driving the company stock price down even further.

Some CEOs have on occasion resorted to a form of blackmail in which they go to their board and ask for a personal loan at the company’s expense so they can bolster their margin accounts. If not, they threaten to sell off their company’s shares which will drop the stock price even lower. It is akin to putting a pistol against someone’s temple and asking for a loan.

This isn’t always the case. Apparently it was not when Aubrey K. McClendon, founder, chairman and chief executive of natural gas producer Chesapeake Energy Co., last week had to sell 31.5 million shares or 94 percent of his 5.8 percent stake in the company, to meet a margin call. Those shares had been worth $2.2 billion when McClendon bought them on margin on July 2, but they brought only $569 million when sold last week. Analysts say the company won’t be affected.

Some pre-meltdown examples of margin calls messes include Ivan Ross, founder of a Connecticut-based hedge fund, Tequesta Capital Advisor, who was forced to pony up cash for a margin call this February. After he was unable to come up with the money, lenders sold off his $150 million fund.

More recently, Bahram Akradi, CEO of Minnesota-based Life Time Fitness Inc., was forced to sell 582,000 shares of his firm for about $11 million earlier this month.

As extreme market volatility continues, more of the same can be expected. And it isn’t even Halloween yet.

(This post first appeared in BNET’s Corner Office)

The Company: InterOil Corporation, a Canadian energy company with operations in Papua New Guinea.

The Upshot: InterOil is a shareholder in a joint venture established to construct Papua New Guinea’s first liquefied natural gas (LNG) plant on a site adjacent to the company’s refinery in Port Moresby. The LNG plant is predicated on at least a substantial portion of the gas being supplied to it from InterOil’s Elk/Antelope complex, with construction of the plant and pipeline linking the plant to Elk/Antelope. One well, however, does not make for a reliable estimate of larger field reserves. Work on two prior well sites, Elk-1 drilled in 2006 and Elk-2 spudded in 2007, was suspended due to limited gas flow rates.

At June 30, 2008, InterOil did not have any oil or gas reserves or resources, or working interests in any producing oil and gas wells and therefore did not record oil and gas sales revenue during the first-half 2008. The Elk-4 structure hydrocarbons are being evaluated and are not currently classified as proven or probable reserves or resources under definitions adopted by the United States or Canadian regulatory authorities.

To date, income and cash flow are derived almost totally from midstream refinery activities, comprised of a 32,500 barrel per day crude distillation facility producing diesel, jet fuel and gasoline for the domestic Papua New Guinea market.

In the event that the viability of the LNG project is established, the company will be required to raise “substantial amounts” of financing for the Elk field development and delivery of gas to the LNG project. Preparatory costs, exploratory drilling, and appraisal testing capital expenditures totaled $29.1 million for the first six-months 2008.

In addition, under an indirect participation agreement entered into in February 2005, InterOil is obliged to spend up to $125 million to drill a minimum of eight exploration wells. As of June 30, management estimated that a further $46.4 million was required to drill an additional four wells (to fulfill this commitment).

The balance sheet at June 30, 2008, reflects a company barely getting by. Cash used by operating activities was $25.7 million in the first half 2008. Long-term debt is 1.2 times stockholder equity (and the company can barely cover the interest on its long-term debt with operating profits). InterOil did, however, file a shelf prospectus in July that should enable the company to access, from time to time, up to $200 million in debt and/or equity financing.

The Question(s): Will Antelope-1 yield proof of sufficient gas reserves to guarantee the LNG project? Given illiquid credit conditions, will InterOil be able to secure additional capital when needed?

• The Company: Chesapeake Energy Corporation, the largest producer of natural gas in the United States.
• The Filing: SEC Form 4 filings for Aubrey K. McClendon.
• The Finding: From September 2002 thorough April 2008, Aubrey K. McClendon, the billionaire chief executive of Chesapeake Energy Corp purchased more than 11 million shares of his company’s common stock at a total cost of approximately $319 million. Tragically, however, failing to remember that like all commodities — the price of natural gas is cyclical — McClendon recently went on a stock buying binge from April - June, purchasing an additional 2.45 million shares at an approximate cost of $108.4 million in open market transactions. Now comes word that McClendon has sold “substantially all” of his stock over the past three days in order to meet margin loan calls in the natural gas company he co-founded, the Company said late Friday.

The Upshot: It is common practice to reward Named Executives with a majority of their compensation in the form of long-term equity incentives —  to better “directly align their personal wealth with all shareholder interests.” For example, in 2007, McClendon received a salary of $975,000, $1.8 million in cash bonuses, and restricted stock awards valued on the award date at $25.1 million, according to the April 2008 Proxy Statement.

For better or worse, herein lies the story on one chief executive whose personal wealth is truly aligned with that of all shareholders!

In response to lower natural gas prices, Chesapeake also said it intended to further reduce its capital expenditures budget by approximately $1.5 billion in 2009 and 2010 through a combination of reduced drilling and lower leasehold expenditures.

The company affirmed, too, its previously announced production growth outlook of 18 percent for 2008 and 16 percent for 2009 and 2010. Chesapeake is currently using 145 operated drilling rigs, and anticipates operating approximately 135-140 rigs by year-end 2008 and expects to keep its rig count flat to down in 2009 and 2010.

Meanwhile, natural gas for November delivery lost 29 cents, or 4 percent, on Friday to $6.825 per 1,000 cubic feet. Prices had traded above $10 in July.

The Question: Given the aforementioned leadership distractions and fundamental weakness’ befallen the natural gas industry, does anyone seriously expect Chesapeake Energy to hit previously announced production capacity targets?

Canada’s investment in non-conventional oil and gas extraction to hit $19.5 billion — According to a report by Research and Markets, Canada’s investments in non-conventional oil and gas extraction will reach $19.5 billion this year. Other key points of the “North America Oil & Gas Sectors: A Company and Industry Analysis” report include:

• The Conference Board of Canada CBC forecasts an 18 percent increase in oil sector profits to $22.84 billion in 2008.
• Declines in Alaskan oil fields are forecast to bring a 0.23 percent drop in U.S. oil production in 2008.
• U.S. petroleum consumption is expected to drop 210,000 barrels per day in 2008 as projected increases in domestic ethanol production meet domestic needs.

[Source: Business Wire]

Mexican President Calderon proposes autonomy for Pemex — As the global financial crisis continues to hit outside the financial sector, Mexican President Felipe Calderon said Wednesday he would propose giving autonomy Pemex, the country’s state-run oil monopoly. The move would be designed to to “free the company from federal budget restrictions and give the government more money to spend next year,” according to a report from Dow Jones Newswires. [Source: Rigzone]

Areva flips UraMin, selling it to Guangdong Nuclear Power Company after just one year — French nuclear giant, Areva has agreed Tuesday to sell half of its UraMin uranium mining subsidiary to Chinese partners. Areva said it would sell the 49 percent stake in Canada’s UraMin, which mines uranium in Africa, to China Guangdong Nuclear Power Company. The value of the deal has not been disclosed. Areva paid $2.5 billion for UraMin last year. [Source: AP via Forbes.com]

Standard Solar raises $8.5 million — Solar systems provider, Standard Solar, has raised $8.5 million in its second round of funding. Standard, which is based in Maryland and operates in Maryland, Virginia and Washington D.C, says it plans to use this funding to expand throughout the Mid-Atlantic region. The round was led by Truecast Capital. [Source: Earth2Tech]

The Company: Ivanhoe Energy, focusing on heavy oil upgrading technology.

The Upshot: Third-party studies estimated that Pungarayacu contains between 4.5 billion barrels (Petroecuador-ARCO) and 7.0 billion barrels (Petroecuador) of oil-in-place. Confirmation of these resources would make the Pungarayacu field the largest accumulation of heavy oil in Ecuador and one of the largest in Latin America. Ecuadorean oil officials forecast production from the field at rates up to 120,000 barrels per day within three -to- five years.

The contract type - anathema to big oil, such as ExxonMobil and BP - is a Specific Service Contract, under which Ivanhoe will receive a fixed payment of $37.00 per barrel of oil produced, indexed quarterly for inflation.

Of concern, Ivanhoe’s Commercial Demonstration Facility in California has demonstrated overall processing capacity of no more than 1,000 barrels-per-day of raw, heavy oil. And, the company’s primary field, the 1,400-acre South Midway heavy oil field in California, is currently processing capacity of only 600 barrels per day, according to the company’s results for the second-quarter 2008 ended June 30.

Capital requirements are estimated to total approximately $110 million during the first three years of the contract, primarily for seismic work, assessment wells, initial production wells and thermal-recovery pilot tests. As the company generates limited cash flow from operations ($5.6 million for the first-half of 2008) and has other contractual obligations due in 2008 - 2010 of approximately $51 million, addintional fund raising is a given.

The Question: Can a small energy company with experimental technology meet expected production targets?

The Canadian oil sands already present some significant commercial uncertainties. Soaring costs and the prospect of stricter carbon-emission standards — already in place in Alberta, with the Canadian government scheduled to follow suit in 2010 — are just two of several major issues facing developers. Add the current global credit crisis, and many companies are understandably taking a wait-and-see approach.

StatoilHydro, Norway’s largest oil company, has already postponed the development of an oil-sands upgrader project and said that it might simply sell the bitumen — an abundant sticky, tar-like substance from oil sands that can be industrially processed into synthetic crude oil — instead. Even that plan, however, might now might prove complicated for bitumen sales anywhere but the U.S.

Alberta premier Ed Stelmach has previously suggested looking to markets in Asia if the U.S. is reluctant to take what is increasingly considered environmentally unfriendly oil, a strategy that export restrictions might scuttle entirely. Harper’s words leave pipeline operator Enbridge stuck between a rock and a hard place as well. The Canadian company has a well advanced plan for a $4 billion-plus Northern Gateway project to Kitimat, BC aimed at exporting bitumen to Asia — especially China. These plans could be ashes if Harper follows through on his promise.

Political pundits see Harper’s promise — which Harper says is intended primarily to prevent emitters from getting around Canadian carbon regulations and keep jobs and revenue in Canada — as an attempt to win Ontario voters who could decide the election. Should Harper win, however, keeping his word may substantially damage one of Canada’s prime business assets.