Hercules Offshore files bankruptcy with plan to convert debt
By Bloomberg, August 13, 2015
Several Texas oil and gas producers have either filed for Chapter 11 bankruptcy protection or have missed interest payments and are heading toward restructuring. Photo: James Durbin
Hercules Offshore Inc., owner of the largest fleet of shallow-water drilling rigs in the Gulf of Mexico, filed for bankruptcy with a plan to be taken over by senior creditors.
The company said it planned to use the bankruptcy process to implement a proposal, announced in July, to cut $1.2 billion in debt. The plan calls for investors to trade their senior notes for almost 97 percent of Hercules’s equity.
Some noteholders would also lend the company $450 million to help finish building a new oil-drilling rig, the company said in a statement.
Under the plan, current shareholders would have a chance to split the 3 percent of the company not going to noteholders, Hercules said. The plan must be approved by a bankruptcy judge in Wilmington, Delaware, where the case was filed Thursday.
Hercules, which leases rigs to oil and gas producers, said the plan has the “overwhelming” support of the noteholders.
The Houston-based company, formed in 2004 as a small gulf driller, has a fleet of 27 jack-up rigs and 21 lift boats.
Flagging Demand
Demand for both U.S. and international business has flagged as the price of oil has plunged. Drillers around the world have also been suffering from a glut of new sophisticated vessels displacing older rigs in the market. Cal Dive International Inc., a contractor that does manned diving and platform installation, sought creditor protection in March.
Debt issues by Hercules and fellow Houston-based drilling rig provider Paragon Offshore were among the worst-performing oil and gas service bonds in the high-yield energy index in the first quarter of 2015, according to Bloomberg Intelligence analysts Spencer Cutter and Yuanliang Huang.
The number of rigs operating in the U.S. Gulf of Mexico has fallen by more than half from last year’s high of 63 in August, according to Baker Hughes Inc.
Hercules listed liabilities of $1.3 billion and $546 million in assets as of Aug. 11.
The case is In re Hercules Offshore Inc., 15-11685, U.S. Bankruptcy Court, District of Delaware (Wilmington).
N.D. hires BNSF manager as inspector for state rail safety program
By Mike Nowatzki, Forum News Service, August 10, 2015
Oil tank cars not damaged in a train derailment near Culbertson are removed from the area on July 17, 2015. Amy Dalrymple/Forum News Service
BISMARCK, N.D. – A manager for the railroad involved in two fiery oil train derailments in North Dakota during the past two years has been hired as the first track inspector for a new state-run rail safety program.
Karl Carson will go to work for the state Public Service Commission on Aug. 17, doing inspections to identify problems with track and worker safety.
A Minot native, Carson is a division engineer with BNSF Railway. He’s worked for the railroad since 1992, holding several positions including assistant director of maintenance production, in which he supervised maintenance and replacement of track and track components, according to the PSC. He’s worked in management for BNSF since 2004.
Commission chairwoman Julie Fedorchak said the PSC wanted an inspector with experience, and with only two major railroads operating in the state – BNSF and Canadian Pacific – hiring someone with connections to one of them was “just an unavoidable situation.”
She said she asked Carson during his interview “if he would have a hard time regulating his old friends, and he said, ‘Absolutely not.’”
“His experience helps him to understand where the strengths and the weaknesses are and will really help him engage directly with the railroad,” she said. “They know his experience and they know he knows what he’s talking about.”
North Dakota is the 31st state to partner with the Federal Railroad Administration on a state rail safety program. The FRA has primary responsibility for rail safety in every state.
The PSC began looking seriously at the need for a state program after the December 2013 derailment of a BNSF oil tanker train near Casselton, which caused a massive fireball and voluntary evacuation of the city. Six cars from a BNSF oil train derailed May 6 near Heimdal in east-central North Dakota. No one was hurt in either incident.
Carson’s new position is one of two approved by state lawmakers in April when they voted to spend $523,345 on the state rail safety program in 2015-17, with the intent of continuing the pilot program in 2017-19.
“We’re quite pleased with the caliber of the first inspector,” Fedorchak said. “He’s got more rail experience than I had hoped for, and I think in talking with other states, that was the key ingredient they emphasized.”
State Sen. Tyler Axness, D-Fargo, who first publicly suggested a state-run rail safety program in July 2014 during his unsuccessful campaign for the PSC, said he doesn’t necessarily disagree with Fedorchak that the pool of qualified applicants for the inspector job is probably limited in North Dakota, and he declined to make any judgments about the hire without seeing the pool of applicants.
But Axness and Wayde Schafer, conservation organizer for the Dacotah Chapter of the Sierra Club, both said it seems like the state has a pattern of hiring regulators with close ties to the industries they will oversee. Schafer said on such a contentious issue as rail safety, “it seems like they would want to hire somebody who was a little bit more neutral.”
“You’d think something this controversial, even the appearance of impropriety should be avoided whenever possible,” he said.
Don Morrison, executive director of the Dakota Resource Council, drew a comparison to the hiring of Lynn Helms, a former employee of Texaco and what is now Hess Corp. who now regulates and promotes the state’s oil and gas industry as director of the state Department of Mineral Resources.
“It certainly looks like business as usual, which is give the industry what they want,” he said. “Time will tell.”
Fedorchak said the PSC had 18 applicants for the job and interviewed the top five, with second interviews for the two finalists. She noted Carson was the “strong favorite” among the FRA inspectors on the interview panel.
Carson earned a certificate of completion in auto mechanics from Bismarck State College in 1990 and also served in the North Dakota Army National Guard from 1990 to 1994. He couldn’t immediately be reached for comment.
SACRAMENTO — Gov. Jerry Brown signed a bill Friday that allows BART to purchase renewable energy directly from wholesale suppliers as the rail system looks to further reduce its carbon footprint.
SB502 by state Sen. Mark Leno, D-San Francisco, eliminates a barrier the BART Board of Directors face when purchasing electricity, which is currently limited to a short list of approved suppliers, according to bill supporters.
Under the new law, BART officials would no longer have to go through a third party to buy renewable energy on their behalf and instead could purchase directly from facilities covered under California’s Renewables Portfolio Standard.
“BART is a vital regional transit system that is working to increase its use of clean energy, but current state law unnecessarily limits the agency from further decreasing its carbon footprint,” Leno said in a statement. “This bill supports state goals to combat climate change and enables BART to continue providing cost-effective transportation for the Bay Area while increasing the agency’s use of renewable energy.”
BART buys its electricity from the Northern California Power Agency and the Western Area Power Administration. The trains, which are 100 percent electric, derive half of their power from clean hydroelectric power and renewable sources.
“This legislation will allow us to seek out new sources of clean renewable energy and for suppliers to offer it to us at a good price,” BART board President Thomas Blalock said in a statement.
Can state cut gasoline use in half in 15 years? Probably not
By Kate Galbraith, August 5, 2015
Mary Serrano gets instructions on the Chevy Spark PHOTOGRAPH BY Carl Costas for CALmatters
One sunny Saturday in Stockton, Mary Serrano climbed into the driver’s seat of a bright-red, all-electric Chevrolet Spark. A retiree who normally drives a 20-year-old Toyota Camry, she was curious about the new technology on display at the local fairground.
“I feel like I’m going to outer space,” she said giddily, as a company representative prepared to explain the controls.
But after the excitement of the test drive, reality set in. The Camry, which had to be fixed after failing a smog test, will keep its place at her Stockton home. An electric car seems out of reach, despite the availability of rebates.
“For the moment, I don’t have the money to buy it,” she said by phone, a few months after the fairground event. “Maybe later in life.”
Her situation suggests that for all the allure of emissions-free vehicles, getting Californians to adopt them will take time. That in turn creates challenges for slashing gasoline and diesel use, a goal state leaders are championing as part of their battle against climate change. A bill that has passed the state Senate and awaits a vote in the Assembly seeks to halve the amount of petroleum used in motor vehicles by 2030. It will be difficult to accomplish in such a short period.
“If we’re talking about transportation petroleum use, then the goal probably isn’t possible,” said John German, a Michigan-based senior fellow with the International Council on Clean Transportation. A key problem, he said, is that people hold onto cars and trucks for a long time, an average of more than 11 years for American cars.
“I wouldn’t set forth on this pathway if I believed that the targets were unrealistic,” said Senate leader Kevin de León, D-Los Angeles, the bill’s powerful co-author, in a recent interview.
Other parts of the legislation call for electric utilities to use 50 percent renewable energy by 2030 and for buildings to become twice as energy efficient.
“We should be careful when we set round numbers like 50-50-50. Why 50?” said Eloy Garcia, who lobbies for the Western States Petroleum Association, in testimony before an Assembly committee in July. “I know they’re nice round numbers, but we should be careful about why we’ve picked those numbers.”
The bill would take gasoline use in the state back to the 1960s, a time when California’s population was close to half of what it is today. It would not only help cut greenhouse gas emissions, a priority for the state, but also reduce the fine particles and smog-forming gases that contribute to unhealthy air above some California cities, including Los Angeles, Bakersfield, and Fresno.
“The primary driver of this target was air quality,” Stanley Young, a spokesman for the Air Resources Board, the state agency overseeing air quality and climate change policy, wrote in an e-mail.
The ARB would oversee the programs, creating a point of controversy because industry groups perceive it as high-handed, even as environmentalists cheer it on. Petroleum lobbyists and other opponents want elected legislators to plan how the goals will be met and not the appointed air board officials.
Currently, trends are moving in the wrong direction. Gasoline and diesel sales are ticking up, the sign of a surging economy. The number of miles traveled by vehicles on California highways — a crucial metric for determining whether Californians are getting out of their cars and onto bikes, sidewalks or public transportation– is also rising.
But the technology exists to halve petroleum use, as German and others point out. If everyone suddenly began driving emissions-free electric cars, such as the one Serrano tried out, California would easily meet its target. Driven by government fuel-economy and emissions standards, even cars that run on petroleum will be made of lighter, more fuel-efficient materials in the future.
These coming changes will be dramatic, even if they do not end up being enough to halve petroleum use in 15 years. German’s organization, the International Council on Clean Transportation, estimates that recent federal fuel-economy standards could cause greenhouse gas emissions from light-duty vehicles nationwide to fall 28 percent by 2030 compared to 2015.
Jeffrey Greenblatt, a scientist at the Lawrence Berkeley National Laboratory, estimates that by 2030, a number of transportation policies already in existence will enable the state to cut petroleum use by cars and trucks to about 70 percent of their 2014 level. Besides federal fuel-economy standards, these include support for public transit and a state goal of having 1.5 million emissions-free vehicles by 2025.
Another way the state is trying to cut petroleum is by encouraging the use of biofuels like ethanol or renewable diesel, provided they are formulated to be as environmentally friendly as possible. (Renewable diesel is made from fats or vegetable oil and specially refined.) At a pump in Redwood City operated by Propel Fuels, several customers opted for 85 percent ethanol rather than the ordinary gasoline available nearby, although helping the environment was not their primary motive.
“It’s cheaper,” said Donald Rainer of Menlo Park, whose flex-fuel GMC Yukon takes both gasoline and 85 percent ethanol. His main complaint was about refueling stations: “They don’t have enough of them around.”
For potential buyers of electric cars, too, costs are key. Many plug-in vehicles remain expensive, though prices have been falling and the state subsidizes them in various ways. The cars are limited in how far they can go without recharging, but that problem is diminishing as battery technology improves. Some in the auto industry wonder whether key incentives, such as allowing zero-emissions vehicles into the high-occupancy vehicle lanes on major roads, will remain in place if electric cars flood the roadways.
As improved fuel-efficiency allows Californians to use less gasoline, then prices at the pump may fall, according to Darwin Hall, professor emeritus of economics at California State University, Long Beach, depending on whether refiners adjust their capacity.
However, in the near-term, some climate policies are causing the price of gasoline to rise. The state’s cap-and-trade program, which sets limits on the amount of greenhouse gases that fuel distributors, refineries and other large polluters can emit, has increased gasoline prices by roughly a dime a gallon this year, economists estimate.
Republican lawmakers fear that SB 350 will cause job losses and economic damage. “What are my constituents going to do if we cut petroleum by 50 percent but they are still using cars that require petroleum? Will they all be required to buy new cars?” asked Sen. Jean Fuller, R-Bakersfield, during a floor debate over the bill. Her colleague, Sen. Jeff Stone, R-Temecula, described it as “coastal elitism at the worst.”
The bill is expected to have a more difficult time in the Assembly than in the Senate, where it passed the Senate with the support of all but two Democrats: Sen. Cathleen Galgiani of Stockton and Sen. Richard Roth of Riverside. The Assembly contains more moderate Democrats who have historically been friendly to the oil industry, which has launched a television ad dubbing the bill the “gas restriction act of 2015.”
The ads target a select group of lawmakers and are running on web sites in their respective districts, said Beth Miller, a spokeswoman for the industry group called California Drivers Alliance.
“It is a method of communicating to legislators about an issue we think is of concern to their constituents,” Miller said.
Sen. de León emphasized that fossil fuels were not going away. Nor, he said, would everyone need to immediately buy an electric car or hybrid. (In his official capacity, de León is chauffeured in a Chevrolet Suburban. For personal use, he leases a Chevrolet Impala and said he aspires to a hybrid.) Establishing targets, he said, is vital to encouraging California down the path toward clean energy, but the policy would not result in banning or rationing gasoline.
“If we don’t meet this goal,” de León said, “no one’s going to jail.”
