The Fortune 100 Company You've Never Heard of

Actually Glencore International, plc, is not a Fortune 100 company.  It is a Swiss-based company that is larger than most Fortune 100 companies.  Revenue in 2011 was $186 billion. Apple's revenue was $108 billion.  

Glencore "controls more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handles 3 percent of daily global oil consumption for customers ranging from state-owned energy companies in Brazil and India to American multinationals like ExxonMobil and Chevron."  Its ROI is 38%, much better than most companies in which you have invested. 

The company was founded by Marc Rich.  Remember him?  He was the guy indicted on federal charges of tax evasion and illegally making oil deals with Iran during the Iran hostage crisis. He was in Switzerland at the time of the indictment and has never returned to the U.S. He received a presidential pardon from Clinton. 

Glencore makes its money by being in bed with the bad guys of the world who have bribed dictators and others to look favorably on the company.

Another Sign of Our Changing World

Twenty and thirty years ago most of the petroleum engineers were trained in U.S. and European universities. That is no longer the case. Oil-rich countries are now producing their own engineers; this year about twice as many engineers will come from oil-rich countries as will come from "the West". Only eight years ago the ratio was 1.5 - 1, rather than the 2 - 1 of today.

Many of the jobs in the oil industry are also moving overseas. More than half of Chevron's employees now come from outside the U.S.; ten years ago only a third did.

It's a competitive world out there.

Why wait for the courts

After all, it's only our money that the Interior Department seems to want to give to Chevron and other oil and natural gas companies.

Last month I wrote about the four cases four separate Interior Dept. auditors had initiated alleging that the department stopped their investigations into oil companies' fraudulent schemes to reduce their royalty payments to the government.

The case has not been decided, yet the appeals board of the Interior Department has ruled that the department should drop its claims to recover what is likely hundreds of millions - possibly billions - of dollars in underpaid royalties to you and me.The same set of facts have been sufficient for states to rake in over $70,000,000 from the companies.

Why the department did not wait for the courts to decide the issue is one question of many.

Who do you believe?

The Energy Bulletin has published a cautionary article on the Chevron oil find in the Gulf of Mexico announced to great fanfare this week. The article points out that it is unlikely that the discovery will increase our oil reserves the 50% that's been mentioned in press articles. The uncommon depth (three miles) to reach the field leads the author to believe that there can be very little certainty as to the potential reserves; in fact, there is likely much more natural gas than oil found at such depths.

The author attributes the timing and content of the announcement to the upcoming consideration by the Senate of legislation to allow more offshore drilling. Bolstering this contention is the situation last year when the Mexican parliament was considering expanding drilling by its state oil company, Pemex. Just before the vote, a discovery with the potential of 10 billion barrels was announced. That estimate was revised this year to 43 million barrels, or a drop of 99.57%.

The skepticism which is implied by the title of this post is due to the limited information available about the backers of this site; there is none. The author of the article is identified as Randy Kirk who works for an invesrment firm in San Francisco. True, had there been names and background of the operators of the site, it could all be a charade. But, it would allow the reader to do some checking.

Mr. Fu Speaks

And in The Wall Street Journal, no less.

Mr. Fu Chengyu, CEO of CNOOC, the Chinese company that has made an offer for Unocal, has an op-ed piece entitled, "Why Is America Worried?". The piece lays out some fairly strong arguments for the acquisition of Unocal.

His basic argument is simple: this is a normal business transaction and should be evaluated as such. He goes on to point out that 70% of Unocal's oil and gas reserves are in Asia and are committed under long term contracts primarily to Asian nations. He claims that CNOOC will keep in the US the oil that Unocal extracts from the Gulf of Mexico. So, we have nothing to fear about losing oil to China; in fact we may get more oil out of the Gulf than we currently do. Further, he agrees to abide by any reasonable decision of the Committee on Foreign Investment in the US to divest any assets that do not harm CNOOC's core interests in this deal.

And, finally, CNOOC needs UNOCAL's people. Chevron, the other bidder for UNOCAL, has already announced that it will cut jobs. Mr. Fu says he will not.

He has some strong arguments, but does not use one which should impress even our congressmen: engaging China more, particularly via a major US company, will likely result in greater liberalization in that country.

Dawn is coming?

Gee, some people are beginning to wake up. The Energy Secretary, Sam Bodman, wants to convene the Committee for Foreign Investment in the U.S. to look at the bid by Cnooc, the smallest of the state-owned Chinese oil companies, to buy Unocal, whose board has already agreed to be acquired by Chevron. Today the Senate Finance Committee is holding hearings on our economic relationship with China.

Of course, not a word was said when Lenovo bought IBM’s PC business earlier this year or when Haier put in a bid for Maytag last week. Is it only if the deal is above $15 billion (Cnooc is offering $18.5 billion) or is in the oil industry that the government will realize there is a problem looming here in our changing world?

This latest and largest bid moves China from a passive investor in bonds of our government to an active investor in some of our vital industries.