Nalco jumps to offshore oil as gas drilling declines
Nalco Holding Co., the oil- and water-treatment company part-owned by Warren Buffett's Berkshire Hathaway Inc., expects sales to crude producers offshore and in Canada's tar sands to rise at least 10 percent annually for the next four years.
Nalco is expanding its oilfield-services business as low natural-gas prices kill demand for the company's chemicals and equipment among land-based drillers and the recession crimps orders from paper makers, Chief Executive Officer Erik Fyrwald said today in an interview.
Naperville-based Nalco provides supplies for two- thirds of the deepwater oil platforms launched worldwide in the past half decade, including BP Plc's Thunder Horse in the Gulf of Mexico and the Frade and BC-10 vessels in Brazil operated by Chevron Corp. and Royal Dutch Shell Plc, respectively. BP's announcement yesterday's of a "giant" discovery in the Gulf may accelerate Nalco's growth, Fyrwald said.
"Oilfield services is now 20 percent of our company, and we expect it to continue to grow at double-digit rates as the global economy recovers and demand for oil comes back," Fyrwald said. "Ten to 15 years ago this business didn't exist, but it's growing now because so much of the oil being discovered is heavy and corrosive," requiring treatment.
Demand from offshore oil producers probably will grow through 2012 or 2013, when platform construction may plateau, depending on the pace of new discoveries, Mike Bushman, vice president of investor relations, said during the interview.
In Canada, orders for Nalco's water- and crude-treatment devices and services are mounting as Exxon Mobil Corp. and Shell step up efforts to extract oil from the bogs and river valleys of northern Alberta, Fyrwald said. Oil production from the tar sands is expected to almost double in the next six years, Greg Stringham, a vice president at the Calgary-based Canadian Association of Oil Producers, said in an Aug. 18 interview.
Nalco shares rose 49 percent this year, the best-performing U.S. company in the 50-member S&P Global Water Index. Buffett's Berkshire Hathaway was Nalco's biggest investor as of June 30, holding a 6.5 percent stake, according to data compiled by Bloomberg.
Fyrwald has been firing workers and closing plants as part of a $100 million cost-cutting plan. The company had a net loss of $29.2 million during the April-to-June period. Oilfield services was one of only two Nalco divisions to post a sales gain in the second quarter.
Nalco's overall sales probably will increase 6 percent to 8 percent annually through 2011, double the company's historic rate of growth, as gains in the oil patch more than make up for declines in industrial water treatment, Fyrwald said.
Sales to natural-gas producers have tumbled 50 percent this year as plunging industrial demand for the fuel prompted drillers to halt or curtail projects in the Rocky Mountains and Texas, said Fyrwald, a University of Delaware-trained chemical engineer.
As governments around the world require coal-burning power plants to restrict greenhouse-gas emissions, Fyrwald said he expects orders for the pollution-control systems made by Nalco's Mobotec unit to increase.
"This is really big in places like Poland and China, where there's a heavy reliance on coal-fired generators," he said.