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Long-Awaited Guidelines Come as Obama Issues Privacy Rules for Government Drones

Federal regulators proposed long-awaited rules for commercial drones in the U.S., a landmark in the nation’s aviation policy that is expected to lead to a new era in which unmanned aircraft become common.

The Federal Aviation Administration proposed a policy that would replace the current near-ban on flying drones for commercial purposes with a simple approval process for operators governing commercial flight of any drone up to 55 pounds. Operators would be required only to pass a written exam on FAA rules to obtain a certificate from the agency for drone flying, and to comply with certain safety requirements. The test must be passed again every two years.

Those safety requirements would limit commercial drone flights to below 500 feet, during daytime hours and within sight of the operator. Notably, the proposed rule would also ban flying commercial drones near airports or over people not involved in the drone’s flight.

The proposed rules would “provide probably the most flexible regime for unmanned aircraft 55 pounds or less that exists anywhere in the world,” FAA Administrator Michael Huerta said on a conference call to announce the rules on Sunday.

The proposed rules, which are about four years behind schedule, are now open for a 60-day period of public commentary, which the FAA will take into account before publishing the final regulations—likely next year. The rules don’t affect recreational use of drones, which is already permitted as long as users obey safe-operating requirements.

The FAA proposal, which doesn’t deal with privacy issues, came as the Obama administration separately on Sunday issued rules for the government use of drones in the U.S. that it said are designed to protect citizens’ privacy and civil liberties.

A memorandum from President Barack Obama set limits on how federal agencies can use drones in the U.S., including requiring agencies to implement policies that protect citizens’ First Amendment rights and in most cases setting a 180-day limit on retaining data gathered by a drone.

Mr. Obama, however, put off many specifics of the policy, ordering the Department of Commerce to convene a stakeholder group within 90 days to develop guidelines for “privacy, accountability and transparency issues concerning the commercial and private use of” drones in the U.S.

As the FAA works to complete its safety rules, its current effective ban on the commercial use of drones will remain in place. The only exceptions to that prohibition so far have been FAA approvals for 26 commercial-drone operators, but those approvals came with strict rules, including that operators have a private pilot’s license.

The drone industry reacted generally favorably to the FAA’s proposal on Sunday, with many stakeholders pleasantly surprised that the proposed rules were less stringent than those the agency imposed in its case-by-case approvals for commercial drone operators.

“This proposed rule is a critical milestone in the [unmanned-aircraft] integration process, and one that is long overdue,” the Association for Unmanned Vehicle Systems International, a drone trade group, said in a statement. “This is a good first step in an evolutionary process that brings us closer to realizing the many societal and economic benefits of” drones.

Drone legal advocate Brendan Schulman, an attorney who is challenging the FAA’s current drone policy in court, said the FAA’s proposal is “a much more reasonable approach to future regulation than many feared.”

But some parts of the rule are likely to continue to frustrate drone users who feel technology is outpacing regulation. The requirement that commercial drones must stay within sight of the operator, for example, would preclude many potential commercial applications, including the delivery drones being tested by Amazon.com Inc. and Google Inc. While stressing that integration of larger and more wide-ranging drones will take longer, the proposal seeks to reduce risks “with the least amount of burden to business.” It also solicits comments for potentially easing restrictions on the smallest models, dubbed “micro” drones, weighing under 5 pounds.

The proposed rules “wouldn’t allow Prime Air to operate in the United States,” Amazon said in a statement, referring to its planned drone-delivery program. “The FAA needs to begin and expeditiously complete the formal process to address the needs of our business, and ultimately our customers. We are committed to realizing our vision for Prime Air and are prepared to deploy where we have the regulatory support we need.”

Mr. Huerta of the FAA said the agency is working with other federal agencies to research technologies that would enable drones to “see and avoid” obstacles and thus enable them to operate safely beyond the sight of operators. He said the agency is seeking the public’s comments on this subject. “We recognize that beyond visual line of sight is something that there’s a great deal of interest in,” he said.

Another area of rapidly advancing technology—autonomous drone flights—would be allowed under the FAA’s proposed regulations, an agency official told reporters. As long as an operator within sight of the aircraft could jump in to control the device if needed, a drone would be allowed to fly autonomously, or on preprogrammed routes, under the proposed rules.

Already U.S. construction companies are using drones that fly on autonomous routes to capture images above job sites. Those operations are currently in violation of FAA policy.

To make it easier for future operators, the proposal doesn’t require applicants to attend a flight school or any other formal educational setting to pass the certification tests. Rather, the FAA said it plans to “offer all the information necessary to pass” the required test of aeronautical knowledge online. In addition, the proposal doesn’t “mandate initial or recurrent training prior to taking” the exam, which would cost about $150.

There won’t be any medical or psychological testing requirements. But applicants will have to be vetted by the Transportation Security Administration, the same process private pilots currently must go through before getting a license to fly.

The Wall Street Journal reported in November on the FAA’s planned limits on commercial drone flights. The Journal, citing people familiar with the draft rules at the time, reported that the FAA wanted to require commercial drone operators to have experience flying a manned aircraft. That requirement was considered but isn’t contained in the proposed rules. In a separate economic analysis, the FAA said it concluded the requirement “would be unduly burdensome.”

Some of the proposal’s provisions are likely to prompt debate. Without firm data about accident rates for such unmanned aircraft, the FAA’s economic analysis assumes that they will have the same accident rate as general aviation aircraft. And the proposal explicitly notes that agency officials have the right to pursue hobbyists and other recreational users if they are found to operate devices in a reckless manner.

Even though the FAA proposal had been discussed among industry officials for years and considered by the agency, in some form, for nearly a decade, in the end it included some surprises. FAA officials, for example, anticipate they will handle a total of roughly 10,000 applications to fly small commercial drones in the first three years after the rules take effect, a significantly smaller number than many industry and even earlier government projections. And the FAA estimates the rate of applications will decline after that. Some industry officials have projected much more robust interest in small-drone applications.

The economic benefits of widespread use of small unmanned vehicles, according to the FAA’s separate economic analysis, also are likely to be smaller than earlier industry projections. The analysis pegs such benefits “in excess of $100 million annually,” versus potentially billions of dollars.

In another unusual departure from the FAA’s traditional cost-benefit analysis, the proposed rule weighs the costs of using unmanned systems to prevent accidents that don’t involve any type of aircraft.

The analysis indicates that small commercial drones are likely to replace some manned aircraft for uses including aerial photography, agriculture and bridge inspections, thereby reducing potential accident risks for both pilots and people on the ground.

But unmanned aircraft also may be used to replace workers climbing on cellular towers, according to the FAA. If such alternate tower operations avoid a single fatality, the economic analysis notes, “that alone would result in benefits outweighing the expected costs” of the entire regulatory package released Sunday.

Safety concerns about collisions with manned aircraft also remain. The rules spell out for the first time that a drone operator “must always be the one to initiate an avoidance maneuver” in the event of an impending collision with a manned aircraft. And in extreme situations, according to the agency, the operator of the unmanned vehicle “must always consider the safety of people, first and foremost,” even “if it means the loss of the unmanned aircraft.”

The FAA has said it has received dozens of reports of incidents in which drones flew too close to airports or manned aircraft. Mr. Huerta said Sunday that the proposed rules would help educate users to stay away from airports and below 500 feet. “Anyone flying in a careless or reckless way that’s endangering the public or airspace, we’ll take appropriate action,” he said.

Still, the proposed rules had some critics. Ian Smith, a helicopter pilot, said the rules would allow drones that are too big and allow them to fly too high. “Five hundred feet is 100 feet too high. Helicopters regularly operate” between 400 feet and 700 feet,” he said. “Manned aircraft cannot sustain a hit from a 55-pound” drone.

Perry dumped his entire 5.575 million-share stake during the fourth quarter, according to a filing Friday.

Herbalife dragged down Perry’s returns last year. As the stock fell more than 50 percent in 2014, his flagship fund lost 3.37 percent.

Last quarter, Perry replaced Soros as the fifth-largest shareholder when Soros began shedding his huge stake.

Soros sold out entirely after Paul Sohn, the portfolio manager who took the fund into Herbalife, left in November.

Shire has ‘nothing to hide’ on tax, says chief

Shire’s chief executive has defended the company’s tax arrangements after being identified as one of the beneficiaries of alleged “industrial scale” avoidance orchestrated by PwC, the accountancy group.

Flemming Ornskov said Shire had “nothing to hide” and was “trying to do the right thing” by running the pharmaceuticals company as efficiently as possible to maximise returns for shareholders and increase investment in new medicines.

Shire has been a focus of inquiries by the UK Public Accounts Committee into the use of intra-company loans by PwC clients to shift profits to Luxembourg, where the company paid tax at 0.0156 per cent. Margaret Hodge, chair of the committee, in December labelled Shire’s behaviour “outrageous”.

But Mr Ornskov told the Financial Times in an interview that “four, five hundred companies” were using similar structures in Luxembourg and that they were “fully legal”.

The nature of global pharmaceuticals companies meant their taxes would always be complex, he added, because manufacturing, sales and intellectual property were spread across the world.

“We’re trying to do the right thing for our stakeholders, because in the end, the more we can invest in research and development, the more we can serve the patients because none of the R&D today is easy or inexpensive.”

Shire spent $1.1bn, or 18 per cent of sales, on R&D last year. The company revealed last week that it paid $56.1m in taxes worldwide in 2014 on profits of $3.34bn — representing an average rate of less than 2 per cent.

The figure was unusually low because of one-off benefits — including receipt of a $1.6bn break fee from AbbVie of the US after the collapse of its planned takeover of Shire last year. Shire has been advised that the fee is not taxable, although this has yet to be agreed with tax authorities in Ireland, where the company is based.

Excluding one-off factors, Shire’s tax rate would have been 17 per cent — still significantly lower than those of rivals based in the US, where it sells most of its drugs.

Shire is one of several drugmakers to have shifted its tax domicile to Dublin to benefit from Ireland’s low corporate tax rate. It has been singled out for scrutiny by Ms Hodge’s committee in part because the company was previously based in the UK and remains listed in London.

Mr Ornskov said the UK had become more competitive by lowering its tax rate and creating incentives for investment in R&D since Shire left. But the company had no current plans to move back to the country where it was founded in 1986.

Shire’s priority, he said, was accelerating its transformation from a speciality pharmaceuticals manufacturer — concentrated in treatments for attention deficit hyperactivity disorder — into a more innovative biotech-style drug developer.

The company last month agreed to buy NPS, a US rare disease specialist, for $5.2bn — its biggest acquisition so far. Mr Ornskov said further deals were possible but no longer essential to help reach his target to double annual revenues to $10bn by 2020.

BP looks tempting morsel for ExxonMobil chief

BP is a shadow of its pre-Gulf of Mexico spill self, having sold more than half its pipelines, 35% of wells and 12% of reservesBP is a shadow of its pre-Gulf of Mexico spill self, having sold more than half its pipelines, 35% of wells and 12% of reserves©EPAAs head of the world’s biggest energy company, ExxonMobil chief Rex Tillerson has the clout to snap up BP in a single biteAs head of the world’s biggest energy company, ExxonMobil chief Rex Tillerson has the clout to snap up BP in a single bite©ReutersExxonMobil’s US background would potentially help it keep a lid on the $43.5bn Deepwater Horizon legal bill if it took over BP©APBP’s stake in Rosneft, led by Igor Sechin, would give ExxonMobil exposure to Russia if it mounted a takeover of the UK group©ReutersBP chief executive Bob Dudley this month cut planned capital spending for 2015 by 20% — far more than many of his rivals©Reuters

Next ThumbnailsIf ExxonMobil chief executive Rex Tillerson really wanted to, he could snap up BP in a single bite. Of all the UK major’s rivals, Exxon, the world’s biggest energy company, has the firepower to swallow BP whole. Could it happen?

Some industry insiders think yes. Almost five years after the Deepwater Horizon disaster in the Gulf of Mexico, BP’s share price is languishing 30 per cent below where it was before the oil spill. BP’s total shareholder return has sharply underperformed those of its peers over the past decade.

The near-50 per cent tumble in oil prices since the summer — to $60 a barrel — makes BP vulnerable. Size is not everything, but it matters. The risk is that the latest round of cost cuts and asset disposals executed by BP chief executive Bob Dudley will shrink the company to the point where membership of the “big five” — an elite bracket of oil majors with the resources to develop the world’s biggest projects, is in doubt. That may make it a takeover target for Exxon.

“If you put BP and Exxon together, BP would bring a big inventory of deepwater development and exploration opportunities. That might be enough for Exxon to do a deal,” says one institutional investor.

Exxon, moreover, has said it is “alert” to bolt-on acquisitions. It could be a first mover.

BP would not be a mere bolt-on deal, but there is a logic to its acquisition by Exxon. Unlike its US rival, BP is stronger in America than elsewhere. It has enjoyed deepwater exploration success in the Gulf of Mexico. Add in attractive assets in Brazil and Angola and the two start to look a good fit. BP’s stake in Rosneft would hand Exxon Russian output just as its Arctic project with Rosneft has been frozen because of western sanctions. Moreover, the US company has a record for adding production through takeovers.

There could be other benefits. Exxon might navigate the US legal system more adroitly, keeping a lid on the legal bill stemming from Deepwater Horizon, which currently stands at $43.5bn. A takeover could lead to savings: Exxon absorbed Mobil efficiently in 1999. The same rationale — reduced fixed costs — would apply to a BP merger with Royal Dutch Shell, also cited as a possible buyer.

BP is much smaller than it was before the Gulf of Mexico incident, having sold more than half its pipelines, 35 per cent of its wells and 12 per cent of reserves.

That downsizing was necessary to meet the cost of the Deepwater Horizon clean up, as well as pay compensation to those affected and regulatory fines. And it is not alone in pursuing “value over volume” — an industry mantra for tackling soaring cost inflation that eroded profit margins at $100 a barrel for oil.

But the pace of contraction has been fast at BP, raising doubts over whether it would have the scale to compete for the big fields it needs to replace reserves.

Mr Dudley has not shied away from this challenge — but against a backdrop of falling oil prices, his immediate goal is to ensure that BP can sustain steady dividend payouts.

After announcing a slide in profits last year, this month he cut BP’s planned capital spending for 2015 by 20 per cent — a much steeper reduction than many rivals made.

Neill Morton, analyst at Investec, says BP is “hunkering down” for an extended period of lower oil prices. Assuming industry costs also decline, BP should in time cover its capital spending and dividends with cash flows.

That may demand a leap of faith, but Mr Dudley can point to the delivery of $32.8bn in operating cash flow in 2014, exceeding a target set three years ago. “Shareholders are going to have to rely on the promise of jam tomorrow. It helps that BP have got credentials,” says one investor.

As for size, Mr Dudley points to 50 projects in the pipeline. BP, he says, needs to produce about 2.1m barrels of oil equivalent a day to stay in the big five club. Excluding Russia, output has slipped towards that mark and is nearly 30 per cent lower than in 2009, but it should rise this year.

The overall message from BP’s head office is returns will improve, and that much of the share price underperformance has been because of uncertainty over the final Deepwater Horizon bill. There is no appetite on the board for BP to be bought.

$43.5bn

Legal bill so far stemming from Deepwater Horizon spill

Mega-deals do happen, but they are rare, complex and risky. The promised cost savings can prove elusive. A merger with Shell, for example, proposed by Lord Browne when he ran BP, could fall foul of a competition probe.

But the bigger barrier to a deal is the uncertainty over the final size of BP’s Deepwater Horizon liabilities because US legal proceedings have yet to reach a conclusion.

BP will be toxic to any would-be buyer, analysts say. It is hard to see, too, how Exxon’s management could do a better job of reshaping the company. Take away those uncapped liabilities and the sanctions cloud hanging over Russia, and BP is not in bad shape. There is little evidence of an “underlying” fall in output: the decline is largely because of asset sales.

For Exxon, there is the extra risk of a political backlash in the UK were it seen to be taking advantage of the legal battle in America to swoop. Exxon declined to comment, but does not seem to be thinking of a BP-size deal. Settle Deepwater Horizon and that could change. Right now, however, bolting on cheaper barrels could make more sense.

Rosneft stake could be problem for suitor

To mount a good defence, you need a poison pill. And BP’s stake in Rosneft, while not as toxic as its Deepwater Horizon legal bill, could keep predators at bay, writes Christopher Adams.

Relations between the west and Russia have been pushed to breaking point over the Ukraine crisis, so doing business with Moscow carries great risks.

BP’s 19.75 per cent equity stake in Rosneft has not been affected by western sanctions imposed on Russia. But for ExxonMobil, were it to attempt a takeover of BP, the UK major’s connection to the Russian state-controlled oil company could be a problem.

Sanctions bar US and European companies from supplying the technology and money needed by Russian companies to explore remote areas such as the Arctic, seen by many industry insiders as the next big unexplored oil frontier.

Washington, having restricted long-term dollar financing to Rosneft and forced it and Exxon to put their joint drilling campaign in the Kara Sea on hold, is unlikely to want a deal that hands the US company hundreds of millions of dollars a year in Russian oil earnings and dividend income.

Rosneft accounts for about one-third of BP’s oil production, at just over 1m barrels of oil equivalent a day. BP’s profit from Rosneft was $470m in the fourth quarter of last year, down sharply from the same period in 2013. BP expects to receive a dividend in July from Rosneft of about half the $693m it secured in 2014.

Discoveries of new oil and gas reserves dropped to their lowest level in at least two decades last year, pointing to tighter world supplies as energy demand increases in the future.

Preliminary figures suggest the volume of oil and gas found last year, excluding shale and other reserves onshore in North America, was the lowest since at least 1995, according to previously unpublished data from IHS, the research company.

Depending on later revisions, 2014 may turn out to have been the worst year for finding oil and gas since 1952.

The slowdown in discoveries has been particularly pronounced for oil, suggesting that production from shales in the US and elsewhere, and from Opec, will play an increasingly important role in meeting growing global demand in the next decade.

New finds of oil and gas are likely to have been about 16bn barrels of oil equivalent in 2014, IHS estimates, making it the fourth consecutive year of falling volumes. That is the longest sustained decline since 1950.

Because new oilfields generally take many years to develop, recent discoveries make no immediate difference to the crude market, but give an indication of supply potential in the 2020s.

Peter Jackson of IHS said: “The number of discoveries and the size of the discoveries has been declining at quite an alarming rate . . . you look at supply in 2020-25, it might make the outlook more challenging.”

So far there has not been a single new “giant” field — one with reserves of more than 500m barrels of oil equivalent — reported to have been found last year, although subsequent revisions may change that.

The figures for declining discoveries are particularly striking because exploration activity in 2014 showed little impact from the sharp fall in oil prices in the second half of the year. The last time oil and gas discoveries were around 2014’s level was in the mid-1990s, when exploration activity was hit by a period of weak prices.

Last year, the number of exploration and appraisal wells drilled worldwide was only 1 per cent lower than in 2013. This year, exploration budgets are being cut back across the industry and the number of wells drilled is likely to fall further.

New discoveries are not the only sources of future oil supply. Companies can also add to their production potential with extensions of existing fields, and there are large known reserves — both “unconventional”, including shale in North America and heavy oil in Canada and Venezuela, and “conventional” in countries including Saudi Arabia, Iran, Iraq and the United Arab Emirates.

The weakness of new discoveries increases the need for production from those sources to rise if, as expected, global demand for oil continues to increase.

The shale boom has transformed the outlook for oil in the US, and played a critical role in creating the oversupply that led to the collapse in prices, but it is still relatively small on a global scale, Mr Jackson said, accounting for about 5 per cent of world oil production.

There are also very large shale oil reserves in countries including Russia, China, Argentina and Libya, but the industries there are still in their infancy.

Shale is also a relatively high cost source of oil compared with reserves in the Middle East, and requires higher crude prices to be commercially viable.

Mr Jackson said that with crude prices around their present levels, it would be “very difficult” to start up new shale production projects.

Interview Comes Ahead of Meeting of Eurozone Finance Ministers in Brussels

A Greek national flag flutters atop the Athens Acropolis, ahead of key talks between eurozone finance ministers on financing for the country in Brussels on Monday.

BERLIN—A Greek exit from the eurozone would be the worst of all options for everybody involved, the head of the European bailout fund said in a televised interview aired Sunday, signaling willingness to compromise over some conditions that have been linked to the country’s existing bailouts.

The comments come a day before a crucial meeting of eurozone finance ministers in Brussels, where officials will aim to lay the foundation of a financing deal for struggling Greece, whose existing bailout expires at the end of February.

An exit from the eurozone would be “the most expensive solution both for Greece and for the euro area,” said Klaus Regling, the head of the European Stability Mechanism, in a transcript of an interview with German broadcaster Phoenix. “That’s why we try to prevent precisely this.”

Greece’s new leftist government wants to end the austerity course and reduce the country’s debt burden, and is refusing to complete the existing bailout program. Instead of extending its current program, Athens wants a bridge arrangement to keep it afloat until September while it negotiates less onerous terms for long-term assistance.

“That a newly elected government has different priorities than the previous government is understandable and nothing new,” said Mr. Regling. “We have for instance seen this too when the government in Ireland changed in the middle of the [bailout] program. It was also possible there to change individual measures but the main direction was kept in place.”

He stressed that countries must embrace reforms to help generate more economic growth in the medium term.

“The European Central Bank’s monetary measures can of course be supportive and have an effect,” he said. “With its recent decisions, the ECB has done the maximum to buy time. Now it’s up to the governments.”

The ECB recently announced a program to purchase €60 billion ($68.35 billion) a month in assets including government bonds. The move, known as quantitative easing, is aimed at lifting the inflation rate, which has recently been far below the central bank’s medium-term target of just below 2%.

- Says: "The contract hasn't been ratified yet, and we have asked it be frozen in order to review its content." 

- Military spokesperson Stelmach: "As of the morning of February 15, there have been ten shelling attacks on our positions by rebels - mainly in the area of Debaltseve."