Several big oil companies released a report yesterday that they had commissioned that challeges the way in which U.S. regulators require oil companies to measure how much oil and natural gas the companies have in the ground. Reserve numbers are a critical measure for evaluating the long term health of an oil and gas company. Here is the executive summary of the report.
Cambridge Energy Research Associates prepared the report, and it sharply criticizes the method that the Securities and Exchange Commission requires that oil and gas companies use to assess oil and gas reserves. The report contends that the SEC’s method is obsolescent and that the results of using the method actually mislead investors because it underestimates the oil and gas industry’s success in discovering or tapping new reserves of oil and gas. The results from using the different methods is startling — it can amount to hundreds of millions of barrels of oil at one company alone. As a result, the report recommends that the SEC revise its reserves-accounting methodology to reflect changes in the oil and gas industry since the guideline was implemented 27 years ago.
This is a key issue for the oil and gas industry because because the long term prospects of companies in the industry is largely dependent on their ability each year to find enough new oil and gas reserves to replenish reserves that the company has generated. In short, reserves are akin to a sign of how much money an oil and gas company has in the bank.
Absent from the Big Oil sponsors of the report was Royal Dutch/Shell Group, which has been hammered over the past year by a scandal in which the company admitted that it had massively overstated its reserves. As a result, Shell has revised its reserves by about a third over the past year, and it still faces continued scrutiny from investigators in the U.S. and Europe.

Another high-ranking executive at Dallas-based restaurant company Brinker International, Inc. resigned earlier this week. The resignation was the third of a high-ranking Brinker executive in the past month.
The latest Brinker executive to go was Wilson Craft, a 20 year veteran with Brinker who was most recently president of Brinker’s Chili’s Grill & Bar, which is Brinker’s flagship restaurant chain. Chili’s chief operating officer and the president of Romano’s Macaroni Grill, Brinker’s second-largest restaurant chain, resigned last month.
Brinker has long been one of the most successful restaurant companies in Texas, but the competitive pressures in that industry are absolutely brutal at this time. Other Brinker’s chains — none of which are close to as popular as Chili’s or Macaroni Grill — are Maggiano’s Little Italy, On The Border Mexican Grill & Cantina, Corner Bakery Cafe, Big Bowl Asian Kitchen and Rockfish Seafood Grill.

The U.S. Transportation Department announced yesterday that Houston-based Continental Airlines and Dallas-based AMR Corp.’s American Airlines have won a lively contest within the U.S. airline industry to offer additional non-stop flights to China.
Continental will offer a daily, 13-hour nonstop flight to Beijing from Newark Liberty International Airport later this year while American will offer daily nonstop flights from Chicago to Shanghai beginning in April, 2006. Northwest Airlines Corp. and UAL Corp.’s United Airlines are the other U.S. airlines that are authorized to fly routes to the country.
Cargo shipments carrying goods from China to the U.S. have been leading the increase in air service between the two countries over the past several years. However, according to the DOT, passenger traffic between the U.S. and China rose over 35% from 2003 through November 2004. So, the new flights are consistent with Continental’s business strategy of emphasizing profitable international flights over less profitable domestic routes.

This Chronicle article reports that Houston’s downtown Hyatt Regency Hotel has been posted for foreclosure by its lender, which is believed to be German American Capital Corp. The current owner of the hotel is Rushlake Hotels USA, which is closely-owned by a Pakistani investor group.
As with all non-judicial foreclosure sales of real property in Texas, a notice of the foreclosure sale was posted at the Harris County Courthouse at least 20 days before the first Tuesday of the following month. The first Tuesday of each month is the day on which non-judicial foreclosure sales of real property are conducted in Texas. That’s the main reason why the first Monday of each month is often the day on which the highest number of bankruptcy filings takes place in Texas.
Although it has a good location, the downtown Hyatt is one of the older hotels in the downtown (it opened in 1972) and is a bit dowdy in comparison to many of the new hotels that have been built in the downtown area over the past several years. Industry experts believe that the Hyatt’s occupancy rates have been below 50 percent for some time.
The Chronicle article downplays the foreclosure, but it is important to note that forced sale comes just a year after the opening of the city government-financed 1,200-room Hilton Americas Hotel a few blocks away next to the George R. Brown Convention Center. The Hilton Americas was a big part of the huge increase in the supply of downtown hotel rooms over the past several years in advance of Super Bowl XXXVIII in early 2004. During that period, downtown hotel capacity zoomed from 1,800 rooms to 5,500 rooms.
As a result, hotel occupancy rates averaged about 53 percent in downtown Houston last year, which is below the 60 percent that is generally considered an acceptable occupancy rate within the hotel industry. Nevertheless, that relatively low occupancy rate came on the heels of a 40 percent increase last year in the number of rooms in downtown Houston. So, downtown Houston actually had a strong overall increase in occupancy of hotels during 2004.
Having said that, there is no Super Bowl in Houston during 2005 and, thus, occupancy rates this year will be a better barometer of the overall health of the downtown hotel market. Thus, the foreclosure of the Hyatt is another sign of increasing troubles in the Central Houston, Inc.-coordinated redevelopment of downtown Houston over the past decade. Inasmuch as downtown restaurant and bar business has also slowed recently, it is beginning to look as if the supply of new amenities in downtown Houston needs to slow down and catch its collective breath to allow the demand for such amenities to catch up.