Showing posts with label Essar. Show all posts
Showing posts with label Essar. Show all posts

Thursday, August 22, 2013

On Abu Dhabi’s ‘spot’ chaps, ADNOC & INR

It's good to spot a traditional dhow on millionaire's yacht row at the marina here in Abu Dhabi. Though a millionaire or some tour company probably owns the thing! Switching tack from spot photography to spot crude oil trading – the community here in the UAE is in bullish mood, as is the national oil company – ADNOC.

With the spot Brent price in three figures, and above the US$110-level last time this blogger checked, few here (including the administration), have anything to worry about. The Oilholic has always maintained that a $80 per barrel plus price keeps most in OPEC, excluding Venezuela and Iran and including the Saudis and UAE happy. Short-term trend is bullish and Egyptian troubles, Libyan protests plus the US Federal Reserve's chatter will probably keep Brent there with the regional (DME Oman) benchmark following in its wake, a mere few dollars behind.

Furthermore, of the three traders the Oilholic has spoken to since arriving in the UAE, American shale oil is not much of a worry in this part of the world. "Has it dented the (futures) price?? An American bonanza remains…well an American bonanza. The output will be diverted eastwards to importing jurisdictions; they have in any case been major importers of ADNOC’s crude. What we are seeing at the moment are seasonal lows with refiners in India and China typically buying less as summer demand for distillate falls," says one.

In fact, on Wednesday, Oil Movements – a tanker traffic monitor and research firm – said just that. It estimates that OPEC members, with the exception of Angola and Ecuador, will curtail exports by 320k barrels per day or 1.3% of daily output, in the four weeks from August 10 to September 7.

Meanwhile, ADNOC is investing [and partnering] heavily as usual. Recently, it invited several IOCs to bid for the renewal of a shared licence to operate some of the Emirate's largest onshore oilfields. The concession (on Bu Hasa, Bab, Asab, Sahil and Shah oilfields), in which ADNOC holds a 60% stake, is operated by Abu Dhabi Company for Onshore Oil Operations (or ADCO) subsidiary.

Existing partners for the remaining stake include BP, Shell, ExxonMobil, Total and Partex O&G. All partners, except Partex have been invited to apply again, according to a source. Additionally, ADNOC has also issued an invitation to seek new partners. Anecdotal evidence here suggests Chevron is definitely among the interested parties.

The existing 75-year old concessions expire in January 2014, so ADNOC will have to move quickly to decide on the new line-up of IOCs. For once, its hand was forced as the UAE's Supreme Petroleum Council rejected an application for a one-year extension of the existing arrangement. Doubtless, Chinese, Korean and Indian NOCs are also lurking around. A chat with an Indian contact confirmed the same.

Whichever way you look at it – its probably one of the few new opportunities, not just in the UAE but the wider Middle East as well. Abu Dhabi is among the few places in the region where international companies would still be allowed to hold an equity interest; mostly a no-no elsewhere in the region. But in the UAE's defence, ever since the first concession was signed by this oil exporting jurisdiction in 1939 – it has always been open to foreign direct investment, albeit with caveats attached. ADNOC is also midway through a five-year $40 billion investment plan aimed at boosting oil and gas production and expanding/upgrading its petrochemical and refining facilities.

Meanwhile, the slump of Indian Rupee (INR) is headline news in the UAE, given its ties to the subcontinent and a huge Indian expat community here in Abu Dhabi. The slump could stoke inflation, according to the Reserve Bank of India, which is already struggling to curtail it. The central bank has tried everything from capital controls to trying to stabilise the INR for a good few months by hiking short-term interest rates. Not much seems to have gone its way (so far).

Furthermore, the INR's troubles have exposed indebtedness of the country's leading natural resources firms (and others) – most notably – Reliance, Vedanta and Essar. Last week, research conducted by Credit Suisse Securities noted that debt levels of top ten Indian business houses in the current fiscal year have gone up by 15% on an annualised basis.

With the currency in near freefall, the report specifically said Reliance ADA Group's gross debt was the highest, with Vedanta in second place among top 10 Indian groups. Draw your own conclusions. On a personal level, Mukesh Ambani (Chairman of Reliance Industries Ltd, the man who holds right to the world largest refinery complex and India's richest tycoon), has lost close to $5.6 billion of his wealth as the INR's plunge has continued, according to various published sources.

Few corporate jets less for him then but a much bigger headache for India Inc, one supposes. If the worried lot fancy a pipe or two, then the "Smokers Centre" (pictured right) on the City's Hamdan Street is a quirky old place to pick up a few. More generally, should one fancy a puff of any description shape, size or type then Abu Dhabi is the city for you. What's more, the stuff is half the price compared to EU markets! For the sake of balance, this humble blogger is officially a non-smoker and has not been asked to flag this up by the tobacco lobby!

Just one more footnote to the INR business, Moody's says the credit quality of state-owned oil marketing and upstream oil companies in India will likely weaken for the rest of the fiscal year (April 2013 to March 2014), if the Indian government continues to ask them, as it did in April-June, to share a higher burden of the country's fuel subsidies.

To put this into context - the INR has depreciated by about 10% and the crude oil prices have increased by about 6% since the beginning of June, as of August 20. Moody's projections for the subsidy total assumes that there will be no material changes in either the INR exchange rate or the crude oil price for the rest of the fiscal year (both are already out of the window). That's all from Abu Dhabi for the moment folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2013. Photo 1: A dhow on the Abu Dhabi marina, UAE. Photo 2: Smokers Centre, Hamdan Street, Abu Dhabi, UAE © Gaurav Sharma, August, 2013.

Friday, July 13, 2012

Brent & the ‘crude’ fortnight to Friday the 13th!

Despite crude economic headwinds, the Brent forward month futures price spiked back well above US$100 per barrel on July 3. No one was convinced it’d stay there and so it proved to be barely a week later. Since then it has lurked around the US$100 mark. Our crude friends in the trading community always like to flag up supply shocks – some real some and some perceived along with some profit taking thrown in the mix.

The Norwegian oil industry strike which began on June 24 was a very real threat to supply. When oil industry workers down tools in a country which is the world’s fifth largest exporter of the crude stuff, then alarm bells ought to ring and so they did. Being a waterborne crude benchmark, Brent was always likely to be susceptible to one of its main production sources. The Louisiana Light’s fluctuation over the hurricane season stateside would be a fair analogy for the way Brent responded to the news of the strike.

Quite frankly, forget the benchmark; the strike saw Norwegian oil production dip by 13% and its gas output by 4% over the 16 days that it lasted. So when a Reuters report came in that Norway's government had used emergency powers to step in and force offshore oil and gas workers back to work, more than the bulls eased off.

The dispute, which is by no means over, concerns offshore workers' demand for the right to retire early, at 62, with a full pension. The row revolves around the elimination of a pension add-on introduced in 1998 for workers who retire (at 62), five years ahead of Norway's official retirement age and three years ahead of the general age for oil workers.

Accompanying a very real supply shock in the shape of the Norwegian strike were empty threats from Iran to close the Strait of Hormuz in wake of the EU sanctions squeeze. Traders put two and two together and perhaps came-up with 22 out of a sense of mischief.

First of all, the Iranians would be mighty silly if they decided to close the Strait of Hormuz with the US Fifth fleet lurking around. It just would not work and Iran would hurt itself more for the sake of what would at best be a temporary disruption. Secondly, City estimates, for instance the latest one being put out by Capital Economics, suggest that the US and EU sanctions could ultimately reduce oil exports from Iran by as much as 1.5 million barrels per day (bpd).

While it is serious stuff for Iran, the figure is less than 2% of global supply. As such hardly anyone in the City expects the implementation of sanctions on Iran to be a game-changer from a pricing standpoint.

“We maintain our view that the imminent tightening of Western sanctions on Iran is unlikely to have anywhere near as large an impact on global oil prices as many had feared. Demand is weakening and other suppliers are both able and willing to meet any shortfall. Admittedly, much could still depend on how the Iranian regime chooses to respond,” said Julian Jessop of Capital Economics.

Causative effect of such a market sentiment predictably sees Brent back in US$90s to lower US$100 range. In fact Capital Economics, Société Générale, Moody’s and many other forecasters have a US$70-100 per barrel forecast for Brent for the remainder of the year.

A spokesperson for Moody’s told the Oilholic that the agency has lowered its crude price assumptions to US$100/barrel for Brent and US$90/barrel for WTI in 2012, with an additional expected decline to US$95/barrel for Brent and US$85/barrel for WTI in 2013.

Moody's also expects that the spread between benchmark Brent and WTI crude will narrow to about US$5 in 2014. In a report, the agency adds that a drop in oil prices and jitters over economic conditions in Europe, the US and China suggest the global exploration and production sector (E&P) will see its earnings grow more slowly over the next 12 to 18 months.

As such, Moody's expects E&P industry EBITDA to grow in the mid-to-high single digits year on year through mid-2013. Expectations for EBITDA growth in the sector above 10% would suggest a positive outlook, while a retreat of 10% or more would point to a negative outlook. Moody's changed its outlook for the E&P industry to stable from positive on June 27, 2012.

The agency also expects little change in US natural gas prices before the end of 2013 with a normal winter offering the best near-term support for natural gas prices as increased utility and industrial demand will ramp up slowly.

On the corporate front, in an interesting fortnight Origin Energy announced that the Australia Pacific LNG project (APLNG) – in which its stake is at 37.5% after completion of Sinopec's additional equity subscription – has received board approval for Final Investment Decision (FID) for the development of a second LNG train.

The expanded two-train project is expected to cost US$20 billion for a coal seam gas (CSG) to liquefied natural gas (LNG) project in Queensland, Australia. Elsewhere, India’s Essar Energy subsidiary Essar E&P Ltd is to sell a 50% stake in Vietnam's offshore gas exploration block 114 to Italy’s ENI.

Under the terms of the transaction, which is still subject to approval from the Vietnamese government, ENI is also assuming operator status for the block. Yours truly guesses the Indian company finally decided it was time to indulge in a bit of risk diversification.

Continuing with corporate stuff, the Oilholic told you BP’s planned divestment in TNK-BP won’t come about that easily or smoothly. One of its oligarch partners - Mikhail Fridman - has alleged that there are no credible buyers for BP’s 50% stake in the dispute ridden Russian venture.

In an interview with the Wall Street Journal on June 29, Fridman said, "We doubt it has any basis in fact. They are trying to buy time, to reassure investors."

However, BP said it stood by its announcement. It also announced an agreement to sell its interests in the Alba and Britannia fields in the British sector of the North Sea to Mitsui for US$280 million. The sale includes BP’s non-operating 13.3% stake in Alba and 8.97% stake in Britannia. Completion of the deal is anticipated by the end of Q3 2012, subject to UK regulatory approvals.

Net production from the two fields averages around 7,000 barrels of oil equivalent per day. It is yet another example of BP’s smart management of its asset portfolio in wake of Macondo as the company refocuses on pastures and businesses new.

Elsewhere in the North Sea, Dana Petroleum expects to start drilling at two new oil fields off Shetland named - Harris and Barra – by Q2 2013. The first crude consignment from what’s described as the Western Isles project will come onstream in 2015. A spokesperson said field production could run for 15 years.

The region needs all the barrels it can pull as the UK’s budgetary watchdog – the Office for Budget Responsibility (OBR) – has projected that future oil and gas revenues from the North Sea may be much lower than previous forecasts.

OBR sees the Brent prices rise from US$95/barrel in 2016 to US$173/barrel in 2040. “This compares lower with a projection in our assessment last year of a rise from US$107/barrel in 2015, rising to US$206/barrel in 2040," a spokesperson said.

As a result the OBR now projects tax receipts will be about 0.05% of GDP by 2040-41; half the level it projected in last year. It identified lower projected oil and gas prices as the key driver for the reduced figures given this year. The Oilholic won’t be called upon to vote on Scottish independence; but if yours truly was a Scottish Nationalist then there’d be a lot to worry about.

Finally, it looks like UK regulator – the Takeover Panel – has had enough of the protracted battle for the takeover of Cove Energy between Royal Dutch Shell and Thailand's PTTEP. It has given both parties a deadline of July 16 to make their final offers.

The Takeover Panel announced on Friday 13, July 2012 that if no offer is accepted by the said date, the sale of Cove will be decided by an auction on July 17. It could be lucky for neither, if they pay over the odds. That’s all for the moment folks. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: North Sea oil rig © Cairn Energy.

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For comments or for professional queries, please email: gaurav.sharma@oilholicssynonymous.com

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