Energy boom raises the bar

Neil Fleming

2005 was a boom year for the energy industry. But it was a helluva tough year in which to win a Global Energy Award.

WITH PRICES AT ALL-TIME HIGHS—AND their inflation-adjusted highest for 20 years—running an energy business looked, frankly, rather easy. Cash flow was good; profits in most sectors were extremely healthy; projects were easier to green-light; marketing dollars were plentiful.

But for companies hoping to win a coveted Platts Global Energy Award, all of that just raised the bar. You don't get an industry leadership award just for doing well in a year like 2005. You don't win Exploration and Production Business of the Year just for selling oil or gas. You don't win Energy Investor of the Year just for holding stock in energy companies, either.

Thus it was all the more remarkable that this year's entries were of such high quality. All of the GEA finalists were characterized not merely by their commercial competence but also by their capacity for long-range vision, their ethical stance, and their ability to innovate, to take advantage of an industry upswing to reposition themselves for the future.

Entrants for new award category Rising Star faced a different kind of challenge. Breaking into a world where the incumbents are doing very nicely, thank you, is always a much harder play than shouldering into a fragmented or ailing industry. Yet this category saw a huge strength of entries and a great breadth of talent and business innovation among its finalists—all of whom deserved to win.

But as movers and shakers from around the world gathered at the Roosevelt Hotel in New York in December, there could only be a few who left with the ultimate prize: a Platts Global Energy Award.

Sadly, the devastating arrival of Hurricanes Katrina and Rita in September meant that the number of entries for Petrochemical Company of the Year fell to a very low level. Companies operating facilities in the southern U.S. that had intended to enter for the award found they simply could not meet the deadline. The independent judges panel for the Awards, while commending both South Korea's LG Chem and Saudi Arabia's SABIC on their entries, therefore decided not to award the Petrochemical award in 2005, preferring to defer it until next year.

In addition to the new Rising Star category, this year's awards saw some other changes. The perhaps-outmoded labels "Oil Company" and "Gas Company of the Year" have been replaced with awards that look across the vertical structure of the industry—Exploration and Production Business of the Year and Downstream Business of the Year—more closely mirroring the way that companies see themselves. Both categories drew some of the strongest entries the judges have seen in many years.

In the downstream category, indeed, there was not only great weight but also great diversity, with the result that the judges elected, as they have occasionally done with other awards in the past, to give two awards here.

2005 also introduced the Energy Investor of the Year award, which likewise drew a very impressive and very international field of entries.

The 2005 winners, together with the judges' rationale, follow.

CEO of the Year

Philip G. Harris

PJM Interconnection

USA

"We fly an airplane that can't ever land."

That's the challenge to which Phil Harris, CEO of the United States' PJM Interconnection, has more than risen, in the opinion of the 2005 judges.

Harris runs a transmission grid and administers a competitive electricity market that serves 51 million people in an area that—if it floated out to sea—would constitute the world's third-largest economy. And he runs it both expertly and aggressively, tirelessly making the public case for regional transmission organizations, continually expanding his reach and influence, and in June 2005 achieving a world peak electricity delivery record of 135,000 megawatts.

Under Harris' leadership, PJM has successfully integrated five utility companies since May 2004. It has forged partnerships with France and Tokyo Electric Power Co., which have adopted PJM systems. Harris was a leading light in the development of the Very Large Power Grid Operators, a group of 15 of the world's largest grid operators who meet annually on industry issues.

PJM's growth under Harris' guidance has been astonishing. Between 2003 and 2004 revenues to the not-for-profit organization jumped 20%. Back in 1997, PJM was billing and clearing $0.75 billion a year for its customers. Today, that figure has jumped to $17 billion. The transmission service it provides has gone in the same period from 82 million megawatt-hours to 700 million. Membership in PJM has gone from 82 to more than 350 today.

Harris is both a business leader and a leader of people. PJM has been recognized by the United States Energy Association with the Volunteer Organization of the Year Award. PJM also was twice named to the Center for Companies that Care Honor Roll for the quality of the PJM work environment and ongoing commitment to the community. PJM was selected as one of the 100 Best Places to Work in Pennsylvania in 2004 and again in 2005.

For all of these reasons, the judges were swift to agree that Harris is the worthy winner of the Platts 2005 CEO of the Year award.

Coal Company of the Year

Foundation Coal Holdings Inc.

USA

Global Energy Awards judges are always on the lookout for the exceptional. And exceptional is the best description for the expertly executed turnaround and revitalization of Foundation Coal, this year's Coal Company of the Year.

At the start of 2004, Foundation's previous German owner, RAG, had put it up for sale and its future looked uncertain. But by the end of July that year a group of private equity investors consisting of First Reserve, the Blackstone Group, and AMCI had bought RAG's remaining U.S. assets. At lightning speed, Foundation turned itself around and completed a successful IPO by December 8.

Not distracted by these excitements, the company meanwhile contrived in 2005 to post industry-leading EBITDA margins of 24.2%, deliver a first-rate safety and environmental record, and innovate technologically. The fifth-largest coal producer in the U.S., it grew its revenues from $995.6 million in 2004 to $635 million for the first six months of 2005—a theoretical full-year jump of 27%. It turned a loss of $67.5 million from the first seven months of 2004—prior to its acquisition—into a net profit of $39.1 million in the first half of 2005.

Community Development Program of the Year

Tsunami Relief Efforts

National Thermal Power Corp.

India

The most powerful tsunami in modern history struck the coast of India on December 26, 2004, flattening villages, towns, and cities in the southern part of the country; destroying billions of dollars worth of assets; and killing thousands of people. This year's Community Development Program award is given to the employees and managers of India's National Thermal Power Corp. (NTPC) for their exceptional response to the tragedy.

Within hours of the disaster, a group of 52 employees—of their own accord—had relocated themselves to the tsunami impact zone to volunteer their assistance at great personal risk to themselves. The gesture was immediately rewarded by NTPC with a decision to treat these employees as being on official duty and a swift move to back them up with funding, medical supplies for the affected area, water tankers, clothing, temporary shelters, and bedding. As other NTPC employees rallied round, much of this vital material came to be donated by the company's employees themselves. Together, employees also gave some $340,000 to relief efforts, while the parent company donated $1.81 million.

A medical team supplied by NTPC treated almost 8,000 casualties. NTPC volunteers helped feed 18,000 villagers until more permanent relief arrangements could be made. Electrical engineers from NTPC meanwhile headed to the stricken Andaman and Nicobar islands, far out in the Indian Ocean, to assist in the restoration of power there.

Downstream Businesses of the Year

Gazpromexport

Russia

and

World Energy Alternatives

USA

As noted above, this was a new award in 2005 and one that attracted an astonishing range of high-quality entries.

Platts' judges recommended potentially splitting the award in the future into "midstream" and "distribution/retail" categories, and decided in effect to implement a distinction of this kind by awarding two Downstream Awards to two very different businesses: one to Russia's giant Gazpromexport, which is leading the way in 21st century gas supply to Europe, and a second award to feisty World Energy Alternatives (WEA), a trail-blazing supplier of biodiesel to the U.S. automotive market.

Gazpromexport, a subsidiary of Gazprom, is already the world's largest gas exporter, supplying 28 countries with 4.6 Tcf of gas a year. Export receipts in 2004 were over $18 billion, a jump of 42% and a jump not simply attributable to higher prices: Export volumes themselves grew by close to 10%.

But judges were impressed that, far from resting on its monolithic laurels, the company is also rapidly transforming itself into a dynamic, versatile competitor—a player in new markets and in the world of liquefied natural gas (LNG). In September 2005, for example, Gazpromexport did its first commercial LNG deal with the United States. Meanwhile, downstream arm Gazprom Marketing and Trading has been setting standards of excellence as a gas marketer to the UK, with revenues of £322.1 million (around $580 million) in 2004.

The company has also been active in developing and pushing for new export routes to both Europe and Asia, and September saw a government-level agreement signed between Russia and Germany for construction of a North European Gas Pipeline directly linking the two countries—a project for which Gazpromexport has provided the feasibility work.

World Energy Alternatives is the USA's first and only truly integrated biodiesel supplier, the seller of over half of all the biodiesel bought in the country since 1998, and the operator of more than 40 biodiesel distribution nodes.

The Global Energy Awards judges recognized that WEA has taken an exceptional and pioneering role in moving a newcomer fuel from green pipe dream to commercial reality. Profitable since 2001, WEA has proved that a viable business can be built in the production and distribution of biodiesel with or without the tax incentives for the fuel that came into force in 2004.

Sales for the fiscal year to September 2005 will exceed $45 million, which—though some might call them modest—represent six straight years of per annum growth exceeding 50%.

Energy Company of the Year

ExxonMobil

USA

On the recommendation of successive teams of judges for the past several years, Platts changed the rules for selection of the prestigious Energy Company of the Year award in 2005. Companies no longer nominate themselves for this award. Instead, the judges have been given the freedom to choose from across the whole spectrum of finalists the one company that for them stands out as a leader in the energy field. This year's judges had little hesitation in picking ExxonMobil, winner of the Most Innovative Commercial Technology award and a finalist for the Community Development Program award.

Under the stewardship of outgoing CEO Lee Raymond, ExxonMobil heads the 2005 Platts Top 250 Energy Company Rankings (see story, p. 29) as the most financially successful energy business in the world, based on its assets, revenues, profits, and return on invested capital.

But much above and beyond that, judges were impressed by the company's exceptional strategic track record in recent years, its financial flexibility, and its ability to operate complex businesses on six continents to the highest international standards.

A policy of aggressive divestiture of mature fields has seen ExxonMobil's production volumes fall over the past couple of years. Although this has worried some analysts, the company has made no apologies and has gone on to post some of the highest quarterly results in history: $7.64 billion in the second quarter of 2005, for example, a 32% jump over the previous year. At press time, analysts were predicting third-quarter results could be over $9 billion, despite the effects of Hurricanes Katrina and Rita, with fourth-quarter earnings higher still.

Upstream, ExxonMobil remains at the forefront of technical excellence and active field portfolio management. In the past 12 months it has farmed into little-explored Indian Ocean acreage off Madagascar; pledged a $10 billion investment in Nigeria over five years; begun production from its Angolan Kissanja field six months early; won a race to further partner Abu Dhabi in a project to more than double output from the Upper Zakum oilfield; signaled a scale-back in Azerbaijan; sold its stake in Australia's Wandoo field; announced a deal to develop Australia's Kipper gas field; and begun ramping up production from its Guntong gas joint venture with Malaysia. In North America, ExxonMobil continued a strategic pruning of assets, divesting Permian basin and Canadian properties but expanding its partnership in Alberta with Apache Corp.

The company threw down the gauntlet to LNG market leader Shell, announcing plans to double its LNG sales to 2.5 Bcf/day by the end of the decade. It raised $7.6 billion in finance for the second phase of its QatarGas LNG joint venture project—thought to be the largest energy project financing deal ever made. It began commissioning Train 4 on the project. And it inked a deal for a $1 billion regasification terminal for Italy.

Downstream, ExxonMobil delivered stellar results, particularly in Asia. Its fourth-quarter 2004 income for the sector, for example, was three times its year-earlier figures, at $2.34 billion, and up 67% from third quarter 2004. Second quarter 2005 was similarly up 47%.

In all, the judges were impressed by both the consistency and the flexibility of ExxonMobil's business approach, its long-range vision as well as its short-term financial excellence.

Energy Engineering Project of the Year

Blended Low-Enriched Uranium Program Tennessee

Valley Authority

USA

This was an exciting and highly innovative project, a joint venture between Tennessee Valley Authority (TVA) and the U.S. Department of Energy (DOE) to find and implement a way to convert surplus weapons-grade highly enriched uranium into reactor fuel by blending it down.

Working with the DOE, contractor Framatome ANP, and subcontractor Nuclear Fuel Services, TVA overcame multiple first-of-a-kind engineering problems to successfully load the first blended low-enrichment uranium (BLEU) material into the Browns Ferry reactor in April 2005.

Challenges on the project arose in fuel fabrication, where designers had to create shielding from higher-than-normal radiation; in transportation, where new shipping containers had to be designed; and in fuel operations, where high U-236 content meant new validation of nuclear methods and reload analysis optimization.

Judges were impressed by the efficient solutions found, the unique aspects of the BLEU program, the fact that it effectively "recycles" uranium, as well as by its potential benefits as a means to eliminate the security risk posed by the storage of excess, unneeded weapons-grade material. The alternative to BLEU is burial of the material involved at a cost to the U.S. government estimated to be half a billion dollars more than the cost of conversion to reactor fuel.

Energy Investor of the Year

Iberdrola

Spain

The Energy Investor Award is a new award for 2005. As such, it had one or two teething problems—attracting quite a large volume of entries from companies that hadn't read the criteria. . . . For this award is given not for simply ploughing capital into energy companies but to a company that has made an investment that's likely to change the face of the energy industry, a company that has recognized an opportunity and had the courage to take it.

Platts judges were quick to recognize that the actions of Spain's Iberdrola exemplified this kind of investment, with the company's bold strategic plan to double in size between 2002 and 2006 by investing $19.8 billion in its business between 2002 and 2008. The aim is to achieve double-digit earnings growth and lower financial leverage to around 50% by 2008.

Strikingly, most of Iberdrola's investments will be in renewable energy in Spain and combined-cycle plants in Spain and Mexico.

Judges were impressed by the fact that the company is a year ahead of its plan already and has become the world's leader in wind energy; by 2008 it aims to manage 5,500 MW of renewables. Since 2001, Spanish wind energy production has tripled, and Iberdrola is aggressively investing outside the country, buying the Rokas wind generation group in Greece, for example, in December 2004.

Iberdrola is already reaping the reward of its bold investment, with a 58% jump in its share price since 2002.

Exploration and Production Business of the Year

Anadarko Petroleum

USA

In the kind of high-priced environments we've seen since 2003, the temptation for upstream companies is always to cling to oil- or gas-producing properties. What scored highly with this year's judges was the way in which Anardarko Petroleum has demonstrated the courage to go a different route.

With the arrival of James T. Hackett as CEO in December 2003, the company embarked on a rigorous transformation of its thinking—stripping high-cost and rapidly declining properties from its portfolio, repurchasing shares, and retiring debt to position itself for long-term sustainable growth.

There's no doubt those moves paid off. Anadarko's 2004 net income rose 39% to $1.27 billion, and 2005 has shown record earnings, with six consecutive quarters of meeting guidance under its new management team.

Fiscal discipline, of course, is no use on its own. An exploration company must explore and must produce. Anadarko has shown itself among the very best in class over the past two years, replacing 175% of reserves in 2004 and racking up very respectable finding costs of around $9 per barrel of oil equivalent.

Projects currently on the go include the K2, K2 North, and Genghis Khan discoveries in the Gulf of Mexico foldbelt, all due to come on-line much sooner with stronger economics because Anadarko chose a hub-and-spoke facility rather than a more traditional development strategy. Three additional eastern Gulf of Mexico discoveries and an industry-first development plan involve five producers and a midstream company. Independence Hub will be the deepest production platform in the world with first production expected in 2007.

Further afield, the company is involved in new projects in Indonesia, Algeria, and Qatar, and with an LNG venture in Nova Scotia.

Industry Leadership Award

GAIL (India) Ltd.

India

This award is given to companies that demonstrate the vision to change the way the industry works—those that find new ways of doing things, which become the benchmark by which others measure themselves. The judges felt that GAIL was a leading example of exactly that spirit for its enterprise and drive in a sometimes heavily regulated environment.

Created in 1984 to lead the development of a then virtually nonexistent natural gas infrastructure for India, the company has not only been instrumental in building the subcontinent's now sizeable gas market but has also transformed itself to an integrated gas major with the ability to play on the global chessboard.

The company has diversified into liquefied petroleum gas (LPG), gas-based petrochemicals, LPG distribution by pipeline, and the creation of transmission infrastructures for telecoms in India.

GAIL played a lead role in sourcing LNG from Qatar's RasGas for regasification and distribution in the Indian marketplace and succeeded in developing this business strand despite having to contend with government-set pricing that pegged natural gas way below the price of LNG. It also imports LNG from Iran.

With the advent of market deregulation in India, the company has shown the way in realigning its priorities and retraining its workforce.

Today, GAIL is the owner and operator of India's largest gas transmission network (5,470 kilometers or 3,418 miles of pipelines); the world's longest LPG pipeline (1,269 km/793 miles); seven gas processing facilities with a capacity of more than 1 million metric tons per annum (tpa) of LPG; India's largest gas-based petrochemicals complex with an installed capacity of 310,000 tpa of polyethylene, which is undergoing expansion up to 440,000 tpa; and an optic fiber cable network of more than 9,000 km (5,625 miles) to offer bandwidth as a carrier's carrier in the telecom sector.

GAIL was first in the Platts Top 250 Global Energy Company Ranking among global gas players for its return on invested capital.

Lifetime Achievement Award

André Merlin

RTE Energy

France

It is not an exaggeration to say that André Merlin is the chief architect of Europe's liberalized electricity market.

Trained at France's prestigious Ecole Polytechnique, he joined state-owned utility Electricité de France (EDF) in 1968 as a research engineer and rose to be senior vice president of R&D 10 years later, with responsibility for 2,500 research staff. In 1994 he became executive vice president in charge of hydraulic and thermal generation, transmission, system operation, and sales, including marketing to large-customer divisions.

In 1997, Merlin moved to a new role: preparing France's public transmission system for the start of European power market deregulation in 1999—a role that has since led him to shape the entire continent's market. From here he conceived of and worked to establish the European Transmission System Operators Association (ETSO), was elected as chairman of its Steering Committee for two years, and then was twice elected president by all the European TSOs from 2001 to 2005.

Under his leadership, ETSO put in place in 2002 a European clearing fund for TSOs to avoid the accumulation of charges with cross-border trading and transactions from one country to another, thus facilitating creation of the market.

In recognition of his outstanding commitment to promote an efficient European Electricity Transmission System, in 2004 the European Commission appointed him president of the European Forum of Energy and Transportation for the second time.

With the creation in 2000 of RTE, France's new transmission system operator, Merlin was appointed director of that company. After successfully conducting major changes to transform RTE from a service within EDF into an incorporated company, his success and commitment have been recognized by the French Ministry of Industry, which approved his appointment as chairman of the Executive Board of the newly created and fully fledged company in September 2005.

Marketing Campaign of the Year

20/20 Energy Savings Southern

California Edison

USA

Judges look for talent, flair, and commercial effectiveness in granting this award. Southern California Edison (SCE) amply demonstrated all three in its bid to educate electricity consumers about the benefits of saving energy and to offer them discounts in return for a 20% reduction in summer electricity use. SCE developed an innovative and effective multifaceted campaign that reached out to all 4.1 million of its residential customers but that specifically and additionally targeted around 900,000 potential big savers.

The centerpiece of the 20/20 marketing campaign was an award-winning television commercial. Sharp, clever, and witty, the 30-second spot features T-Bone, a basset hound who, after "reading" a headline about approaching warm weather, proceeds to help her human family save energy by demonstrating conservation tips. High-use customers were meanwhile targeted with direct mail, encouraged to sign a "pledge to save," and given incentives to do so: plastic bracelets modeled on cyclist Lance Armstrong's Livestrong bracelets.

As of September 2005, SCE believed nearly 290,700 residential customers and 67,200 business were on track to qualify for the offered discount.

Most Innovative Commercial Technology of the Year

Multi-Zone Stimulation Technology

ExxonMobil

USA

You don't get much more innovative, nor much more commercial than ExxonMobil's breakthrough technology for facilitating the extraction of natural gas from so-called "tight" gas reservoirs in sand.

Unlocking the gas available in these reservoirs is a much sought-after prize, because an estimated 200 Tcf of gas lies in hitherto commercially uneconomical structures in the U.S. alone. ExxonMobil's Multi-Zone Stimulation Technology (MZST) aims to solve this problem and is currently being put to use to commercialize around 35 Tcf of gas in the Piceance Basin. Patented MZST also improves production rates and recovery volumes from conventional gas-bearing structures.

Reservoir stimulation is not a new concept per se. Indeed, it is a widely used technique involving the creation of permeable fractures in a structure to facilitate the flow of hydrocarbons to a well. But traditional stimulation is expensive and often slow, with the result that reservoir engineers often bypass small or low-quality reservoir intervals. MZST hugely accelerates the pace and lowers the cost of effecting stimulations. ExxonMobil has been able to place as many as 21 stimulations in a single day using the technology, whereas conventional stimulation can take weeks to achieve just a few fractures.

Power Company of the Year

Iberdrola

Spain

In just over 100 years, Iberdrola has gone from a hydroelectricity generator founded by Basque Country industrialists to a more than $25 billion international major with operations in more than 20 countries. It became the world's top wind energy company in 2004 and is the largest power company on the Iberian Peninsula. It ranks fourth in Europe by number of clients.

Already the winner of Energy Investor of the Year for its ambitious plans to double in size in just five years, Iberdrola impressed the judges again in the closely fought Power Company category for the scope and vision of its activities and the precision of its management.

As a major player in a country almost entirely devoid of hydrocarbon resources of its own, the company has nailed its colors to a renewables mast. And in 2004 it succeeded in becoming the largest wind energy generator on the planet. It spent $1 billion on renewables generation in 2004 alone, has invested $3.1 billion in wind since 2001, and has targets to generate as much as 4,500 MW of wind power in Spain within three years and a further 1,000 MW outside the country. Last year its renewables output rose by 38%.

Iberdrola's net profits hit $1.5 billion in 2004, up 14.2% from a year earlier. Net sales were $12.6 billion, up 8.7%, largely due to a 13.9% jump in generation output.

Renewables Project of the Year

Iowa Wind Project

MidAmerican Holdings Co.

USA

MidAmerican's massive wind generation project in Iowa caught the judges' eyes this year for its sheer scale and ambition.

The company launched the project two years ago in response to a challenge from Iowa's governor to build 1,000 megawatts of renewable capacity in the state by 2010. Initially slated to be 310.5 MW in size, the project was expanded in January this year to 360.5 MW, following completion of Phase I of the $323 million project in December 2004. By the end of 2005, MidAmerican expects to have 257 wind turbines in production and to own 489 MW of renewable capacity in the state, including biomass and hydroelectric facilities. That would make it a single company almost halfway to the governor's target, with five years in hand.

MidAmerican and its subsidiaries operate a total of 14 renewable facilities worldwide.

Rising Star Award

Energy Bridge

Excelerate Energy LP

USA

This award aims to pinpoint a newcomer to the energy industry whose business and business model is destined to succeed. This year drew an exceptional and talented group of finalists.

The judges chose Excelerate Energy for the clarity of its proposition, the innovation inherent in its business, and the commercial potential of what the company brings to market. Excelerate Energy is the pioneer of the so-called Energy Bridge, a system designed to facilitate the importing of LNG while responding to public and environmental concerns. In essence, Energy Bridge comprises a specially equipped regasification ship, an Energy Bridge Regasification Vessel (EBRV), and a subsea gas receiving system that connects directly into natural gas distribution pipeline networks.

Excelerate Energy commissioned its first Energy Bridge in March 2005 at its Gulf Gateway facility, 116 miles south of the Louisiana-Texas border. The Gulf Gateway is the world's first offshore LNG receiving system and is the only new gas receiving system to be built in the U.S. in 20 years.

Excelerate plans a second such terminal for 2007, and the judges were convinced the Energy Bridge concept—which essentially intelligently combines already tested technologies in an innovative way—is set to change the way the world handles its LNG for many years to come.