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NewBase 27 May 2015 - Issue No. 613 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Bahrain to cut fuel, utility subsidies for expats Reuters + NewBase
Bahrain is set to reduce subsidies for its expat population of 1.3 million as the slump in the oil price hits the country’s finances.
Subsidies on fuel, electricity, water and meat will be phased out, with cash payments introduced to reduce the burden on Bahraini citizens, said Isa bin Abdulrahman Al Hammadi, minister of state for information affairs, according to the state-owned Bahrain News Agency.
“The majority of beneficiaries from subsidy of consumer goods and services are foreign nationals resident in the kingdom and companies but not individual Bahraini citizens,” Mr Al Hammadi said. did not say when or by how much subsidies would be cut. It was not immediately clear how the new system would operate.
“Bahrain and Oman stand out as the Gulf states that most need to tackle their fiscal
positions,” said William Jackson, senior emerging markets economist at Capital Economics. “They are the most dependent on high oil prices, they have the worst fiscal positions in the Gulf and they don’t have the fiscal buffers needed to weather the low oil price.”
The near-halving of the oil price from more than US$110 in September 2014 to $65 yesterday has led to budget deficits across the region as government hydrocarbon revenues fall.
Bahrain’s government expects its budget deficit to climb to $3.9 billion this year, equivalent to 11.2 per cent of the country’s GDP.
The government expects to run a deficit of 12.4 per cent of GDP in 2016.
Some $2bn of spending on energy subsidies is included in the government’s estimates. Bahrain needs the oil price to return to $82 per barrel to break even, according to data from Deutsche Bank.
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Oman is set to run a budget deficit equivalent to 8 per cent of GDP this year, as it draws on its reserves to finance its deficit. The country has an estimated fiscal break-even point – the oil price at which government expenditure equals government revenues – of $90 per barrel.
Both Bahrain and Oman have less than two years’ worth of cash reserves left at current levels of spending, according to Deutsche Bank estimates.
The IMF has repeatedly called on Gulf states to cut spending on energy subsidies, and estimates that Middle East governments spend $250bn on reducing fuel prices for consumers. But the IMF says that fuel subsidies mainly benefit the better off, and are unaffordable when Gulf states are running significant deficits.
Masood Ahmed, the director of the Middle East at the IMF, said last month that the fall in oil prices had led to “a shift in the sense of urgency” with which Gulf states need to begin cutting fuel subsidies.
“Even before the fall in oil prices, a number of Gulf countries were spending more than would be the optimal level, in terms of leaving enough resources for future generations,” he said.
The region’s governments have introduced measures to curtail spending on energy subsidies, but they are likely to remain major budget line items for some time to come, analysts said.
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UAE: Total steers a new course in hunt for oil The Nastional + NewBase
The head of exploration at the French oil major Total says the days of hunting for huge hydrocarbon deposits have not ended for the company, despite the fall in crude prices, but he admits its approach has had to change.
“Big exploration days are not over, but we needed to readjust our targets and we’re doing this review as we speak,” said Arnaud Breulliac, Total’s president of exploration and production.
Total in January became the first oil company selected for a 40-year onshore concession in Abu Dhabi with Abu Dhabi National Oil Company (Adnoc), via its onshore entity called the Abu Dhabi Company for Onshore Petroleum Operations (Adco) in which Total is a 10 per cent shareholder, followed by Japan’s Inpex and, this month, GS Energy of Korea. Total’s stake in the previous concession was 9.5 per cent.
Mr Breulliac said he welcomes the arrival of Asian players in the emirate’s oil and gas sector as Adco weighs other companies’ offers for remaining concessions.
“We think it’s normal for Japan’s Inpex to join Adco because of supply demand,” he said. “We see the Koreans have joined and I am sure their contributions are very valuable, trustful and reliable. We know that there are discussions [with the Chinese].
“Adnoc has said that they’re in no hurry to award the rest, and I’m sure they will choose the next partners very wisely,” Mr Breulliac added. The 40-year, US$676 million GS Energy deal is the latest move by an import-dependent Asian country to secure energy supplies.
According to GS Energy, the stake will be South Korea’s single biggest oil asset, providing about 800 million barrels over the contract period from the oilfields, which produce 1.6 million barrels per day (bpd) and have a target of 1.8 million bpd from 2017.
“The fact that we were chosen as the first partner, for us it’s a very good achievement,” Mr Breulliac said. “This is
a country where we have just entered as a historic partner – which has been respected – and we’re opening a new page of 40 years.”
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$5.6 bn Oman-India energy pipeline plans progressing . Old dreams never die
Conrad Prabhu ( Oman Observer ) + NewBase
Initial development of a deep-water pipeline carrying natural gas and potentially even crude oil and other petroleum products from Oman to India could begin as early as before the end of this year, according to the lead promoter of the multi-billion dollar venture.
Dr Ajay Kumar, Chairman & Managing Director of India-based Fox Petroleum Group, which is spearheading the proposed scheme, said all of the critical elements encompassing the planning, technology, engineering design, pipeline supply, execution, and financing aspects of the ambitious development have been worked out in anticipation of an early commencement of the implementation phase. “We at Fox Petroleum have been working on the Oman-India Deep-water Multipurpose Pipeline Project (OIDMPP) since 2009. Our goal now is to obtain the necessary approvals from the
governments of Oman and India before we can get started with the construction of this venture. The estimated investment of $5.6 billion for this dream project will be provided entirely by Fox Petroleum and its partners,” Dr Kumar stated.
The oil executive, who oversees an estimated $10 billion multinational enterprise with interests spanning oil and gas, power generation, construction and infrastructure, is currently in Oman for talks with officials at the Ministry of Oil and Gas, among other government entities in connection with the proposed project. He is also due to make a presentation on the landmark venture at the Arabian Sea Region Oil & Gas 2015 Summit, which opened at the InterContinental Muscat yesterday. Plans outlined by Fox Petroleum envisage a deep-water, transnational, natural gas pipeline system that will be suitably designed to also transport crude, LPG and other petroleum commodities. “We can transport other refined petroleum products using the same pipeline as per a schedule of bookings during the course of the year,” Dr Kumar explained. Running approximately 1,600 kilometres along the seabed of the Arabian Sea, the OIDMPP project will be capable of transporting around 8 trillion cubic feet (TCF) of natural gas to India over a period of 20 years. At the Oman end, the pipeline is expected to make landfall at Ras al Jifan, just south of Duqm,
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and will connect with the Middle East Compression Station proposed at Qalhat Mount off the Omani coast. Plunging to a maximum depth of 3,400 metres, it will connect on the Indian side with terminal facilities existing on the Gujarat coast. In Phase II, the pipeline system is proposed to be extended to Mumbai.
Importantly, the project is intended to meet a significant part of India’s long-term energy security, says Dr Kumar. “Considering the fact that known sources of natural gas in India to date are just 1.33 trillion cubic metres, India will need to source a major portion of natural gas supply from outside to meet rising demand. The Indian government will need to make planned efforts to find a lasting solution to the problem.
The sooner the government takes a serious view of the proposal, the better it will be in the interest of the country to ensure its energy security.” Underscoring the project’s financial viability is the landed cost of energy, which will be lesser by $1.5 to $2 per million BTU as compared to LNG imports, he noted.
“The cost of transporting crude oil or petroleum products by pipeline is a fraction of the cost of other modes of transportation. The cost to ship crude oil by rail is generally $10 to $15 per barrel versus under $5 per barrel by pipeline. Furthermore, this pipeline could be linked to other natural gas sources in the Middle East and even to Turkmenistan and Iran if need be.” Fox Petroleum Group envisions a roughly five-year timeframe for the execution of the pipeline project.
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Iraq About to Flood Oil Market in New Front of OPEC Price War Bloomberg Iraq is taking OPEC's strategy to defend its share of the global oil market to a new level. The nation plans to boost crude exports by about 26 percent to a record 3.75 million barrels a day next month, according to shipping programs, signaling an escalation of OPEC strategy to undercut U.S. shale drillers in the current market rout.
The additional Iraqi oil is equal to about 800,000 barrels a day, or more than comes from OPEC member Qatar. The rest of the Organization of Petroleum Exporting Countries is expected to rubber stamp its policy to maintain output levels at a meeting on June 5.
While shipping schedules aren't a promise of future production, they are indicative of what may come. The following chart graphs planned tanker loadings (in red) against exports.
As in previous months, Iraq might not hit its June target - export capacity is currently capped at 3.1 million barrels a day, Deputy Oil Minister Fayyad al-Nimaa said on May 18. Still, any extra Iraqi supplies inevitably mean OPEC strays even further above its collective output target of 30 million barrels a day, Morgan Stanley says. The following chart shows OPEC increasing output in recent months against its current target.
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Defying the threat from Islamic State militants, Iraq has been ramping up exports from both the Shiite south - where companies like BP Plc and Royal Dutch Shell Plc operate - and the Kurdish region in the north, which last year reached a temporary compromise with the federal government on its right to sell crude independently.
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Saudi Arabia: McDermott seals EPCI deal with Aramco for 12 jackets
McDermott International, Inc. has been awarded a large brownfield contract by Saudi Aramco for the engineering, procurement, construction and installation (EPCI) of twelve jackets for offshore oil and gas fields in Saudi Arabian waters.
According to McDermott, the work is scheduled for completion by the end of the first quarter of 2016 and will be included in McDermott’s second quarter 2015 backlog.
The company said that this award from Saudi Aramco represents work scope bid under an existing Long-Term Agreement. In March 2015, the client awarded McDermott a brownfield contract for a power supply system replacement.
Tom Mackie, McDermott’s Vice President, Middle
East, said: “The project called for an extremely responsive bid phase and for fast-track execution. Our ability to provide schedule certainty — through the provision of integrated EPCI services combined with the right technical solution to meet the challenging time constraints — was key to winning the project.”
According to the press release, engineering and procurement is expected to be performed by McDermott’s teams in Dubai, U.A.E., and Al Khobar, Saudi Arabia. The jackets are scheduled for fabrication by McDermott’s Dubai, U.A.E.-based fabrication facility and vessels from the McDermott global fleet are scheduled to undertake the installation work.
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Golar Eskimo FSRU arrives in Jordan LNG World + NewBase
Jordan is about to join the club of LNG importing nations as the FSRU Golar Eskimo, loaded with a cargo from Qatar, docked on Monday at the port of Aqaba.
This marks a turning point in Jordan’s energy imports providing relief for the nation’s power producers.
The FSRU, to be used as an LNG import terminal, will be moored at a purpose built structure constructed by the Aqaba Development Corporation off the Red Sea port of Aqaba.
Capable of storing 160,000 cubic metres of LNG and delivering up to 500 MMSCFD with a peaking capacity of 750 MMSCFD, the FSRU will connect to the Jordan gas transmission pipeline that delivers the fuel to power plants throughout the country.
The FSRU, built by Samsung Heavy Industries, visited Keppel shipyard in Singapore during February to conclude modifications to the vessel in advance of her going into service in Jordan.
Jordan so far signed only one agreement to import the chilled gas via the Aqaba LNG terminal. The deal was signed with Shell for the delivery of 4.2 million cubic metres of gas per day for a period of five years.
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Egypt has extended its tender for natural gas exploration in the Mediterranean Sea by two months
with the addition of four new blocks, the state gas board said on Tuesday, as the country seeks to
boost domestic energy production.
The bidding period now runs to July 30 and will include 12 offshore concessions instead of eight, the Egyptian Natural Gas Holding Company ( EGAS ) said in a statement. Egypt is going through its worst energy crisis in decades, with increasing consumption and declining production turning the country from a net energy exporter to a net importer over the past few years. The north African country has tried to tackle energy shortages by raising energy prices, building
new power plants, importing liquefied natural gas (LNG) and encouraging more domestic oil and
gas production.
EGAS did not give any reason for the tender extension, but Egypt similar moves have been made in the past when there was not enough interest or when potential bidders requested more time to complete evaluations. The four additional blocks are Northeast Habi Marine, North Farma Marine, North Tabiya Marine
and Northeast Amiriya Marine, EGAS said.
The original eight blocks are West Arish Marine, East Port Said Marine, North Rumana Marine, North Ras al-Ash Marine, West al-Timsah Marine, South Taneen Marine, North Hammad Marine and East Alexandria Marine.
The twelve blocks together cover a total of 20,548 square kilometres (7,934 square miles). The foreign companies already exploring for oil and gas off Egypt's north coast include Italy's ENI and Britain's BP and BG .
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Norway overtakes Russia as western Europe's top gas supplier Source: Reuters + NewBase
Norway has overtaken Russia as western Europe's top gas supplier, data from state firms shows, indicating the European Union's drive to reduce its dependence on Russian energy is bearing fruit. The sharp drop in oil prices has been another factor, as Norway offers more flexible pricing and big buyers held off buying from Russia in the hope the fall in crude price levels would eventually filter through to Russian gas.
Norway exported 29.2 billion cubic metres (bcm) to western Europe in the first quarter of this year, figures from Norwegian state operator Gassco show, while Russia sold 20.29 bcm, according to data from Gazprom's regulatory filing and Gazprom officials. The data showed the trend began in the final quarter of 2014 when western Europe bought 29.5 billion bcm from Norway and 19.8 bcm from Russia, according to Gassco and Gazprom respectively.
Exports to EU members in eastern Europe are not included in the data. It was the first time
Norwegian exports have
convincingly overtaken
Russia's since a brief period in 2012.
The European Union has been striving to reduce
its dependence on Russian imports and buy more from Norway and other gas producers, mindful of Russia's dispute with Ukraine, the biggest transit route for Russian exports to the EU.
Some EU firms have held off from buying Russian gas this year in the hope oil-indexed prices will drop later in the year, while Norwegian capacity has been boosted by the end of an outage at Troll, which produces around 30 percent of the Scandinavian country's gas.
Troll returned to full capacity of 120 million cubic metres per day in March last year, but volumes were deliberately kept low over the summer months in line with reduced demand. The European Commission, the EU executive, said that for 2014 as a whole, Russia was still the main EU supplier, but its total share of imports dipped to 42 percent from 43 percent and in volume terms fell by more than 10 percent. Norway's share of EU imports increased from 34 percent to 38 percent in 2014.
Norway Production figures April 2015 Preliminary production figures for April 2015 show an average daily production of about 1 963 000 barrels of oil, NGL and condensate. This is 9 000 barrels per day (about 0.4 percent) more than in March 2015. Total gas sales were about 7.9 billion Sm3, which is 2.9 GSm3less than previous month.
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Oil production 2015
The average daily liquid production in April was: 1 584 000 barrels of oil, 330 000 barrels of NGL and 49 000 barrels of condensate. The oil production is 0.3 percent above the oil production in April last year. The low gas sale in April is due to maintenance work at Kollsnes plant. The oil production is about 5.6 percent above the NPD’s prognosis for the month. All graphs in this press release are now based upon daily figures. Liquid production 2015
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US: Solar Fastest Growing Power Source, Rivals Shale Boom Bloomberg + NewBase
Solar power capacity in the U.S. has jumped 20-fold since 2008 as companies including Apple Inc. use it to reduce their carbon footprint. Rooftop panels are sprouting on homes from suburban New York to Phoenix, driven by suppliers such as SolarCity Corp. and NRG Energy Inc.
Giant farms of photovoltaic panels, including Warren Buffett’s Topaz array in California, are changing power flows in the electrical grid, challenging hydro and conventional generators and creating negative prices on sunny days. The surge comes after shale drilling opened new supplies of natural gas, contributing to the 47 percent drop in oil since June.
“Solar is the new shale,” Michael Blaha, principal analyst of North American power at Wood Mackenzie Ltd. in Houston, said April 8. “Shale has lowered cost and enabled lower natural gas prices. Solar will lower costs for electricity.”
Solar capacity surged 30 percent in 2014 to more than 20 gigawatts and will more than double by the end of 2016, according to the Washington-based Solar Energy Industries Association. That’s enough to power 7.6 million U.S. homes, up from 360,000 in 2009. The biggest gains will be in California, Arizona, Texas, Georgia, New York and New Jersey.
Rate Review
Even with the rapid growth, solar still accounts for less than 1 percent of total U.S. power production, behind coal, natural gas, oil, nuclear and hydroelectric, according to the government’s Energy Information Administration. Because output suffers on cloudy or hazy days, grid operators have to keep conventional plants on standby.
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New York State’s Public Service Commission is overhauling its rate system to keep transmission owners profitable as more consumers produce their own power. Solar production has more than tripled in New York City and Westchester County, a northern suburb, in about two years, according to Consolidated Edison Inc., which owns the city’s utility.
Ripples in the power market can already be seen from installations including Topaz, the world’s largest solar farm, the newest member of the Route 58 energy highway that extends dozens of miles inland to the Bakersfield oil and natural gas fields.
Antelope Lanes
The 550-megawatt array, with grass lanes to let the pronghorn antelope roam, houses 8.4 million glass covered thin-film photovoltaic panels on California’s Carissa Plains. Billionaire Buffett’s first push into solar, through his Berkshire Hathaway Inc., energy unit, will be followed by the even larger 579-megawatt Solar Star Projects about an hour’s drive away.
Topaz gets the most sunlight from about 11 a.m. to 3 p.m. almost every day, reducing the need for supply from gas-fired plants, or from hydroelectric dams hobbled by California’s four-year drought. Even though some solar farms operate only about a quarter of the year, they can turn wholesale prices negative during the sunniest hours of the day, squeezing profits for conventional generators.
Negative Prices
On April 23, spot wholesale prices at Southern California’s SP15 hub, which includes Los Angeles and San Diego, averaged minus $60.94 a megawatt-hour for the 10 hours from 8 a.m., with solar accounting for as much as 23 percent of power generation in the hour ended at noon. The negative price meant that the seller, wanting to keep its generator running, paid the buyer to take the power.
“I was here before we broke ground and seeing it then and now amazes me at how quickly we were able to build the project and coexist with the environment and generate 550 megawatts of green power,” Gary Hood, project manager for Topaz, about 250 miles southeast of San Francisco, said as he showed a visitor around.
Berkshire is already producing power at Solar Star, which will be fully operational in the third quarter. Apple said in February it is investing $850 million in a plant that First Solar Inc. is building nearby.
“We will see renewables increasingly make up part of the resources stack just because it makes economic sense,” Jonathan Mir, head of North American power and energy at Lazard Freres & Co. LLC in New York, said by phone May 13.
“Appreciating that there are important qualitative differences between non-renewables and renewables, I don’t think people can simply say with a straight face anymore that renewables are more expensive,” he said.
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Oil Price Drop Special Coverage
Oil Price recovers from drop of over 2 percent, U.S. crude stocks in focus Reuters + NewBase
Crude futures rose on today Wednesday 27 May-2015 to recover ground from sharp drops in the previous session, boosted by expectations that U.S. crude stocks could fall for a fourth straight week.
Prices were also supported by comments from western diplomats that a nuclear deal with Iran was unlikely by a June 30 deadline and that the oil producer would not get sanctions relief before the end of the year in the best of cases.
July Brent crude LCOc1 had risen 14 cents to $63.86 a barrel by 0228 GMT, while U.S. crude was up 29 cents at $58.32 a barrel. Both contracts fell more than 2 percent on Tuesday after a stronger greenback curbed buying interest in dollar-denominated commodities such as oil.
U.S. commercial crude inventories likely decreased by 2 million barrels last week, a preliminary Reuters survey showed. Declining U.S. stockpiles of crude and oil products in past weeks indicate robust demand in the world's largest oil consumer, supporting prices.
Investors have also started taking profits on Brent as hedge funds and money managers cut their bets on rising prices for a second straight week. "Further unwinding of these positions would remove a key pillar of support to prices," analysts at BMI Research said in a note.
"This trajectory reinforces our view of downside still to be priced in the oil price in the second half of 2015," BMI said, adding that they expected Brent to average $59 a barrel this year.
Investors remained wary of ample supply as top OPEC producers Saudi Arabia and Iraq kept exports near record levels. The Organisation of Petroleum Exporting Countries is expected to keep production steady at its meeting on June 5.
"I am not so bullish on fundamentals," said a bank trader who declined to be named due to company policy. "Brent could possibly go down to $60 on profit-taking." The American Petroleum Institute will release its data on Wednesday at 4:30 p.m. ET, delayed by one day because of the U.S. Memorial Day holiday on Monday, while the Energy Information Administration will publish its data on Thursday at 11:00 a.m ET.
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OPEC Seen Backing Saudi Arabia’s Plan to Keep Supplies Elevated Bloomberg + NewBase
When Saudi Arabia argues next week that OPEC should keep up production to fight the rise in U.S. shale oil levels, prices will be on its side.
Crude plunged for eight of nine weeks prior to group’s November gathering, when the kingdom faced down opposition from the majority of fellow members, who advocated output reductions to tackle a global glut. With oil companies around the world cutting investment, U.S. output peaking and prices up, Saudi Arabia’s strategy will be extended at OPEC’s semiannual meeting on June 5, say Societe Generale SA and Bank of America Corp.
Oil prices have recovered more than 40 percent from a six-year low in January as
U.S. production eases from the highest in more than four decades. The rebound will help vindicate the approach taken by Saudi Arabia as it steers the Organization of Petroleum Exporting Countries to favor market share over prices in a bid to drive out high-cost producers.
“The Saudis probably feel their strategy is working and rightly so,” Francisco Blanch, Bank of America’s head of commodities research, said by phone from New York. “There’s a major decline in the U.S. rig count, and a huge reduction in capex spending. That’s a sign the strategy is working.”
Lingering Resistance
At OPEC’s Nov. 27 meeting, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar rebuffed objections from the other eight members -- in particular Iran, Venezuela and Algeria -- to their plan. While there may be resistance at the June 5 conference, all but one of the 34 analysts and traders surveyed by Bloomberg said OPEC will maintain its daily production target of 30 million barrels, ratifying the Saudi strategy.
“The fact that prices have recovered somewhat, and we appear to be past the bottom, that’s something the Saudis will be able to point to in their discussions,” Mike Wittner, head of oil market research at Societe Generale, said by phone from New York on May 19. “And the other thing they’ll be able to point to is that U.S. production has topped out.”
Brent futures tumbled 33 percent from last summer’s peak of $115.71 a barrel by the start of OPEC’s November meeting and extended the loss to $45.19 on Jan. 13. It traded at $63.89 at 11:32 a.m. Singapore time Wednesday. Bank of America forecasts the grade averaging $62 a barrel this year, while Goldman Sachs Group Inc. sees it slipping to $51 in six months.
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Opposition Quashed
U.S. shale oil -- extracted by blasting underground rock with liquids at high pressure in a process known as hydraulic fracturing -- poses a more serious threat to OPEC than previous forms of new supply because it can be restarted more quickly, according to Goldman Sachs. The number of wells that have been drilled but are waiting to be fracked -- known as the fracklog - - could help add an extra 500,000 barrels a day by the end of the year if prices remain at $65, according to Bloomberg Intelligence.
“Because of the fast-cycle nature of shale -- meaning it can be turned on very quickly and turned off very quickly -- it should be the marginal barrel,” said Jeff Currie, head of commodities research at Goldman Sachs in New York. “It neutralizes OPEC.”
While the members who opposed OPEC’s November decision criticized it again early this year, the most recent comments from ministers signal the group will hold steady.
Constant Path
It’s “unlikely” OPEC’s output ceiling will change, Iranian Oil Minister Bijan Namdar Zanganeh said on May 24, according to Mehr news agency. The organization will “stick with” its present strategy, Abdulmajeed Al-Shatti, a member of Kuwait’s Supreme Petroleum Council, said on May 12. Venezuelan President Nicolas Maduro, who in January urged the group to consider supply cuts, said on May 23 only that he is working with OPEC to raise prices.
Amid reduced oil revenues, Venezuela’s foreign currency reserves have plunged 26 percent in three months to less than $18 billion, the lowest level since 2003, according to central bank data as of May 13. Nigeria’s authorities have already borrowed more than half the amount budgeted for all of this year because of a “cash-flow crunch,” Finance Minister Ngozi Okonjo-Iweala said on May 5.
“It is true that a number of non-core OPEC countries like Venezuela, Iran, Nigeria and Algeria are suffering from a lower price environment, as are non-OPEC producers,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “But Saudi Arabia has led the strategy, and the others have followed.”
Deal Doubtful
Ali Al-Naimi, oil minister of Saudi Arabia, the group’s biggest and most influential member, has stressed that OPEC would only cut output if other producers shared the burden of balancing the market.
While Russian Energy Minister Alexander Novak will attend an event hosted by OPEC in Vienna two days before the ministerial gathering, a meeting between Russia, Mexico, Venezuela and Saudi just before OPEC’s November conference ended without agreement to cooperate on managing supplies. The refusal of non-OPEC nations to participate in production cuts is unlikely to change, according to Giovanni Staunovo, an analyst at UBS Group AG in Zurich.
The absence of a broader deal won’t concern OPEC’s richest Gulf-based members, as their current approach is showing early signs of success in taming rival supplies, according to Bank of America and Societe Generale.
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U.S. drillers have idled more than half of the country’s oil rigs since October, according to data from Baker Hughes Inc. Global investment in oil production might fall by $100 billion this year, according to the International Energy Agency, which has curbed forecasts for non-OPEC supply growth to 830,000 barrels a day this year, down from a projection of 1.3 million a day in November.
“Why on earth would the Saudis change course now their strategy is just starting to bear fruit?” said Societe Generale’s Wittner. “Will there be opposition within OPEC? Most definitely yes. Will it make a difference? Most definitely no.”
BP needs a defence strategy against takeover moves WASHINGTON POST + GULF NEWS + NEWBASE
London: As the oil industry takes stock of Royal Dutch Shell’s $70 billion (Dh257 billion) move for BG Group Plc, one company has more to chew on than most. BP Plc, Britain’s most storied oil producer and prime mover in previous rounds of consolidation, is now thinking what was once unthinkable: that it could be next in the crosshairs.
BP executives are concerned the company is vulnerable to an opportunistic bid, according to people familiar with the situation. In response, they’ve stepped up internal reviews of takeover scenarios and war-gamed defence strategies with advisers from firms including Morgan Stanley, said the people. Exxon Mobil and Chevron, the two largest US producers, are seen as the only realistic predators.
While some in the industry believe a move for the British company remains unlikely because of still-unknown legal liabilities from the 2010 Gulf of Mexico oil disaster, there’s at least one good reason for CEO Bob Dudley to be paranoid. Before ruling themselves out by going for BG, Shell took a hard look at buying BP, one of the people said.
“As a matter of good practice, all companies have possible defence arrangements in place,” BP spokesman David Nicholas said in an email. “BP has made no changes to our long-standing arrangements in response to recent moves in the market.”
“Exxon saw Shell do a deal and they would certainly be looking around, it’s the same for Chevron,” said Christopher Geier, partner in charge at Sikich Investment Banking in Chicago. “From a value perspective, it’s possible BP could be ripe for a takeover.”
That BP’s independence is even up for discussion shows the relative decline of a company that pioneered exports from the Middle East, helped start Alaska’s oil industry and led the exploration of the North Sea. In the 1990s, its acquisition of US giant Amoco Corp. forced the rest of the industry to react.
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As recently as 2010, BP had the same market capitalisation as Shell and produced more oil and gas. Today, even before the BG deal is completed, BP’s value at $131 billion is two-thirds of Shell’s. It’s even further behind Exxon, the world’s most valuable oil company at $368 billion.
There’s one clear reason, of course: the Gulf oil spill that left BP facing costs that may eventually exceed $40 billion, forcing it to shrink to survive. Since taking over in the months following the spill, Dudley’s sold about a third of the company’s assets and production has fallen from close to 4 million barrels a day in 2010 to a little more than 3 million.
Some have applauded the creation of a leaner, more profit-focused company but BP can no longer
claim to be in the first rank of global oil and gas producers. The slimmed-down BP still has plenty to attract potential acquirers, including strong deepwater prospects in Angola and the Gulf of Mexico, a refining business that’s outperformed peers, and an industry-leading trading outfit.
Dudley has few options to make the company harder to buy. The traditional route is a defensive acquisition, a course of action the company is considering, the people familiar with the matter said. However, any deal large enough to dissuade potential buyers would also represent a significant departure from Dudley’s avowed focus on keeping BP to a manageable size.
A fresh buy-back of shares has also been suggested by advisers, the people said. The company returned $8 billion to investors last year after selling its stake in a Russian business.
BP’s shares have risen more than 6 per cent since the Shell- BG deal was announced, outstripping the gains of European competitors including Total, Eni and Statoil.
“On the industry as a whole, if oil prices stay down, we’ll probably see more M&A,” he said after the company’s April 16 shareholder meeting in London. “If it stays lower for longer, the dynamics will change and companies will change their strategy.”
Ironically, factors that have contributed to BP’s difficulties could also keep it from being bought. The legal liabilities stemming from the Gulf spill are still open-ended as the company remains embroiled in US litigation.
A US judge is expected to rule on the size of federal fines BP must pay later this year, which could total $13 billion, and the company is being sued by several states. In any event, appeals are likely to keep the company’s lawyers busy for years.
Russia is another question mark. After a complex 2012 deal to sell its stake in Russian venture TNK-BP, BP owns 20 per cent of OAO Rosneft — the Kremlin-controlled oil producer that’s subject to US and European Union sanctions. While in the long run that brings a prime position in the world’s largest energy-producing country, there are plenty of near-term risks.
Despite those pitfalls, BP’s attraction for potential buyers isn’t hard to quantify. The London-based company has the lowest enterprise value relative to the volume of oil and gas production of any of
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the six largest US and European energy companies. Based on the current share price, its oil and gas reserves are valued at $7.49 a barrel, almost half Exxon’s.
Discussions of likely acquirers for BP tend to return to Exxon, the world’s largest private oil producer is on the hunt for acquisitions in order to compensate for difficulties expanding its own production. With almost no debt and more than $200 billion in shares repurchased over the past 16 years, Exxon has the financial power for almost any conceivable transaction.
“The issue may not be that BP is weak, but that Exxon is that much stronger,” said Scott Cockerham, a managing director in Houston at energy advisory firm Conway MacKenzie. “If Exxon thinks BP is a good fit, it can act on that assumption.”
Nonetheless, plenty of hurdles remain to an Exxon offer. The Texan company’s famously button-down engineers have long been privately disdainful of BP’s internal practices and safety record, making a cultural fit difficult.
An acquisition by Exxon could also make the combined company too big, attracting the attention of antitrust regulators around the world. And the British government might object to the sale of a formerly state-owned company — until the 1990s known as British Petroleum — to an American concern.
Whether Exxon makes a play or not, BP is adapting to a world where Shell’s deal has upended the industry’s expectations on mergers and acquisitions.
“All players are looking at opportunities,” Eldar Saetre, the CEO of Norway’s largest oil producer, Statoil ASA, said last week. “There could be more deals.”
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