ISTANBUL,— The fifth cargo of crude oil from Iraqi Kurdistan was loading at Turkey's Mediterranean port of Ceyhan on Thursday and was scheduled to set sail on Friday, Turkish energy officials said.
The cargo was the first loading of Iraqi Kurdish oil from Ceyhan in over a month, as the central government in Baghdad, locked in a bitter dispute with the Kurds over oil exports, moved to block the unloading of Kurdish oil-laden vessels in foreign ports.
The Suezmax tanker Kamari arrived at the port late on Wednesday, a shipping source said. It will be carrying one million barrels of crude oil.
"Initially there was no programme for loading today. Then we received a tanker and started to load swiftly," one Turkish official said, adding that he had no knowledge of the buyer.
So far, most of the buyers of Kurdish oil remain anonymous while as the intensifying legal and political struggle with Baghdad could deter potential buyers, analysts say.
Arguing all oil sales outside its control are illegal, Baghdad this week tried to get a Texas court to seize 1 million barrels of oil aboard the United Kalavrvta tanker, which has been anchored off the port of Galveston since the weekend.
But after a U.S. judge on Tuesday said she lacked jurisdiction given the ship's distance from the shore, the Kurdistan Regional Government (KRG) hit back at Baghdad, filing a letter with thewww.Ekurd.net Texas court arguing its sales are allowed under the Iraqi constitution.
Arbil has begun selling its oil via a new pipeline through Turkey in May, but so far has only successfully sold and delivered one tanker filled with oil from the line.
Unable to export its oil on a routine basis, Iraqi Kurdistan was forced to halt pumping in its oil pipeline via Turkey, as the storage tanks at Ceyhan have been backed up and at capacity.
Baghdad has cut the KRG's budget since the start of the year over the oil sales dispute, heaping pressure on the semi-autonomous enclave of 5 million that has enjoyed relative stability since the 2003 U.S.-led invasion.
Copyright ©, respective author or news agency, Reuters
7/31/2014 11:23 AM ET
Energy giant ConocoPhillips (COP: Quote) reported Thursday a profit for the second quarter that increased from last year, as higher realized prices and volumes improved revenues. Adjusted earnings per share topped analysts' expectations by a penny, but quarterly revenues missed their estimates. Meanwhile, total production grew from last year.
"Operational and financial performance was very strong in the second quarter. We continue to grow in our North American unconventional plays, while progressing our major projects," Chairman and CEO Ryan Lance said in a statement.
The Houston, Texas-based oil company reported earnings of $2.08 billion or $1.67 per share for the second quarter, higher than $2.05 billion, or $1.65 per share in the prior-year quarter. Earnings from continuing operations were $2.07 billion or $1.64 per share.
Results for the latest quarter primarily include additional income associated with pending claims and settlements, partially offset by leasehold impairments in the Canadian arctic.
Excluding items, adjusted earnings for the quarter was $2.0 billion, or $1.61 per share, compared to 1.75 billion or $1.41 per share in the year-ago quarter.
On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $1.60 per share for the quarter. Analysts' estimates typically exclude one-time items.
Total revenues and other income for the quarter increased to $14.70 billion from $14.14 billion in the same quarter last year, but missed three Wall Street analysts' consensus estimate of $15.38 billion for the quarter.
Total production for the quarter grew to 1,594 MBOED from 1,552 MBOED in the prior-year quarter. Eagle Ford and Bakken combined production increased by 38 percent.
Production from continuing operations for the quarter, excluding Libya, increased 6.5 percent to 1,556 million barrels of oil equivalent per day or MBOED, reflecting lower downtime and 4 percent net organic growth.
The company's total realized price was $70.17 per barrel of oil equivalent (BOE), higher than $66.82 per BOE in the prior-year quarter, reflecting higher average realized prices across all products such as natural gas, bitumen, natural gas liquids and crude oil.
Further, the company noted that it completed the sale of its Nigerian upstream business on Wednesday to Oando Energy Resources, a subsidiary of Oando PLC, for net proceeds of $1.4 billion, inclusive of deposits received. Proceeds from the sale will be available for general corporate purposes, including investments in the company's higher-margin, organic growth programs.
Looking ahead, the company continues to project third-quarter production in the range of 1,435 to 1,485 MBOED, and fourth-quarter production in the range of 1,590 to 1,640 MBOED, reflecting a strong anticipated exit rate at year-end.
For fiscal 2014, ConocoPhillips now projects production from continuing operations, excluding Libya, in a range of about 1,525 to 1,550 MBOED, up from the prior guidance of 1,510 to 1,550 MBOED.
The company noted that it is on track to achieve 3 to 5 percent volume and margin growth in 2014. It added that major projects in Canada, Malaysia and the U.K. are on track for startup in the second half of 2014.
"We expect to complete our major turnarounds in the third quarter and maintain a high level of both conventional and unconventional exploration activity. All of this positions us for strong momentum as we exit the year," Lance added.
Meanwhile, ConocoPhillips' larger peer Exxon Mobil Corp. (XOM: Quote) reported that second-quarter net income attributable to the company increased to $8.78 billion or $2.05 per share from $6.86 billion or $1.55 per share last year, reflecting strong operations and asset divestments
On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $1.86 per share for the quarter. Analysts' estimates typically exclude special items.
Total revenues and other income for the quarter rose to $111.65 billion from $106.67 billion in the same quarter last year, and topped four Wall Street analysts' consensus estimate of $108.38 billion.
However, ExxonMobil's oil-equivalent production for the quarter decreased 5.7 percent to 3,840 koebd from last year. Excluding the impact of the expiry of the Abu Dhabi onshore concession, production decreased 2.3 percent.
In Thursday's regular trading session, COP is currently trading at $82.54, down $2.09 or 2.47% on a volume of 2.32 million shares. In the past 52-week period, the stock has been trading in a range of $62.74 to $87.09.
July 31, 2014 Jacek Ciesnowski Main News
Polish Environment Minister Maciej Grabowski said in an interview with Reuters, that he expected some 80 exploratory wells to be drilled this year. In June he projected that number to reach 100.
“By the end of June there had been 64 exploratory shale gas wells drilled in Poland. A further 20 are planned (for this year),” Grabowski said.
He stressed however that he still expects commercial shale gas production to start this year in Poland. “A well like that would show that there is real possibility of extracting shale gas in Poland. However, extracting gas on an industrial scale, and clearly perceptible to the economy, is not a matter of this year or next,” Grabowski said.
Energy firms have yet to find commercial reserves and several big players, including Exxon Mobil, Marathon and Total, have either given up exploring or are not renewing exploration concessions. Chevron and ConocoPhillips have already left Poland’s shale sector.
Thu Jul 31, 2014 5:23pm EDT
CALGARY, Alberta, July 31 (Reuters) - Canadian Oil Sands Ltd , the largest shareholder in the Syncrude Canada Ltd joint venture, said on Thursday second-quarter profit fell by a one-fifth on lower production and higher government payments.
The company, which has a 37 percent stake in the Syncrude project, said net income fell 20 percent to C$176 million ($161.5 million), or 36 Canadian cents per share, from C$219 million, or 45 Canadian cents, in the second quarter of 2013.
Its profit for the quarter was affected by higher royalties and lower output from the northern Alberta oil sands mining project, the company said.
Sales volumes averaged 77,064 barrels per day, down 23 percent from 100,094 bpd in the year-prior quarter, because of an unplanned outage of a coker unit at the site and planned maintenance on a second coker, which helps process mined bitumen into refinery-ready synthetic crude.
Operating costs were C$418 million, up from C$394 million in the year-earlier quarter, because of higher maintenance costs and increased natural gas prices.
The Syncrude project, which can produce 350,000 barrels per day, has a history of unplanned shutdowns caused by equipment malfunctions, particularly at its complex upgraders, which convert tar-like bitumen stripped from the oil sands into refinery-ready synthetic crude.
The company said its Mildred Lake mine train replacement project at Syncrude is 94 percent complete and the equipment is expected to be in service by year end.
Canadian Oil Sands' cash flow, a measure of its ability to pay for new projects, fell 29 percent to C$240 million, or 50 Canadian cents, from C$340 million, or 70 Canadian cents.
Canadian Oil Sands shares fell 77 Canadian cents to C$23.29 on Thursday on the Toronto Stock Exchange.
($1 = 1.09 Canadian Dollars) (Reporting by Scott Haggett; Editing by Steve Orlofsky)
© Thomson Reuters 2014 All rights reserved.
Russia sanctions: West's top 15 targets
By Mark Thompson @MarkThompsonCNN July 31, 2014: 2:03 PM ET
LONDON (CNNMoney)
Europe and the U.S. are trying to hit Russia's economy by restricting its access to Western finance, oil technology and arms.
Here are the 15 most important companies and individuals now subject to Western sanctions, imposed over the crisis in Ukraine:
Rosneft: Russia's biggest oil company; part owned by BP (BP) and partner to ExxonMobil (XOM).
Has lost access to U.S. sources of long-term finance. Cash rich and can still export oil. Expected to complete its purchase of Morgan Stanley (MS)'s oil trading business.
Novatek: Russia's largest independent natural gas producer. Has lost access to new U.S. funding. France's Total (TOT) is a major shareholder and partner.
Sberbank (SBRCY): Russia's biggest bank, serving more than half the population of Russia and one million businesses. Has a joint venture with BNP Paribas (BNPQF) and millions of customers abroad. Can no longer raise medium and long-term finance in Europe.
VTB: Second biggest bank, provider of full range of financial services to clients in Russia and more than 20 countries. Shut out of European and U.S. financial markets. Says it's confident it will continue to be able to attract funds when needed, and promises to meet all obligations to clients and investors.
Gazprombank: A key player in financing Russia's energy sector, the mainstay of country's economy.
Gazprom (GZPFY), which supplies Europe with about a third of its natural gas, is a major shareholder. Bank's dependence on U.S. markets is low and it can count on Russian state support given its importance to the economy.
Bank of Moscow: Controlled by VTB, its focus is on the domestic market and it has no plans to borrow on foreign markets.
It has 9 million private customers and 100,000 corporate clients, mainly in the Moscow area.
Russian Agricultural Bank: 100% owned by the state, the bank is a major lender to farmers and Russia's large rural population.
VEB: Arranges payments for the Russian government; chairman is Russian Prime Minister Dmitry Medvedev.
Bank will have to reduce its exposure to dollars in the future. Should be able to manage its financing through 2015 by tapping markets in other currencies, local investors and the Russian central bank.
United Shipbuilding Corp: Russia's biggest shipbuilder, it designs and constructs ships for the Russian navy.
Kalashnikov: Russia's largest firearms manufacturer; famous for its AK-47 rifles.
Among nine Russian arms firms that have had U.S. assets frozen and have been banned from doing business with U.S. businesses or individuals.
Igor Sechin: Rosneft CEO and one of dozens of Russians who have had their assets frozen.
Laughed off a sanctions-inspired fall in Rosneft's shares in March as a buying opportunity, but warned last week's blacklisting of the company was an attempt to target Russia's economy. Says U.S banks and investors would suffer from the move.
Yuri Kovalchuk: A close associate of Putin and largest shareholder in Bank Rossiya, which is also facing U.S. sanctions.
Called Putin's "personal banker" by U.S. officials. Bank is Russia's 17th biggest and has major interests in oil and gas. Three subsidiaries are also on U.S. sanctions list.
Gennady Timchenko: Billionaire oil trader and founder of Geneva-based energy trading company Gunvor.
Sold all his shares in Gunvor just two days before landing on the U.S. list. His Volga Group and a number of subsidiary companies have had assets frozen by the U.S.
Sergei Chemezov: Rosneft director and appointed by Putin as director general of Rostec.
Rostec is a state-owned conglomerate that runs 13 holding companies, 8 of which are active in the military-industrial complex. Counts Boeing (BA) and Allegheny Technologies (ATI) among its many foreign partners.
Arkady and Boris Rotenberg: U.S. officials say the brothers received about $7 billion in contracts for the Sochi Olympic Games.
Control two banks -- InvestCapitalBank and SMP Bank -- subject to sanctions.
August 01, 2014 - 12:00:00 am
MOSCOW: For all the sanctions Western leaders can throw at Russia, the biggest threat to President Vladimir Putin’s ability to back separatists in east Ukraine is something beyond his or their control: the price of oil. With Russia’s $2 trillion economy heavily dependent on crude exports, oil prices are always closely monitored by the Kremlin, but the government is particularly wary now as tensions with the West mount and sanctions ratchet up.
Such conflicts often push up crude prices, but as long as oil, which accounts for 40 percent of state revenues, remains above the average $104 per barrel written into the 2014 budget, Moscow has little immediate need to worry.
The alarm bells will start ringing if it falls significantly below $100, forcing the government to pay more attention to propping up an economy already close to recession. The International Monetary Fund warned in May that Moscow had no contingency plan for such a scenario, so a sustained tumble in the price of crude could even undermine Putin’s grip on power. “If the oil price goes down to $75 and stays there for a few years, Russia will have regime change,” said a prominent Russian economist who asked not to be named. “Two years ago I would have said $60, but now, given the lack of growth, the increase in corruption and sanctions, $75 would be enough.”
Such a scenario is not merely idle speculation; most analysts expect oil prices to fall in the coming years as new production, including from unconventional sources in North America, applies downward pressure to markets, with some forecasts going as low as $70 per barrel for Brent crude oil in 2020, down from over $105 currently.
A long-term decline in prices may be unlikely given the unrest in Iraq and the limited scope for Iran to increase output due to sanctions, but any substantial fall could derail the Russian economy.
Sergei Aleksashenko, a former deputy central bank governor and now a scholar at the Higher School of Economics in Moscow, said a $10 drop in oil prices would strip 700bn roubles ($20bn), or 5 percent, from Russian budget revenues a year.
That translates to about 1 percent of GDP. Local economists estimate that a $10 price drop could rob Russia of 3 to 4 percent in GDP growth. “The most evident outcomes of any decline in oil price are destabilising of the balance of payments, devaluation of the rouble, rise in inflation and decline in budget revenues, decelerating of the growth,” Aleksashenko said. “It is evident that the longer the period of reduced oil prices, the more significant the impact on the Russian economy.”
A drop to $38 per barrel in the aftermath of the 2008 financial crisis sent Russian GDP falling 7.8 percent, and it shed $200bn of reserves within a few short months trying to defend the rouble, which still lost a third of its value. Its reserves, though still the world’s fifth largest at nearly half a trillion dollars, are more than $130bn below their level at the beginning of the 2008 crisis.
The crisis passed when prices promptly climbed, but if Moscow learned any lessons, it is not clear in its economic pronouncements.
“The government only publishes a basic level of macroeconomic risk analysis to support fiscal policymaking,” the IMF said in its May report. “There is no analysis of the implications of (changes, such as in oil) for the government finances.”
The Finance Ministry manages two oil windfall revenue funds. One, the $87bn Reserve Fund, has a clear goal to patch budget holes if the need arises.
Former finance minister Alexei Kudrin said in a recent interview with ITAR-TASS news agency that if oil were to fall to $80 per barrel, the fund could last for two years. “That (reserve) is rather small,” said Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington.
If oil hits $75-80, Aslund said “Russia would have to cut its imports, which would hit the standard of living, investment and economic growth. A decline in GDP and standard of living would be inevitable.”
Reuters
By Timothy Gardner
(Reuters) - The U.S. Energy Department on Thursday approved Oregon LNG to export liquefied natural gas, as the Obama administration works through applications to export fuel from the domestic drilling boom to markets in Asia and Europe.
Oregon LNG, which is controlled by Leucadia National Corp , has been authorized by the department to export up to 1.25 billion cubic feet per day of the fuel for 20 years. It hopes to begin exporting LNG in 2017.
The Astoria, Oregon-based project still needs approval from the Federal Energy Regulatory Commission (FERC), which will review its environmental impact.
The DOE's review of the Oregon project was initiated before the Obama administration shook up its LNG review process in May. Under its proposed revamp, the DOE will no longer issue conditional approvals of LNG projects.
Instead, the DOE would decide whether a project is in the national interest only after the FERC issues a final environmental review. The change is expected to benefit companies that have strong financial backing for their projects.
The DOE has given the green light to three LNG projects this year, and Oregon LNG could be one of last to get initial approval from the department under the old system.
In March, as the Obama administration was under pressure to approve projects amid Russia's aggression toward Ukraine, the DOE approved Veresen Inc's Jordan Cove plant. Weeks earlier it approved Sempra's Cameron project.
On Wednesday, the FERC approved construction of the Freeport LNG Development LP's LNG project in Texas, the third project gaining full U.S. approval to ship the fuel to countries with which Washington does not have a free trade agreement.
The first of those, Cheniere's Sabine Pass plant in Louisiana, is expected to begin shipping LNG next year.
Senator Lisa Murkowski, from energy-producing state Alaska and the top Republican on the Energy Committee, welcomed both recent approvals. She said she would keep a "close eye" on the new review system to "make sure the progress we've seen doesn't slip." (Reporting by Timothy Gardner; Editing by Chris Reese, Diane Craft and Dan Grebler)
By: Andrew Van Sickle
The US and the EU joined forces this week to hammer out the harshest sanctions against Russia since the Cold War. So far, the EU has merely targeted a few individuals. Now it is set to take action against Russian banks, the oil (but not gas) industry and the military.
There has been a clampdown on future arms sales, while major state-owned banks will not be able to tap European capital markets, and high-tech oil exports are no longer available to the Russian oil sector.
The US has matched many of the European measures and has now placed restrictions on almost all the biggest banks with state ownership of at least 50%. Russia has already started to retaliate, banning Polish fruit and vegetables.
Companies are beginning to fret about the impact of sanctions and counter-sanctions, with BP saying they would threaten its joint venture with oil giant Rosneft and Renault warning its sales could slump.
What the commentators said
“It’s a watershed that Europe is moving to sector-specific sanctions”, said John Lough of think-tank Chatham House, and represents a “turning of the screws”. There was little choice in the matter, said The Times. “If ever a policy can be said not to have worked, it has been that of trying to entice Vladimir Putin into the community of responsible democratic leaders.”
Instead, he has destabilised his neighbour and continues to stoke the violence in eastern Ukraine, accompanies by a “propaganda operation worthy of a previous era in Soviet history”.
We could be in for a long stand-off, as Wirtschaftswoche pointed out. The worry is that Putin sees his mission as restoring Russia’s self-esteem, which was gravely damaged by the collapse of the Soviet Union, and if that means a nasty squeeze on the economy, so be it. But his Ukraine campaign has also boxed him into a corner.
Having hyped up the populace with relentless propaganda, any climb-down or concession, no matter how small, would be perceived as a major defeat. So we are likely to see plenty more firms lining up to warn that their business is going to suffer.
In BP’s case, though, the fuss seems overblown, said Allister Heath in The Daily Telegraph. BP ended up paying £15bn for its stake in Rosneft last year, and has already pocketed almost £1bn in dividends. That follows its $8bn investment in a previous joint venture, which yielded $15bn in dividends.
Even if all its Russian assets are confiscated, which is highly unlikely, it will have done well in Russia. In the US, by contrast, its provisions for the 2010 spill have hit $43bn. “Investors are worrying about the wrong continent.”
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Hess Corporation has reported net income of US$ 931 million for the second quarter of 2014.
Adjusted net income for the quarter was US$ 432 million, compared with US$ 520 million in the prior year quarter. The decrease was primarily due to the impact on operating earnings of divesting E&P assets and downstream businesses.
Highlights
Net income of US$ 931 million.
Adjusted net income of US$ 432 million.
Oil and gas production was 319,000 boepd, compared with 341,000 boepd in Q2 2013.
Cash flow from operations of US$ 1.3 billion.
Oil and gas production in the Bakken increased 25% from the year-ago quarter to 80.000 boepd, while well costs were reduced by 12% to an average of US$ 7.4 million per operated well.
Completed asset sales totaling US$ 1.6 billion comprising approximately US$ 805 million for Thailand assets, US$ 485 million for Utica shale gas play, and US$ 320 million for the New Jersey power plant.
Announced the sale of its retail business of US$ 2.9 billion.
Returned an additional US$ 845 million to shareholders during the quarter through share repurchases and dividends.
Comments
Commenting on the results, company CEO, John Hess, said: “This was another quarter of strong performance and execution of our strategic plan. We continued to grow production and reduce well costs in the Bakken, progressed development of Tubular Bells in the Gulf of Mexico and North Malay Basin in the Gulf of Thailand, and completed asset sales totaling US$ 1.6 billion.
“We are excited by the potential of our portfolio and confident that we have the strategy, operational capabilities and financial flexibility to deliver 5 – 8% annual production growth and generate free cash flow and strong, sustainable returns for our shareholders.”
Bakken
Production from the Bakken increased 25% from the prior year quarter to 80,000 boepd, due to continued development activities and the completion of the Tioga gas plant expansion project. Hess brought 53 gross operated wells on production in the quarter, bring the year-to-date total to 83 wells.
Utica
On Hess’ joint venture acreage, ten wells were drilled in the second quarter of 2014. In addition, Hess completed the sale of 30,000 acres, including related wells and facilities in the dry gas area of the play, for a total of US$ 485 million. This brings the total year-to-date proceeds from asset sales in the Utica shale play to approximately US$ 1.1 billion.
Norway
Net production averaged 31,000 boepd during the second quarter, compared with 13,000 boepd in the year-ago quarter. These results reflect completion of the Valhall Redevelopment Project in 2013, ongoing drilling and higher uptimes. Offshore work began in June on the Crestal Gas Lift Project, with hook-up and commissioning expected in Q2 2015.
Malaysia
Production averaged 7000 boepd in the second quarter of 2014 from the Early Production System. Progress continued on the full field development project in the second quarter with Hess signing the gas sales agreement with the Malaysian government and awarding a contract for the construction and installation of a central processing platform, a bridge-linked wellhead platform and three remote wellhead platforms.
Ghana
Hess commenced drilling of a three well appraisal program in the second quarter of 2014. The first well in the program, Pecan 2A, was completed in June and the second well in the program, Pecan 3A, was also drilled and is currently undergoing production testing as planned. The third well in the program is expected to be drilled in Q3.
US
Tubular Bells
The offshore hook-up and final commissioning activities continued in the second quarter and first oil from the field is expected in September 2014. The drilling of a fourth production well also commenced in the second quarter.
Stampede
During the second quarter, Hess received US government approval to unitize Blocks 468, 512, and the eastern half of 511. The Stampede development project continues to progress, and project sanction is expected later this year.
Image courtesy of Hess Corporation.
Adapted from press release by Katie Woodward
Published on 31/07/2014
By Steve Marshall & Rob Watts
31 July 2014 12:13 GMT
Shell has declared force majeure on an exploration project in Ukraine that is close to the site where Malaysia Airlines flight MH17 crashed, although it is too early to assess the impact on the company of sanctions on Russia, according to its chief executive.
The Anglo-Dutch supermajor has been exploring for shale gas in Ukraine and its assets in Russia include a stake in Sakhalin-2, one of the world's largest liquefied natural gas projects.
"I think it is relatively close. We were in roughly the same region," chief executive Ben van Beurden said in a conference call on Thursday, referring to the location of the MH17 crash site.
"The operation that we had on the unconventional exploration programme in that general area is on hold - as a matter of fact it was technically on hold for evaluation purposes.
"We've also declared force majeure - as you can imagine, simply because we cannot continue the operations there."
A Shell spokesman later confirmed the company took the decision to declare force majeure on 15 July, two days before the crash, as a result of the deteriorating security situation.
The spokesman said: "Shell took the contractual step of declaring force majeure on some specific obligations of the Yuzivska production sharing agreement due to the security situation in the Yuzivska area.
"There are some time commitments in the production sharing agreement, and we have been re-scheduling and re-arranging activities to allow us to continue to perform our obligations.
“However, at the time of declaring force majeure, we believed that any further impact due to the security situation would prevent us from delivering some of them by the dates required."
He added: "The purpose of such a step is for the parties to the PSA to be notified that Shell is unable to perform certain specific activities safely, and in the timeframe agreed under the PSA, for reasons outside of our control. We will continue to perform all the activities we can carry out safely."
Shell has not halted all its operations in Ukraine, only those rendered potentially unsafe by the security situation, and it is understood that it intends to resume the halted work once it is safe to do so.
Speaking on the call to discuss Shell's second-quarter earnings, van Beurden said it was too soon to assess what the impact of Western sanctions on Russia would be.
"It is easy to think of what has happened and all the events that have followed on from it as a bit of a game changer," he said.
"But it is a bit early to say how this will all play out. We are not as exposed to Russia as some of our competitors."
Nearly 300 people, 193 of them Dutch citizens, were killed when the Malaysia Airlines plane en route from Amsterdam to Kuala Lumpur was brought down on 17 July in eastern Ukraine, where pro-Russian separatists are battling government forces. Four of the victims were Shell employees.
Van Beurden said: "It is really a tragedy of unbelievable proportions no matter how you look at it. I look at it as a father and husband (and) I can only imagine the grief of those who lost their loved ones in such a terrible event.
"As a Dutchman, I grieve for the many compatriots that lost their life in this crash. Then as a CEO of Shell, I grieve together with other 92,000 Shell staff for the colleagues we lost together with so many of their family members.
"Our thoughts are with everyone affected by this very, very tragic event."
A $100-million bonanza of crude oil sits in a tanker off the coast of Galveston, Texas, but moving it to shore has become a knotty foreign policy problem.
Late Monday, a federal court ordered U.S. marshals to seize the cargo of the tanker, the United Kalavrvta, if its more than 1 million gallons of crude oil is brought ashore. The oil is claimed by both Baghdad and the Kurdistan regional government, nominally part of Iraq but locked in an uneasy embrace, especially when it comes to who benefits from oil revenues.
Nabih Bulos
Iraq is divided among Shiite and Sunni Muslims and the Kurds, who have all been fighting over the shape of the new government amid a bloody civil war prompted by the success of the Islamic State. The Kurds have been assertive, particularly about oil revenues, even as the central government has focused on the fighting between Shiites and Sunnis.
“The issue is not just a tanker, not just one shipment of oil, not just the Kurdish enclave in Iraq,” said Anthony Cordesman, the Arleigh A. Burke Chair in strategy at the Center for Strategic and International Studies, a Washington think tank. “We are talking about major issues, about the stability of Iraq and major exports of oil from the Mideast.”
Over the weekend, the tanker United Kalavrvta, flying the flag of the Marshall Islands, arrived off the Port of Galveston. The tanker has stayed between 30 and 60 miles offshore, and smaller ships would be needed to move the oil to the mainland, Coast Guard Petty Officer Andy Kendrick told the Los Angeles Times.
The Coast Guard began its usual safety check of the vessel, Kendrick said, but also contacted the State Department, the Department of Homeland Security and the National Security Council for guidance. Washington backs Baghdad’s claim to be the sole recipient of oil revenues, but it is also unhappy with Iraqi Prime Minister Nouri Maliki and how he has handled the war against Islamic State, formerly known as the Islamic State of Iraq and Syria, which has declared an Islamic caliphate in the territory it controls.
Speaking at a State Department briefing on Friday, deputy spokeswoman Marie Harf said U.S. policy toward Kurdish oil sales has been constant.
“Iraq's energy resources belong to all of the Iraqi people. The U.S. has made very clear that if there are cases involving legal disputes, the United States informs the parties of the dispute and recommends they make their own decisions,” she said.
The Coast Guard has completed its checks and, as far as it was concerned, the tanker could offload its product whenever it wanted, Kendrick said on Tuesday. The courts, however, said otherwise.
According to papers filed in the U.S. District Court for the Southern District of Texas, Galveston Division, the Ministry of Oil of the Republic of Iraq claims it is the sole owner of the oil because that country’s constitution guarantees that all oil, wherever it is produced in Iraq, “belongs to the people of the Republic of Iraq.” The Ministry of Oil “must approve the storage, transport, export or sale of any oil products belonging to the people of the Republic of Iraq, including the crude oil contained in the subject cargo.”
The oil on the tanker was drilled from wells in Kurdistan and, in December 2013, was pumped through a pipeline to Ceyhan in Turkey, Iraq says in its court papers. Iraq ordered that the oil be held but, instead, the Kurds loaded it on the United Kalavrvta.
The tanker left Ceyhan on June 23, designating Augusta, Ga., as its port of call. That was later changed to Galveston, according to the court papers.
And there the oil sits, for now.
Follow @latimesmuskal for national news.
Copyright © 2014, Los Angeles Times
Financial results show the positive effect of international crude prices that partially offset the strong impact of the difficult operational environment on production and sales Significant progress in the international exploration strategy: One discovery in the Gulf of Mexico (U.S.) and acquisition of a 10% stake in two blocks in Angola. Changes in organizational structure: new regional model and creation of the General Operations Directorate.
BOGOTA, Colombia, Jul 31, 2014 (Canada NewsWire via COMTEX) -- Ecopetrol S.A. (bvc:ECOPETROL) EC -1.89% CA:ECP -3.30% announced today its unaudited financial results, both consolidated and unconsolidated, for the second quarter of 2014. The financial results were prepared and filed in Colombian pesos (COP$) in accordance with the Public Accountancy Legal Framework (Regimen de Contabilidad Publica, RCP) of Colombia's General Accounting Office.
Some figures in this release are presented in U.S. dollars (US$), as indicated. The financial results in the main body of this report have been rounded to one decimal place. Figures presented in COP$ billion are equivalent to COP$1 thousand million (COP$1,000,000,000). Additionally, some 2013 figures have been reclassified to be comparable to those of 2014.
Summary of Ecopetrol S.A.'s financial results
By Mark Shenk Aug 1, 2014 3:45 AM GMT+0700
The announcement that a refinery in Kansas will be shut for weeks has upended concern that oil supplies at the main U.S. trading and storage hub will sink to minimal operating levels.
The plant in Coffeyville may remain idle for four weeks after a July 29 fire, CVR Refining LP (CVRR) Chief Executive Officer Jack Lipinski said today on an earnings call. Some units were projected to be open in 72 hours, IIR Energy, a Sugar Land, Texas, energy information provider, said yesterday.
The 115,000-barrel-a-day plant receives most of its crude from Cushing, Oklahoma, the delivery point for West Texas Intermediate crude futures traded in New York. Falling stockpiles at the hub have bolstered prices for the U.S. benchmark.
“The shutdown will have a noticeable impact on supply at Cushing,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Plunging Cushing supplies have been a major supportive factor for WTI. Inventory levels should start to reverse.”
Supplies at Cushing, Oklahoma, fell by 924,000 barrels to 17.9 million last week, the lowest level since October 2008, according an Energy Information Administration report yesterday. Stockpiles at the hub have dropped 56 percent this year as new pipeline capacity has sent oil to the Gulf Coast, home to about half of U.S. refining capacity.
Floating Roofs
Three companies with storage tanks in Cushing estimated minimum operating levels at anywhere from 8 percent to 20 percent of total capacity, according to interviews with Bloomberg in October. Cushing had 81 million barrels of total capacity in March, according to the EIA, so the companies’ ranges would make the estimated operational minimum supply level from 6.5 million to 16.2 million barrels.
Oil storage tanks typically have floating roofs that rest on top of the crude, so there is no space for explosive vapors to waft off the volatile liquid. If the level of crude gets too low, legs attached to the bottom of the roof will hit the ground, allowing the vapors to form.
WTI for September delivery tumbled $2.10, or 2.1 percent, to $98.17 a barrel on the New York Mercantile Exchange. Today’s settlement was the lowest since March 17. The U.S. benchmark climbed to $107.26 on June 20, the highest close since Sept. 18.
Control System
“There’s no doubt that traders were very long crude,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “As prices continued to fall stops were triggered, which added to the downward move.”
The July 29 fire at the Coffeyville refinery damaged fiber optics in the control system, forcing valve closings on units and preventing crews from operating equipment, according to a person familiar with operations.
CVR, which owns 1 million barrels of storage at Cushing and leases 3 million barrels of tanks, says Cushing supplies crude to Coffeyville and the Wynnewood refinery in Oklahoma.
New links are scheduled to open this quarter, bolstering supply at the hub. Tallgrass Energy Partners LP plans to complete the conversion of the Pony Express pipeline to carry crude to Cushing from Wyoming, while Enbridge Inc. (ENB)’s Flanagan South will connect to the hub from Illinois. Pony Express will open with throughput of 230,000 barrels a day and Flanagan South will be able to move 600,000, the lines’ owners said.
U.S. refineries typically schedule maintenance programs for September and October when they transition from maximizing gasoline output to the production of winter fuels.
The receding supply concerns at Cushing narrowed the premium of September over October contracts to 85 cents a barrel from $1.23 yesterday on record volume.
“We’re anticipating that the Pony Express pipeline will be running in October, which will increase supply,” Lipow said. “We’ll soon be in the fall refinery maintenance season, which will reduce demand, so supplies are going to continue to rise.”
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Charlotte Porter
By Pablo Gonzalez and Sabrina Valle Aug 1, 2014 3:21 AM GMT+0700
Tenaris SA (TS), the biggest maker of seamless steel pipes, is the latest Petroleo Brasileiro SA (PBR) supplier to say cash constraints at the biggest oil producer in deep waters are hurting sales.
Petrobras, as Brazil’s state-controlled company is known, has been using equipment on hand instead of buying new supplies, Tenaris Chief Executive Officer Paolo Rocca said on a conference call today with investors and analysts. Tenaris is supplying pipes to transport natural gas from deepwater fields that Petrobras expects to supply most of its oil production growth during the rest of the decade.
“Petrobras had problems of cash flow, negative cash flow for awhile, and has been reducing to some extent their investment,” Rocca said. “This is affecting the region and affecting us also.”
Petrobras didn’t respond to an e-mailed request for comment on Rocca’s statements.
A combination of faster-than-expected declines at Rio de Janeiro-based Petrobras’s older fields and delays in getting production equipment installed at newer projects has caused the company to miss output targets in recent years. The resulting shortfall in sales and cash crunch comes as Petrobras is investing about $100 million a day to expand output at its oil fields and refineries.
Cash Drain
At $24 billion, Petrobras had the largest trailing 12-month cash flow deficit of any oil company with a market value of more than $50 billion, according to data compiled by Bloomberg. That compares with $29 billion of positive cash flow at Moscow-based OAO Rosneft OAO and $13 billion at Irving, Texas-based Exxon Mobil Corp.
Efforts to control costs are affecting Brazil-based manufacturers who supply equipment to Petrobras, said Alberto Machado, the executive director of the oil and gas division of Abimaq, a Sao Paulo-based manufacturing association. Companies that had been able to increase the value of contracts with Petrobras as projects progressed are now having a harder time doing so, he said.
“Petrobras is being much stricter in awarding cost increases since Graca took over,” Machado said in a telephone interview from Rio de Janeiro, referring to Petrobras Chief Executive Officer Maria das Gracas Foster, whose nickname is Graca. “There is a negative reaction down the supply chain.”
Fewer Rigs
Some of Petrobras’s sub-contractors haven’t been paid because some shipyards and turnkey projects contracted by Petrobras aren’t getting paid on time, he said.
Petrobras said it has been paying all its contractual obligations on time in a statement on its website last month in response to a report by O Estado de Sao Paulo that some suppliers were going broke. It also said it hasn’t changed the way it reviews requests for service and equipment price increases.
Petrobras’s offshore drilling fleet has declined 39 percent over the past year to 27 units in June, according to Baker Hughes Inc., an oil services provider that tracks global drilling activity. The reduction has curbed profit at offshore equipment and services suppliers including Baker, Halliburton Co. and Schlumberger Ltd. which have all invested in Brazil-based research and development facilities in anticipation of growing demand from Petrobras.
It may take as long as until 2016 for activity to pick up, Halliburton Chief Operating Officer Jeff Miller said in a July 21 conference call.
Petrobras fell 3.8 percent to 19.10 reais in Sao Paulo. Tenaris’s American depositary receipts slid 4.2 percent to $42.97 in New York. Each ADR is worth two ordinary shares.
To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar
By Mark Shenk Aug 1, 2014 2:33 AM GMT+0700
Retail gasoline prices are poised to cap the biggest July decline in six years as U.S. refineries process the most oil on record, AAA said.
The decline is helping consumers during the peak-demand summer months, when Americans take the most vacations, and comes as data indicate the U.S. economy is improving. Gross domestic product rose at a 4 percent annualized rate in the second quarter after shrinking 2.1 percent from January through March, Commerce Department figures showed yesterday.
Regular gasoline has dropped 15.5 cents, or 4.2 percent, to $3.517 a gallon this month, according to Heathrow, Florida-based AAA, the nation’s largest motoring club. Prices have averaged $3.60 a gallon, down from $3.67 in June, after rising more than 4 percent in the three previous Julys, AAA data show.
“It’s very unusual to see gas prices fall at this time of year,” Michael Green, a spokesman for the Heathrow, Florida-based automobile club AAA, said by telephone from Washington. “This is nearly the reverse of what we saw in the previous three years when prices increased considerably in July.”
U.S. refineries, which operated at more than 93 percent of capacity for the past three weeks, processed 16.5 million barrels a day of crude in the four weeks ended July 25, Energy Information Administration figures show. It’s the highest in data going back to May 2005.
Gasoline inventories have increased eight of the past nine weeks. They reached 218.2 million in the week ended July 25, a four-month high.
Two Factors
Crude futures have dropped in July as the surge in violence in Iraq and Ukraine had little impact on the flow of oil. West Texas Intermediate climbed to a nine-month high in June after militants from a breakaway al-Qaeda group known as Islamic State captured the city of Mosul.
“There are two main factors behind the drop in gasoline prices,” Green said. “Refineries are running smoothly and producing ample gasoline. Also, there are significant conflicts overseas but prices have stabilized because production and exports haven’t noticeably changed.”
Prices dropped to $3.513 a gallon nationwide this week, the lowest level since March, according to AAA. The highest national average this year was $3.696 on April 26, while the lowest was $3.269 on Feb. 6.
The cheapest gasoline today was in South Carolina, where drivers paid an average of $3.25. The highest price was in the continental U.S. were in California at $3.98.
The drop at the pump has coincided with declines in crude and gasoline futures. Gasoline futures tumbled 8 percent to $2.8311 a gallon this month on the New York Mercantile Exchange. Today’s settlement was the lowest since Feb. 28. West Texas Intermediate crude slipped 6.8 percent in July to $98.17 a barrel, a four-month low.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Charlotte Porter
BG Beats Profit Estimates on Brazil Production Boost
By Eduard Gismatullin and Nidaa Bakhsh Jul 31, 2014 11:29 PM GMT+0700
BG Group Plc (BG/), the U.K. oil and gas explorer seeking a chief executive officer, posted a 23 percent jump in earnings after income from liquefied natural gas surged and production in Brazil increased.
Profit excluding disposals and one-time items climbed to $1.2 billion from $986 million a year earlier, it said today in a statement. That beat the $878.7 million average estimate of nine analysts surveyed by Bloomberg.
“The beat came from the LNG Shipping & Marketing division thanks to higher delivery volumes and better realized prices but also rising contribution from high margin Brazil barrels,” Sanford C. Bernstein & Co. wrote in a note to investors.
LNG operating profit rose 44 percent, BG said.
The shares fell 0.7 percent to 1,172 pence at the close in London trading, valuing the Reading, England-based company at 40 billion pounds ($67.5 billion).
Chris Finlayson resigned in April as CEO of the U.K.’s third-largest natural gas producer in “a dispute over the speed” of the company’s creation of value for shareholders, Executive Chairman Andrew Gould said on May 1. The company has since then accelerated asset sales, including a $953 million North Sea deal last month.
In the hunt for a new CEO, Gould said today he’s impressed by the quality of external candidates.
BG and partners are ramping up oil extraction off Brazil, where the company may sell holdings in local projects for $10 billion or more, according to Banco Santander SA’s estimates.
Flow Rates
“We have delivered a good set of results for the second quarter,” Gould said in the statement. “Performance reflects the growing proportion of oil in the portfolio, principally from Brazil, and the deferral of maintenance shutdown activity in the U.K. to later in the year.”
While total production declined 10 percent to 591,000 barrels of oil equivalent a day because of operations in Egypt and the U.S., flow rates from the Santos Basin in Brazil exceeded expectations, the company said. It agreed to buy a 30 percent stake in an exploration block in Aruba, subject to approval by the national oil company.
The explorer expects “very limited cargoes to be lifted from Egyptian LNG for the foreseeable future” because of declining upstream output and minimal gas supplies to the venture between the local government and foreign shareholders including BG. “The future commercial operation of Egyptian LNG remains at risk” without action by the government, it said.
Further spending for the West Delta Deep Marine Phase 9b depends on “a material improvement in the investment climate.”
Australian LNG
In Australia, BG plans to start its Queensland Curtis LNG project as planned in the fourth quarter, helping it to counter the decline from Egypt after gas was diverted to the local market from exports. Bechtel Group Inc., the contractor building more than $60 billion of LNG plants in the country, faces a dispute with unions that may lead to strike action.
“We remain on track for first LNG by the end of the year,” said Gould, who is acting CEO until a permanent successor is found.
BG reiterated it expects total output to be at least 590,000 barrels of oil equivalent a day this year.
It’s “a decent set of second-quarter results from BG, which should provide some relief,” analysts at Investec Ltd. said in a note.
To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; Nidaa Bakhsh in London at nbakhsh@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Ana Monteiro, John Viljoen
By Rupert Rowling Jul 31, 2014 9:09 PM GMT+0700
Gary Klesch, the investor buying a U.K. oil refinery at risk of being shut, is betting the plant can make a profit by making different fuels and changing where it sells them.
The Milford Haven plant in Wales will make more fuels like diesel when it starts processing again later this year and less gasoline, Klesch, the founder of Klesch Group, said by phone today after the deal was announced. A higher proportion of the refinery’s output will be sold in the U.K. rather than shipped to the U.S., he said. Murphy Oil Co., the seller, said in April it might close Milford Haven if a buyer couldn’t be found.
European oil refineries are shutting or converting to storage depots at the fastest pace in decades as competition intensifies from plants in the U.S., Russia and the Middle East. While the region has a gasoline glut, it also faces a looming shortage of diesel, Greenergy Fuels Ltd., the U.K.’s biggest buyer of automotive fuels, said in March. Klesch bought a refinery in Heide, Germany, in 2010.
“Our success with the German refinery gives us the confidence to go forward and be confident of making a success of this one too,” Klesch said. “We will look to get it up and running as soon as we close the deal at the end of October.”
Milford Haven is the smallest of seven refineries in the U.K. and can process 135,000 barrels of crude, according to data compiled by Bloomberg. That’s equal to about 13 percent of the nation’s total fuel-production capacity.
Refineries Closing
Klesch agreed to buy the plant from Murco Petroleum Ltd., a unit of Murphy, for an undisclosed price. The deal is subject to conditions. The transaction should be completed by October and refining should start soon after, Klesch said.
Sixteen European refineries, including Coryton in the U.K., closed in the past six years, according to the International Energy Agency, a Paris-based adviser to 29 nations. Eni SpA, Italy’s largest oil company, began negotiations earlier this month to shut as much as 50 percent of its 774,000 barrel-a-day capacity.
Klesch’s operations include trading, according to the company’s website. The purchase fits in with the company’s strategy of expanding its refining business, according to Wood Mackenzie, a consulting firm.
“As a trader, having a refinery gives you a big advantage in the market,” Jonathan Leitch, a London-based senior analyst at Wood Mackenzie, said by phone today. “It gives you flexibility because you never get left with a distressed cargo.”
Maximizing the diesel yield of the refinery will be one of the company’s first targets, Klesch said. The plant currently has an output of 33 percent for both diesel and gasoline, according to the U.K. Petroleum Industry Association.
“We will also look to focus more on inland sales,” Klesch said. “Instead of selling wholesale, we will look to sell retail in an effort to capture more of the U.K. domestic market.”
To contact the reporter on this story: Rupert Rowling in London at rrowling@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley
Rosneft Moves to Thwart EU Sanctions With Norwegian Rigs
By David Wethe, Joe Carroll and Bradley Olson Jul 31, 2014 8:54 PM GMT+0700
July 30 (Bloomberg) -- Bloomberg’s Peter Cook reports on the latest round of sanctions against Russia by the United States and European Union and looks at possible sanctions Russia can levy in retaliation. He speaks on “Bloomberg Surveillance.”
A Norwegian drill rig owner is supplying Russian oil giant OAO Rosneft (ROSN) and Exxon Mobil Corp. (XOM) with the kind of high technology that will be barred under U.S. and European Union sanctions taking effect as soon as tomorrow.
Though the EU said it will deny export licenses for equipment intended for deep-water and arctic oil production, Rosneft’s six rig leases from Seadrill Ltd. (SDRL)’s North Atlantic Drilling unit, signed July 29, appear to thwart sanctions intended to block Russian oil companies from obtaining Western drilling expertise. Seadrill’s unit can proceed with the Rosneft contracts, worth $4.25 billion, because they were signed before the sanctions take effect, said Rune Magnus Lundetrae, Seadrill’s chief financial officer.
The drilling contracts show how the latest round of international sanctions may have only minimal impact on Russia’s oil industry, at least in the short-term.
“This is not exactly a full, frontal assault on the Russian economy,” Frances Hudson, who helps oversee $305 billion as global thematic strategist at Standard Life Investments, said in a telephone interview from Edinburgh. The sanctions “are just nibbling around the edges” of Russia’s energy sector.
The European Union and the U.S. decided to tighten sanctions against Russia over its support of separatists in eastern Ukraine. The new measures target the banking, energy and defense industries, threatening business in Russia for companies from BP Plc (BP/) to Siemens AG (SIE) and Renault SA. (RNO)
More Restrictions
It is initially unclear how sanctions might affect Seadrill and its unit, North Atlantic Drilling Ltd. (NADL), since they have roots in multiple countries. Seadrill owns 70 percent of North Atlantic Drilling, and the companies are controlled by billionaire John Fredriksen, a Norway-born Cypriot citizen whose nickname is the Viking King. Both companies are incorporated in Hamilton, Bermuda, and Seadrill lists its headquarters as London, while North Atlantic Drilling is managed from Norway.
Subject to Sanction
“We understand that the sanctions will be possibly valid from Friday, August 1, and apply to future contracts. And these contracts were signed July 29,” Lundetrae said yesterday in a phone interview.
Rosneft rose as much as 1.2 percent and traded 0.4 percent higher at 224.9 rubles as of 11:11 a.m. in Moscow, extending a winning streak to three days. Seadrill rose 0.9 percent to 229.4 kroner in Oslo. North Atlantic Drilling (NADL) rose 1.2 percent in New York yesterday to $9.60.
Norway Connection
Norway is not part of the EU, though its government has signaled it will probably abide by the sanctions against Russia. Seadrill’s Lundetrae declined to comment on which laws the contracts might be governed by.
Rosneft was first to announce yesterday it had locked in its contracts with the Seadrill unit, which is a piece of the maritime empire controlled by Fredriksen.
“Entering into long-term offshore drilling agreements will allow Rosneft to ensure implementation of exploration and development of its harsh environment offshore license areas,” Rosneft Chief Executive Officer Igor Sechin said in the statement.
Fredriksen has never shied away from geopolitical strife. The $16.7 billion shipping magnate started amassing his fortune in the 1960s trading oil in Beirut and leasing crafts to the U.S. military in Vietnam, and in the 1980s running oil for Iran during its war with Iraq.
The U.S. and European Union won’t be able to impose an airtight block on the technologies they want to keep from the Russians, said Bryan Early, assistant professor of political science at the State University of New York at Albany who is writing a book about how countries thwart sanctions. “They will be able to find some replacement technology on the international marketplace,” he said.
Narrow Targets
The sanctions enacted thus far against Russia’s energy sector have left untouched the sprawling natural gas industry and so-called conventional crude production that generate more than half the national budget. The bans have targeted a narrow list of gear and technologies used in deep-water, Arctic and shale prospects, none of which are key to Russia’s current or near-term oil output, Hudson said.
“Putin knows that these sanctions are all bark, no bite,” said Fadel Gheit, an energy analyst at Oppenheimer & Co. in New York.
Exxon, which has partnered with Rosneft on Russian oil projects for more than a decade, expanded its relationship with the Moscow-based company in 2011 by signing a $3.2 billion exploration pact. Chairman and Chief Executive Officer Rex Tillerson expressed doubts in May that sanctions would prove effective. Exxon spokesman Alan Jeffers said yesterday that the Irving, Texas-based company still was assessing the sanctions.
’Narrow’ Sanctions
“These are very narrow, very circumscribed sanctions,” said Pavel Molchanov, an energy analyst at Raymond James & Associates Inc. It’s not an issue that Rosneft and the other Russian energy producers “are going to lose much sleep over.”
North Atlantic Drilling’s agreement with Rosneft provides six offshore rigs to the Russian company through 2022.
Under a letter of intent announced in May, North Atlantic Drilling and at least one other Fredriksen-owned company are to provide as many as nine offshore rigs to Rosneft, Lundetrae said. The six rigs are part of the nine-rig deal, he said.
Rosneft is also set to buy a stake in the Seadrill unit, which it could increase to as much as 50 percent over time, people familiar with the deal said in May.
(An earlier version of this story was corrected because Seadrill owner John Fredriksen’s last name was misspelled.)
To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Jim Efstathiou Jr., Robin Saponar
By Andrew MacAskill and Arun Devnath Jul 31, 2014 7:34 PM GMT+0700
If good fences make good neighbors, that may explain why much of Asia’s recent territorial tension has centered on the ocean.
India took a step toward tighter ties with Bangladesh this month in surrendering its four-decade claim to a swathe of the Bay of Bengal about the size of Lake Ontario, opting to heed a United Nations-backed ruling. Bangladesh praised its neighbor’s move, with the head of state-run oil monopoly Petrobangla saying the newfound clarity will unlock drilling opportunities.
The decision provides a contrast with China, which declines to acknowledge any UN jurisdiction in its dispute with the Philippines over maritime claims. The difference in approach shows why tensions are rising in the South China Sea as companies ramp up oil and gas investment in the Bay of Bengal.
“This is a showcase judgment of how countries can reach an amicable agreement,” said S. Chandrasekharan, New Delhi-based director of the South Asia Analysis Group, referring to India and Bangladesh. “The South China Sea is a glaring example of how one intransigent country can hold up everything.”
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The Permanent Court of Arbitration on July 7 awarded about 19,500 square kilometers (7,500 square miles) to Bangladesh, some 76 percent of the area under dispute with India. The move followed a decision last year that clarified Bangladesh’s sea border with Myanmar.
Exploration On
“The award puts an end to a long standing issue between India and Bangladesh which has impeded the ability of both countries to fully exploit the resources in that part of the Bay of Bengal,” V.K. Singh, junior minister in India’s Ministry of External Affairs, told lawmakers yesterday. “The peaceful settlement of this issue on the basis of international law symbolizes friendship, mutual understanding and goodwill between the two countries.”
The cooperation has opened up access to energy exploration for India and Bangladesh, which now account for less than 1 percent of the world’s proven gas reserves, according to estimates by BP Plc. By year’s end, Bangladesh plans to auction 18 oil and gas blocks in the Bay of Bengal, including 10 previously claimed by India, according to Hossain Mansur, chairman of state-run Petrobangla.
“It’s now a big opportunity for us to explore sea blocks for oil and gas without disruptions,” Mansur said by phone from Dhaka on July 23.
India Studying
Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, will study the blocks and may make a bid, according to D.K. Sarraf, its New Delhi-based chairman.
“It’s good for the oil and gas industry,” Sarraf said by phone of the Bangladesh ruling. “This should increase activity in the region.”
In the South China Sea, oil and gas exploration has been contentious. Chinese ships have cut the cables of survey vessels working for Vietnam and the Philippines, while state-run China National Petroleum Corp. this year moved a deepwater rig into a disputed area despite objections from its neighbors.
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Paul Reichler, a Washington-based lawyer for Foley Hoag LLP who represented Bangladesh in its case against India, is also working for the Philippines as it seeks a ruling from the same court on China’s claims. China has declined to participate, telling the court last year it “does not accept the arbitration initiated by the Philippines.”
‘Odd Man Out’
“The fact India has accepted this judgment without question puts a little pressure on China,” Reichler said, adding that China is the first country to refuse to participate in arbitration under the UN law of the sea. “It makes China look that much more like the odd man out.”
The South China Sea is estimated to have as much as 30 billion metric tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, according to the official Xinhua news agency. Vietnam and the Philippines reject China’s “nine-dash map” of the waters as a basis for joint oil and gas development.
“India, Bangladesh and Myanmar have all demonstrated that countries can successfully settle their disputes through impartial third-party arbitration,” Philippine Foreign Secretary Albert del Rosario said in a text message. “We are confident that the tribunal will find in favor of our position against China’s Nine-Dash Line. I am sure the international community will receive such a development positively and that China will appreciate its value in the long run.”
Vietnam Ammunition
Vietnam has prepared evidence and is awaiting the “appropriate timing” to take legal action against China, Prime Minister Nguyen Tan Dung told Bloomberg News on May 30.
“Vietnam welcomes countries choosing to resolve disputes through peaceful measures,” Le Hai Binh, Vietnam foreign affairs ministry spokesman, said by e-mail. “Vietnam thinks that all nations, including China, have the responsibility to maintain regional peace and stability.”
Without some sort of international settlement, tensions between China and Vietnam will flare again, Le Hong Hiep, a lecturer at Vietnam National University in Ho Chi Minh City, said by phone.
India’s acceptance of the UN’s ruling gives Vietnam more ammunition in its “public opinion warfare” with China over disputed territory, Hiep said.
Bikram Singh, India’s retiring army chief, told reporters today that a land border dispute with China would be resolved peacefully, building on goodwill from a meeting earlier this month in Brazil between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping. Xi said then the two countries should work together to give developing countries a stronger voice in setting global rules, Xinhua said.
China Power
“The Chinese leadership around Xi Jinping is ready to get into difficulties with its neighbors in order to consolidate its preeminence in the region and to rebalance its power vis-a-vis other players including the United States,” said Jean-Pierre Cabestan, director of government and international studies at Hong Kong Baptist University.
China’s foreign ministry in March repeated its rejection of the Philippines arbitration case, saying it prefers direct negotiations to resolve the dispute. The Philippines is illegally occupying some of China’s islands and reefs in the South China Sea, Foreign Ministry spokesman Hong Lei said on March 30.
“If you’re a big power and know you’re more powerful, you don’t want to be constrained by international law,” said Li Mingjiang, associate professor and coordinator of the China program at the S. Rajaratnam School of International Studies in Singapore. “You want to use political and other means to resolve the dispute.”
To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Arun Devnath in Dhaka at adevnath@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Sam Nagarajan
By Henry Meyer and Stephen Bierman Jul 31, 2014 5:02 PM GMT+0700
July 28 (Bloomberg) -- Tim Osborne, head of GML Ltd., former holding company of Yukos Oil Co., discusses the $50 billion award against Russia for the confiscation of what was once the nation’s largest oil company. He also speaks about the possible consequences for state-run OAO Rosneft. Osborne talks with Ryan Chilcote on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Armed with a record $50 billion ruling against Russia for confiscating Yukos Oil Co., the ex-owners are targeting assets of state-run OAO Rosneft (ROSN) and OAO Gazprom (OGZD) in a legal race that may run from Venezuela to Vietnam.
The 600-page judgment by an arbitration panel in The Hague this week found Rosneft, which acquired most of Yukos’s assets after they were seized and sold off, and Gazprom to be instrumental in the campaign. Backed by such a ruling, the former Yukos shareholders stand a better chance of winning court-ordered seizures of assets of Russia’s two largest companies than of sovereign property, which is usually immune from confiscation, said Gus Van Harten, an arbitration expert at York University’s Osgoode Hall Law School in Canada.
“If I were them, I’d be looking at Rosneft, who are the customers, where are they paying, where is the oil being shipped?” Van Harten said by e-mail.
Rosneft went from being Russia’s No. 10 crude producer to the world’s largest publicly traded oil company by output, aided by its acquisition of Yukos assets. The company is headed by Igor Sechin, a longtime ally of President Vladimir Putin who was deputy head of the Kremlin administration during the legal assault on Yukos.
Germany, Texas
Rosneft’s biggest European asset is Ruhr Oel, a 50-50 venture with BP Plc (BP/) that unites four German refineries, said Alexander Kornilov, an Alfa Bank energy analyst in Moscow. Other Rosneft assets outside of Russia include a stake in an Italian refinery and shale-oil ventures with Exxon Mobil Corp. (XOM) in Texas and Canada. It also has major projects in Venezuela, a gas field and pipeline in Vietnam and exploration ventures in Brazil and Algeria.
Gazprom, which supplies about a third of Europe’s gas, owns stakes in pipelines in Poland and under the Black and Baltic seas, as well as underground storage facilities in European Union-members Austria, the U.K., Germany and Latvia. It also has trading or marketing units in almost every EU state.
The tribunal in The Hague said Rosneft in particular had implemented the policy of the Russian government in its takeover of Yukos. The court accepted the plaintiffs’ argument that the $27 billion in tax claims used to justify the dismantlement was “for the sole benefit of the Russian state and state-owned companies, Rosneft and Gazprom.”
Khodorkovsky, Sechin
The two companies can be targeted because they were beneficiaries of expropriated Yukos assets, said Yas Banifatemi, a lawyer for GML Ltd., formerly Group Menatep, the holding company set up by Mikhail Khodorkovsky and his partners before the businessman was arrested and sentenced to more than a decade in prison.
Russia said it would appeal what it termed a “politically biased” ruling in Dutch courts, where there are only limited technical grounds to annul international arbitration decisions.
Enforcing the award will be easier in some countries than in others. Venezuela, for example, is one of Russia’s staunchest allies and its court system is controlled by the government, according to Human Rights Watch, so a ruling against Rosneft is unlikely. Sechin flew an entire chamber choir from Moscow to western Venezuela this week to perform in Hugo Chavez’s hometown on the late president’s birthday.
‘Corporate Veil’
“Common law jurisdictions like the U.K. and the U.S. are generally more flexible in treating companies as alter egos of a state or in piercing the corporate veil,” said Jan Schaefer, a lawyer at King & Spalding in Frankfurt. “German courts are much more reluctant to ignore the corporate veil.”
Yukos-related litigation won’t wrap up anytime soon, according to GML. Tim Osborne, who’s leading the legal battle as head of GML, said it may take “a long while” to exhaust all legal options.
The Yukos affair “could easily go on for another 10 years,” said Dmitry Gololobov, former chief attorney for the defunct oil company.
Khodorkovsky, who was freed by Putin in December, has said he transferred all his Yukos shares to Leonid Nevzlin before the company was dismantled, so he isn’t entitled to any money generated as a result of court action.
The European Court of Human Rights today ordered Russia to pay all former Yukos shareholders 1.87 billion euros ($2.5 billion) in compensation for the dismantling of the company, in a separate ruling that Russia will have to adhere to if it can’t overturn it on appeal.
U.S. Victory
Nevzlin said in an interview published by Forbes Russia after the ruling in The Hague that GML would accept less than $50 billion if Russia agrees to drop the charges against himself and other former Yukos employees. Nevzlin, who fled to Israel a decade ago, declined to comment beyond what he told Forbes.
Rosneft won’t negotiate on Yukos employees’ criminal charges, Sechin told reporters in Caracas this week. “You can’t buy justice with money,” he said.
Khodorkovsky, once worth more than $15 billion, said Rosneft and Gazprom will now have their hands full with major legal battles to thwart confiscation of their assets.
“I think that Igor Ivanovich Sechin will now have more problems that he expected,” Khodorkovsky said in an interview with RBC Daily, the Moscow newspaper controlled by billionaire Brooklyn Nets owner Mikhail Prokhorov.
Yukos has had legal success outside of Russia before. A Dutch remnant of Yukos received $425 million from Rosneft in 2010 to cover loans given to a Russian affiliate before Rosneft acquired it. And last year a U.S. court ordered a former Yukos subsidiary now owned by Rosneft to pay $186 million to a Luxembourg unit of Yukos. Those funds and another $1.7 billion from the sale of other assets are held by two Dutch trusts that Rosneft is seeking control over.
‘Huge Opportunity’
“The Hague ruling opens a huge opportunity for Yukos to claim Rosneft and Gazprom assets in foreign courts,” Vladimir Milov, a deputy energy minister in 2002, during Putin’s first term as president, said by phone. “If the courts accept the argument that Rosneft and Gazprom are instruments of the state, then some of their foreign assets may be at risk.”
Russia, the largest supplier of oil and gas to Europe, is already facing mounting sanctions levied over the conflict in Ukraine, including by the U.S. on Rosneft and Sechin personally. Rosneft accounts for 56 percent of Russia’s crude exports via pipeline monopoly OAO Transneft, while Gazprom, controls all the country’s exports of the fuel to Europe.
Rosneft complied with the law in acquiring Yukos subsidiaries and doesn’t expect the decision to “negatively affect its commercial activity or assets,” the oil producer said in a website statement.
‘State Apparatus’
Gazprom declined to comment on the ruling. A manager at a Gazprom affiliate said the gas exporter is prepared for a protracted era of Yukos litigation that will be very unpleasant for both the company and the country. He asked not to be identified because he’s not authorized to speak to the media.
Still, Gazprom and Rosneft are protected to some extent because most courts will be reluctant to punish all shareholders equally, not just the biggest, which in this case is the Russian government, according to Kyle Davis, a partner at Goltsblat BLP, the Russian practice of Berwin Leighton Paisner.
“It will be difficult, probably impossible, to seize Rosneft and Gazprom assets to satisfy The Hague award,” Davis said. “These are public companies with thousands of shareholders other than the Russian state.”
The Russian state owns about 50 percent of Gazprom and almost 70 percent of Rosneft, in which BP has 20 percent.
Fighters, Paintings
Georgios Petrochilos, a partner at Three Crowns, a law firm specializing in international arbitration, said GML’s most convincing argument is the tribunal’s conclusion that Rosneft and Gazprom have acted as arms of the government.
“What you would need to show is that Rosneft is effectively part of the state apparatus,” Petrochilos said by phone from London. Potential targets for court-ordered seizures include tankers carrying Rosneft crude out of Russia, according to Petrochilos.
If that legal precedent is set, it “could radically reduce Russia’s export markets for oil and fundamentally change the country’s engagement with international markets,” Robert Amsterdam, a former Yukos lawyer, said on his website.
Global Hunt
Russia has endured lengthy legal odysseys before by refusing to pay damages in commercial disputes. Noga Import & Export SA, a Geneva-based trading company, won a series of court rulings in Europe to enforce payment for goods including baby food and pesticides that it supplied to Russia in exchange for oil in 1991 and 1992.
Over the course of a decade, Noga won the temporary seizure of Russian assets including fighter jets at the Paris Air Show and Pushkin State Museum artworks on loan in Switzerland over what it claimed was $680 million of debt.
Unlike previous Yukos-related litigation, though, The Hague decision gives GML the right to go to arbitration courts in about 150 countries, including Venezuela and Vietnam, that are party to the 1958 United Nations convention on foreign arbitral awards to enforce the ruling.
“It will be a question of identifying assets around the world, going to local courts and getting attachments,” GML’s Osborne said in a Bloomberg Television interview. “I don’t think that Rosneft can be 100 percent confident that all their assets in the West will be secure.”
To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net
To contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net; Balazs Penz at bpenz@bloomberg.net Brad Cook
By Joe Carroll Aug 1, 2014 3:19 AM GMT+0700
Exxon Mobil Corp. (XOM) fell after reporting oil and natural gas production declined to the lowest level in almost five years, raising the stakes as it seeks to pursue crude deposits in Russia.
The world’s largest energy company dropped 4.2 percent to $98.94 at the close in New York, the biggest slide in almost three years, after reporting second-quarter earnings that beat analysts’ estimates.
The company’s oil and gas output decreased 5.7 percent to the equivalent of 3.84 million barrels a day, the lowest since the third quarter of 2009, according to data compiled by Bloomberg. Exxon had been expected to post quarterly output equivalent to 3.96 million barrels, based on six analysts’ estimates. Crude from Exxon wells in Europe and Asia dropped, while gas production faltered in every region in which the company does business except Africa and the South Pacific.
Exxon is going after crude in Russia’s Arctic regions in an effort to extract some of the largest oil reserves and reverse a trend of declining production for the company. Its allocating $39.8 billion to capital projects this year, including hundreds of millions for an exploratory well in Russia’s Kara Sea, as part of a 29-year agreement signed with Moscow-based OAO Rosneft (ROSN) in 2011.
Sanctions threaten to halt that progress after the U.S. and European Union said July 29 they would restrict the export of technologies for energy production to Russia. The oil-producing nation holds an estimated $8 trillion worth of crude underground.
Profit Rise
Exxon is awaiting further details on U.S. and EU sanctions to determine any effects, Vice President David Rosenthal said on a conference call today. He declined to comment on how the recently completed Berkut platform, a joint venture with Rosneft of Russia’s Far East coast, was financed.
“Because these new oil technology sanctions imposed by Europe and the U.S. governments do impose some restrictions on Arctic drilling technology, it may have an effect on these Arctic drilling plans,” Pavel Molchanov, a Houston-based analyst for Raymond James & Associates Inc., said in a phone interview before the results were released. Molchanov rates Exxon the equivalent of a buy and doesn’t own the shares.
The lower production figures came as the company reported better-than-expected second-quarter earnings. Excluding one-time items, per-share profit was 19 cents more than the $1.86 average of 21 estimates compiled by Bloomberg. Net income climbed 28 percent to $8.78 billion, or $2.05 a share, from $6.86 billion, or $1.55, a year earlier, the Irving, Texas-based company said in a statement today.
Higher Prices
Earnings were driven by higher fuel prices. Brent crude futures, a global benchmark, rose 6 percent from a year earlier to average $109.76 a barrel in the second quarter. Natural gas futures prices in New York rose 14 percent to average $4.579 per million British thermal units.
Exxon’s performance has trailed competitors and the Standard & Poor’s 500 Index for the past year, gaining 7.3 percent, less than half of the S&P’s move. The company, which has a market value of $432 billion, has 14 buy ratings from analysts, 13 holds and five sells.
To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net
To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net Will Wade
Shell Beats Estimates Amid $1.9 Billion Writedown on Gas
By Eduard Gismatullin Jul 31, 2014 11:12 PM GMT+0700
Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, beat analysts’ second-quarter earnings estimates while pushing ahead with a restructuring program that saw it write off about $1.9 billion in U.S. gas assets.
Profit excluding one-time items and inventory changes gained 33 percent to $6.1 billion from $4.6 billion a year earlier partly on higher U.S. energy prices, The Hague-based Shell said today in a statement. That beat the $5.6 billion average estimate of 18 analysts surveyed by Bloomberg.
“The impairments we have announced today in Upstream Americas reflect the restructuring of Shell’s resources plays portfolio,” Chief Executive Officer Ben van Beurden said in the statement. “We are taking firm actions to improve Shell’s capital efficiency by selling selected assets and making tougher project decisions.”
Van Beurden, who took over from Peter Voser at the start of the year, is accelerating asset disposals and reviewing spending plans to win investor support. He returned Shell’s operations to profit in the Americas this year, where the company is deploying about $61 billion on onshore tight and shale gas and oil projects.
Shell shares rose to the highest since 2005 by the close in London, climbing 2.5 percent to 2,441 pence to make it the best performer on the FTSE 100 Index (UKX) today.
The company expects to buy back as much as $8 billion in shares in 2014 and 2015, of which it has already purchased $1.6 billion in the first half of the year.
Woodside Disposal
“Another outstanding quarter for Shell,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, Missouri, wrote in a note. “Its restructuring is continuing to progress well. Results were strong across the board.”
The U.S. gas charge was partly offset by Shell’s disposal of stakes in Australia’s Woodside Petroleum Ltd. and Wheatstone liquefied natural project, the Anglo-Dutch company said. It made a $570 million profit in producing projects in the Americas in the second quarter excluding the impairments, Shell spokesman Jonathan French said by phone.
The company wrote off $2.1 billion in “liquids-rich shale properties in North America” in the second quarter last year.
U.S. natural-gas prices rose 14 percent and oil climbed 9.4 percent in the second quarter from last year on higher demand for fuels.
Energy Earnings
Net income advanced to $5.3 billion from $1.7 billion a year earlier, according to the statement. The company pumped 3.077 million barrels of oil equivalent a day in the quarter, compared with 3.062 million barrels a year earlier.
BP Plc this week said second-quarter adjusted profit rose 34 percent after the London-based company started new projects in the Gulf of Mexico and Angola. France’s Total SA yesterday said earnings fell 12 percent amid record-low production and a slump in refining margins. U.K. explorer BG Group Plc and Italy’s Eni SpA also reported improved earnings today.
In the U.S., Exxon Mobil Corp., the world’s biggest energy company, said second-quarter net income climbed to $8.78 billion from $6.86 billion a year earlier, beating estimates. Houston-based ConocoPhillips today reported profit rose to $2.08 billion from $2.05 billion as output surged.
Russian Sanctions
Shell is monitoring the the situation in Russia after the downing of a Malaysian airliner this month escalated tensions over the country’s involvement in Ukraine. On July 29, the European Union agreed to additional sanctions, restricting the export of equipment to modernize Russia’s oil industry.
The Anglo-Dutch company, which Deutsche Bank AG estimates has about $6.7 billion of oil and gas-producing assets in Russia, is working with OAO Gazprom on the expansion of the Sakhalin 2 LNG project. It’s also exploring for oil with OAO Gazprom Neft in Siberia.
“It’s a bit early to say how this all play out and what the precise consequences for us will be and what sort of postpones we will have to have,” van Beurden said. “I guess it will go on for a little while before this will settle down.”
Van Beurden has already completed about $8 billion in assets sales this year. Shell has set a disposal program of about $15 billion through 2015.
“We have completed a new bottom-up review of our portfolio and strategy,” in Americas’ producing projects, Shell said. “Major divestments of non-core liquids-rich shales positions are now complete.”
In Canada, it agreed to sell its holdings in the Burnt Timber, Hunter Valley and Panther River gas fields and local pipelines to CQ Energy Partnership for about $50 million, Shell said today.
The company also named Harry Brekelmans as projects and technology director, taking over from Matthias Bichsel, with effect from Oct. 1.
To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Ana Monteiro, Tony Barrett
By Rebecca Penty and Bradley Olson Aug 1, 2014 4:19 AM GMT+0700
Chevron Corp. (CVX)’s plan to build a natural gas shipping terminal on Canada’s Pacific Coast faces mounting challenges with the exit of its partner, Apache Corp. (APA)
The proposal to liquefy the fuel in Kitimat, British Columbia, the first to get export approval in Canada, was already delayed by prior ownership changes including the departures of Encana Corp. and EOG Resources Inc. It’s among more than a dozen Pacific Coast liquefied natural gas export plants being considered by companies seeking higher prices for the fuel in Asia, including Royal Dutch Shell Plc and Petroliam Nasional Bhd.
Chevron, based in San Ramon, California, probably won’t pursue Kitimat LNG on its own, given the cost overruns at its Gorgon project in Australia, said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. The cost to build Gorgon, where Chevron has partners including Exxon Mobil Corp., surged to $54 billion from an estimate of $37 billion in 2009.
“The odds increase that there will be no Kitimat,” Gheit said in a phone interview today. “I would not think that they would be interested in going it alone. They had a bad experience in Australia with Gorgon and their co-pilots were Exxon, the best in the business.”
Apache, facing pressure from activist hedge fund Jana Partners LLC to cut spending and focus drilling in the U.S., heeded the investor’s advice today by announcing it will exit the Canadian project and will sell its stake in the Wheatstone LNG facility under construction in Australia.
Apache gained 1.4 percent to $102.66 at the close in New York after earlier rising to $104.57, the highest intraday since March 2012. Chevron fell 2.5 percent.
‘World Class’
Kurt Glaubitz, a spokesman for Chevron, declined to comment on Apache’s departure from the project.
“I don’t think the complete exit by Apache has an impact on Kitimat going forward one way or the other,” Apache Chairman and Chief Executive Officer Steve Farris said today on a conference call with investors. “It is a world-class project with world-class reserves.”
Chevron and Apache had already been seeking a buyer to acquire part of their interests in Kitimat LNG to defray costs. The project, the first to receive an LNG export license from Canada’s National Energy Board in 2011, has yet to be sanctioned.
Petronas Plan
Petroliam Nasional, known as Petronas, plans to be the first to decide whether to proceed with a Canadian LNG export project. The Malaysian state-owned company is targeting a decision on the C$9 billion ($8.3 billion) to C$11 billion proposal by the end of this year.
Kitimat LNG was initially considered by Calgary-based developer Galveston LNG Inc. as an import terminal last decade and the concept was switched to an export facility after vast supplies of gas from shale across North America flooded continental markets. Galveston attracted Apache as a partner and was later acquired by EOG. Encana joined the project in 2011.
Chevron announced it would enter Kitimat LNG the following year, when Encana and EOG sold their stakes to focus on producing onshore fuels. The project was delayed after Chevron joined as the partners reorganized roles, undertook additional studies and sought more partners to spread costs.
Kitimat LNG’s early export license gave it a head start on the other Canadian proposals, and it succeeded in lining up pipeline approvals and aboriginal support.
Buyers Search
After that, the project struggled to find buyers for its gas. Apache’s departure now pushes Kitimat LNG lower on the list of the plants that may be built, Ed Kallio and Cameron Gingrich, directors at Solomon Associates LLC’s Ziff Energy division in Calgary, said in a phone interview.
“They were having issues finding markets, unlike Shell and Petronas,” Kallio said.
By losing Apache, Chevron may attract a partner with experience developing LNG and contacts in the market that missed the first wave of investment in Canada, said Uday Turaga, chief executive officer of ADI Analytics in Houston.
“I don’t think there will be a dearth of suitors who may want to take Apache’s place,” Turaga said in a phone interview. “It’s going to be a bit of rough weather for the project until additional partners can be lined up.”
To contact the reporters on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net
To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net Carlos Caminada, Robin Saponar
EDF First-Half Profit Rises Amid Higher Atomic Output
By Tara Patel Jul 31, 2014 6:35 PM GMT+0700
Electricite de France SA, Europe’s biggest power generator, reported an 8.3 percent increase in first-half profit after higher nuclear output and tariffs offset a drop in demand due to mild winter weather.
“A good set of results,” Martin Young, an analyst at RBC Capital Markets, wrote in a note. That the state-controlled utility kept full-year financial targets is “positive” given a government decision to cancel a planned increase in electricity rates Aug. 1.
The shares rose as much as 4.2 percent and were trading up 4 percent to 24.42 euros at 1:08 p.m. in Paris. The stock was the best performer on the Stoxx 600 Utilities Index.
Investors’ confidence was shaken last month when Energy Minister Segolene Royal scrapped a planned 5 percent increase in regulated French household electricity rates slated for the start of next month. A proposed law will also begin being debated in parliament later this year on lowering the country’s reliance on nuclear power.
The tariff freeze could lead to a 500 million-euro shortfall in pretax earnings, Chief Executive Officer Henri Proglio said during a presentation in Paris today. The state-set rates could be raised in October, even retroactively, after a government review of the calculation method.
Ebitda Growth
Net income rose to 3.1 billion euros ($4.2 billion) from 2.9 billion euros a year earlier on the “good performance” of its financial portfolio, EDF said today. Earnings before interest, taxes, depreciation and amortization, including the contribution from its distributor in Italy, Edison, climbed 3.1 percent to 9.6 billion euros, higher than the 9.42 billion-euro average estimate of five analysts.
“Ongoing efforts” lowered like-for-like operating costs by 0.8 percent, the company said.
EDF is targeting Ebitda growth of at least 3 percent this year and said the outlook for this measure at Edison has been improved to above 600 million euros before the effects of gas-supply contract renegotiations.
The company also kept a target for 2014 atomic output of 410 terawatt-hours to 415 terawatt-hours after reporting 403.7 terawatt-hours for 2013. It forecasts positive cash flow after dividends in 2018.
“We are investing a lot for our future development,” Chief Financial Officer Thomas Piquemal said in a presentation in Paris today to explain negative cash flow in the first half. The utility kept an outlook for 2014 spending of 13 to 13.5 billion euros.
Nuclear Output
The goals don’t include an “adjustment” in 2012 regulated electricity rates that a French court found to be too low to cover costs. EDF is set to recover an estimated 850 million euros in revenue before taxes from customers, according to a presentation on earnings published today.
Nuclear production rose in the first half in France after the utility shortened the average duration of plant halts for maintenance and upgrades, according to the document. These have been more frequent in recent years as aging reactors undergo in-depth safety checks.
Net financial debt was 30.6 billion euros compared with 33.4 billion euros at the end of December.
EDF has a 16 billion-pound ($27 billion) deal to build reactors in the U.K. It’s also developing a reactor in Normandy and two in China, as well as a gas terminal in France. At the same time, the utility has increased spending on its oldest French reactors, which have entered a period of prolonged halts for safety upgrades and maintenance.
EDF faces an estimated 55 billion euros of costs to improve safety and extend lives of French plants through 2025 after regulators tightened rules following the 2011 disaster at Japan’s Fukushima nuclear plant.
To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine, Ana Monteiro
By Rebecca Penty Aug 1, 2014 1:25 AM GMT+0700
TransCanada Corp. (TRP), the energy company proposing the $5.4 billion Keystone XL pipeline, said comparable profit declined to the lowest in six quarters as it sold less power and electricity prices declined.
Net income excluding one-time items fell to C$332 million ($304 million), or 47 cents a share, in the second quarter from C$357 million, or 51 cents, a year earlier, the Calgary-based company said in a statement today. That missed the 48-cent average of 10 analysts’ estimates compiled by Bloomberg. Profit including a C$99 million gain from the sale of the Cancarb power plant in Alberta rose 14 percent to C$416 million.
TransCanada is seeking more oil transportation business with projects including Keystone XL, which would carry Alberta’s oil-sands crude to U.S Gulf Coast refineries. The company’s natural gas pipeline unit delivered 51 percent of sales last year, followed by the power business at 36 percent and oil pipelines division at 13 percent.
“Weak Alberta power prices and maintenance outages at Bruce Power weighed on second-quarter results,” Russ Girling, TransCanada’s chief executive officer, said in the statement. “Both businesses are expected to produce stronger results in the future due to positive Alberta power market fundamentals.”
Power prices in Alberta were 65 percent lower in the second quarter than a year earlier, according to Alberta Electric System Operator data compiled by Bloomberg. Bruce Power, the Ontario nuclear complex in which TransCanada owns a stake, also faced unplanned outages in the quarter.
TransCanada is awaiting a ruling from President Barack Obama on Keystone XL after he first rejected the pipeline in January 2012 over environmental concerns with the route in Nebraska, and allowed TransCanada to later re-apply with an altered proposal. It was further delayed in April when the U.S. extended its review.
To contact the reporter on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Carlos Caminada, Iain Wilson
Eni Profit Rises 51 Percent Boosted by Saipem, Gas Division
By Alessandra Migliaccio Jul 31, 2014 1:40 PM GMT+0700
Eni SpA (ENI), Italy’s biggest oil company, said second-quarter profit rose 51 percent, boosted by the improved performance of its gas and power division and its services subsidiary Saipem SpA. (SPM)
Adjusted net income for the quarter increased to 868 million euros ($1.16 billion), the Rome-based company said in a statement. That missed the 1 billion euro estimate of 18 analysts surveyed by Bloomberg. Revenue fell to 27.4 billion euros from 28.1 billion euros.
The gas and power division posted a 40 million euro profit in the quarter from a 227 million euro loss a year earlier, benefiting from the successful renegotiation of gas supply tariffs with OAO Gazprom. (GAZP) Saipem also recovered from past losses, posting a second-quarter profit of 75 million euros earlier this week.
“Eni reported a significant increase in cash flow,” thanks to the gas contracts renegotiations, Eni Chief Executive Officer Claudio Descalzi said in the statement.
Second-quarter operating cash flow of 3.59 billion euros, the highest since the second-quarter of 2012, will allow the company to propose an interim dividend of 0.56 euros per share, Descalzi said.
Overall production was little changed from the previous quarter at 1.58 million barrels of oil a day.
The refining and marketing division posted a net adjusted loss of 165 million euros in the quarter. A sharp decline in refining margins and a deterioration in the European refining sector caused by excess capacity has prompted Eni to accelerate the restructuring of its refineries, Descalzi said in the statement. The company has already begun negotiations with unions to close refineries shutting as much as half the company’s 774,000 barrel-a-day capacity.
Eni said it expects continuing weak conditions in the European industries of gas distribution, refining and fuels and chemical products marketing, and plans to continue with cost cuts and renegotiation of gas contracts.
To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Kevin Costelloe, Indranil Ghosh
By Alessandra Migliaccio and Chiara Vasarri Jul 31, 2014 1:29 PM GMT+0700
Enel SpA (ENEL), Italy’s largest utility, said first-half profit fell, hurt by weak electricity demand in Italy and Spain and unfavorable exchange rates, especially in Latin America.
Adjusted net income declined 4.8 percent to 1.57 billion euros ($2.1 billion), the Rome-based company said today in a statement. That beat the 1.49 billion euros average estimate of six analysts in a Bloomberg survey.
Revenue slipped 8.1 percent to 36.1 billion euros.
The company also announced a structural reorganization of its divisions and said it would tighten control of Enersis through the purchase of the 60.62 percent owned by Endesa by Enel Energy Europe. An extraordinary cash dividend, at least equal to revenue from the sale, will be proposed to Endesa shareholders, the company said.
“Enel also intends to assess the possibility of undertaking other capital market transactions, depending on market conditions, that could increase the value of its holding in Endesa and restore the stock’s current lack of liquidity,” Enel said.
The company, which raised 1.3 billion euros with the sale of its stake in SeverEnergia to Rosneft OAO (ROSN) in 2013, is seeking to strengthen its balance sheet with another 4.4 billion euros from the sale of it power assets in Slovakia and Romania. The company owns 66 percent of Slovakia’s largest utility, Slovenske Elektrarne AS and power distribution assets in Romania.
Net debt rose 8.5 percent to 43.1 billion euros as of June 30 from 39.7 billion euros at the end of December. Earnings before interest, tax, depreciation and amortization, or Ebitda, decreased 3.3 percent to 7.9 billion euros. Enel said it will focus on the renewables business and emerging economies in the second half of the year.
To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Kevin Costelloe
By Tara Patel Aug 1, 2014 5:00 AM GMT+0700
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GDF Suez SA (GSZ), operator of Europe’s biggest natural-gas network, said its first-half profit dropped 13 percent and warned the outage of two Belgian nuclear reactors and reduced heating demand may weigh on full-year earnings.
While the utility confirmed 2014 financial targets, Courbevoie, France-based GDF Suez said these may be changed in the second half depending on what happens with the Belgium generators.
The utility has forecast net recurring income in the range of 3.3 billion to 3.7 billion euros ($4.4 billion to $5 billion) for the year, compared with 3.4 billion euros in 2013.
“We expect to be close to the low end” of the range under average weather conditions, even if the Belgian nuclear reactors are restarted in the fourth quarter, Chief Executive Officer Gerard Mestrallet said yesterday on a conference call.
“Even if we do better on financial charges, 3.3 billion euros is reachable but would be a good result,” Chief Financial Officer Isabelle Kocher said on the call. She cited the effects of the relatively warm winter in France, the Belgian reactors and the rising cost of producing electricity in Brazil as reservoirs dry up.
GDF Suez, which operates installations from atomic reactors and pipelines to offshore gas platforms, has been hurt by lower demand for gas-fired power during Europe’s economic slump, leading it to close or mothball more than 11,000 megawatts of capacity. Mestrallet has sought to expand in Asia, Latin America and the Middle East to counter the slowdown.
Earnings Drop
The utility reported yesterday that net recurring income fell to 2.125 billion euros from 2.425 billion euros a year earlier. Earnings before interest, taxes, depreciation and amortization declined 14 percent to 6.6 billion euros.
The utility beat an estimate compiled by Bloomberg of 2.04 billion euros for net recurring income over the period and just missed the 6.66 billion euro average of eight analysts’ estimates for Ebitda.
Net debt fell to 26 billion euros, 3.2 billion euros less than at the end of December, according to the statement. The company is aiming to cut debt and lower costs.
The outage of the Doel-3 and Tihange-2 nuclear reactors in Belgium that are run by GDF’s Electrabel unit is costing about 40 million euros a month in net recurring income, according to the utility.
Reactor Uncertainty
The future of the reactors has been clouded by uncertainty since cracks were found in their cores in 2012, prompting the Belgian authority to order operations halted until their safety could be assured. Further tests are being performed, Vice-Chairman Jean-Francois Cirelli said on the call.
In addition to the closures in Belgium, a tax on atomic energy in that country is “confiscatory” and would be fought by “all legal means” including arbitration, the utility said yesterday. The levy will cost GDF Suez 400 million euros a year, Cirelli said.
“We will examine all options concerning the future of our nuclear activities in Belgium,” he said.
The utility wrote down 14.9 billion euros in asset values and goodwill, it said in February, mostly because of the shutdown of European thermal plants. The shutdowns continued in the first half of the year, Cirelli said yesterday on the call.
For the 2014 to 2016 period, GDF Suez plans to invest 6 billion to 8 billion euros a year, compared with 3 billion euros last year, and scale back asset sales to 2 billion to 3 billion euros a year.
“There will be no transformative acquisitions because our group does not need it,” Mestrallet said. Instead, GDF Suez is studying “interesting” possibilities and will spend about 2 billion to 3 billion euros annually buying “small and medium-sized” assets in the next three years.
On the possibility of selling European energy infrastructure, he said GDF Suez has “no intention to do that right now.”
To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Steven Frank, Carlos Caminada
By Zain Shauk Aug 1, 2014 3:45 AM GMT+0700
Murphy Oil Corp. (MUR) fell the most in almost three years after rising exploration costs and abandoned fields led earnings to plummet and miss analysts’ estimates.
Murphy, based in El Dorado, Arkansas, dropped 6.9 percent to $62.13 at the close in New York. It earlier declined as much as 8.5 percent, the most intraday since September 2011.
Second-quarter net income slumped 68 percent from a year earlier, to $129.4 million, after the costs of drilling in Malaysia surged and two prospects in Southeast Asia were abandoned as dry holes, Murphy said yesterday after markets closed. Per-share profit excluding one-time items of 90 cents trailed the $1.21 average of 14 analysts’ estimates compiled by Bloomberg.
Oil-equivalent production of 210,191 barrels a day in the quarter fell 3 percent short of the company’s expectations, leading Murphy to say it will lower its 2014 production target.
The results “felt like a throw-back to earlier days, complete with dry holes, a production miss and a fiscal-year production guide-down,” Deutsche Bank analyst Ryan Todd said in a note to clients today.
Shares pared some of the losses after Murphy announced the sale of its Milford Haven refinery in Wales to The Klesch Group today.
Murphy Chief Executive Officer Roger Jenkins said in May that the company was in talks with potential buyers for the refinery, though a sale could take as long as one year. A spokesman for Murco, Murphy’s U.K. subsidiary, declined to comment on the sale price or other specifics.
Murphy will hold its second-quarter earnings call at 1 p.m. New York time.
To contact the reporter on this story: Zain Shauk in Houston at zshauk@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Carlos Caminada, Robin Saponar
By Bradley Olson Aug 1, 2014 3:28 AM GMT+0700
Apache Corp. (APA) is heeding advice from activist hedge fund Jana Partners LLC and exiting two costly natural gas projects as it considers selling some or all of its international assets.
The company will sell its stake in the Wheatstone liquefied natural gas project under construction in Australia and the proposed Kitimat LNG facility in Canada, Houston-based Apache said today in a statement. Apache, which got 42 percent of its revenue from the U.S. last year, is weighing a sale or separation of its international assets.
“There are no sacred cows and our efforts continue,” Chairman and Chief Executive Officer Steven Farris said during a conference call with investors today. “We have recognized that there really are two different businesses.”
Jana announced last week it had taken a $1 billion stake in the company and was pushing for a sale of assets and an exit from the LNG projects. Those actions would free cash for share buybacks and reduce spending risks, according to Jana’s July 22 letter to investors.
“This is a very big step in the right direction and we are pleased that Apache’s board and the management team are listening to shareholders,” Barry Rosenstein, founder of Jana, said in an e-mail today. “There remains a lot of work to be done in the months ahead and we look forward to continuing our dialogue with management during this important transition.”
‘Stronger Focus’
Global energy producers continue to face pressure to cut spending and focus on drilling opportunities in the U.S., where oil production has reached the highest level in more than 25 years. Apache’s exposure to high-cost LNG projects and Egypt, where it produces the equivalent of 54,000 barrels of oil a day, have been a drag on shares for a decade, Jana said in the letter.
Apache rose 1.4 percent to $102.66 at the close in New York. The company has gained 19 percent this year.
“The potential for them to have to fund those projects going forward has been weighing on the stock,” said Brian Youngberg, an analyst at Edward Jones in St. Louis. “The market will view an even stronger focus on the U.S. as a major positive.”
The company is in early discussions with potential buyers for its stake in the $27 billion Wheatstone liquefied natural gas project in Australia, people familiar with the matter said earlier this month. The Chevron Corp (CVX).-operated project could generate as much as $1 billion in free cash flow for Apache by 2018 after its slated 2016 start up.
Royal Dutch Shell Plc said today it’s completed the sale of its stake in the LNG project to the Kuwait Foreign Petroleum Exploration Co.
Capital Drain
The LNG projects have been a drain on Apache’s capital, absorbing about $2 billion in spending this year, the company has said. Farris had previously stated he wanted to reduce the company’s stake in the Kitimat LNG project on Canada’s Pacific Coast, saying in February that he was “very confident” Apache and Chevron would find a partner this year to reduce their share of costs.
Apache’s net income for the second quarter fell by 41 percent to $613 million, or $1.31 a share, from $1.04 billion, or $2.54, a year earlier, the company reported today. Excluding one-time items, per-share profit was 3 cents more than the $1.64 average of 31 analysts’ estimates compiled by Bloomberg. Sales fell 18 percent to $3.48 billion.
To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net
To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net Will Wade
London (Platts)--31Jul2014/217 pm EDT/1817 GMT
LyondellBasell, owner of Houston Refining LP, said Thursday that it has canceled any further purchases of "disputed" Iraqi crude oil after data published by the US Energy Information Administration on Wednesday indicated the Houston plant received two heavy Shaikan cargoes from the semi-autonomous Kurdish region of Northern Iraq in May.
"These purchases were made from a reputable international trader with a guarantee of title and in compliance with US law," LyondellBasell said in a statement. "This Iraqi crude is apparently now the subject of an ownership dispute.
"We have canceled further purchases and will not accept delivery of any of the affected crude until the matter is appropriately resolved."
According to monthly inventory data published by the EIA on Wednesday, Houston Refining LP received two cargoes of heavy sour crude from Iraq in May. The crude cargoes had a sulfur content of 4.6% and APIs of 16.7 and 21.4 degrees, according to the report.
Market sources said the crude in question, which is heavier and more sour than Iraq's Basrah, looks like heavy Shaikan crude from Kurdish northern Iraq.
Basrah, exported from Southern Iraq, typically has an API of about 30 degrees. Iraq's Kirkuk, which is produced in Northern Iraq and exported from Turkey, has an API closer to 34.
Kirkuk exports have been suspended since March, after militants sabotaged part of the pipeline system between the Kirkuk field and the Turkish border.
The Kurdish Regional Government has been exporting Shaikan crude from the country via truck to the Turkish port of Dortyol on the Mediterranean coast. According to Platts cFlow vessel-tracking software and market sources, several cargoes of Shaikan crude have moved across the Atlantic from Dortyol over the last two months, with two of them discharging in May on the US Gulf Coast.
Wednesday's data release comes as another cargo of Kurdish crude -- a Suezmax of a medium sour blend loaded from Ceyhan -- comes under legal scrutiny in the US.
The escalating spat between Erbil and Baghdad over the issue of independent exports has been heavily focused on the lifting of large, Suezmax cargoes exported via the Iraq-Turkey export pipeline and out of the Turkish port of Ceyhan.
United Kalavravta -- currently anchored offshore Galveston out of reach of Texas and US authorities -- has been the target of a lawsuit in Texas, with a district judge ordering the cargo to be seized if the oil enters US territorial waters.
LyondellBasell could not be immediately reached for comment on whether that cargo was intended for them.
The cargo is one of four tankers that have fully loaded out of Ceyhan, using oil piped to the terminal along the Iraq-Turkey export pipeline. A fifth tanker was reported to have begun loading Thursday.
Another cargo from Ceyhan, United Emblem, was taken to the East Singapore OPL, where it was partly off-loaded, likely onto another tanker, Platts cFlow data showed.
A third cargo is currently on the tanker United Leadership, which has been sitting offshore Morocco for nearly two months, while a fourth cargo was unloaded at the Israeli port of Ashkelon, reportedly into storage.
--Paula VanLaningham, paula.vanlaningham@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com
London (Platts)--31Jul2014/759 am EDT/1159 GMT
The high sulfur fuel oil physical Med/North -- the premium of 3.5% FOB Med cargoes to 3.5% FOB Rotterdam barges -- crossed the $4.00/mt threshold Wednesday for the second time in a week. It was assessed at $4.25/mt again, after recording the same level last Friday, for the first time since May 16.
HSFO FOB Mediterranean cargoes have been trading at a premium to HSFO FOB Rotterdam barges since July 7, after the physical Med/North differential spent a whole month in negative territory.
Traders attributed this to a tightening of the Mediterranean market, where sweet crude runs have seen the supply of HSFO shrink in July.
"The Med is stronger, Repsol was not producing [HSFO]," one trader said, adding that inflows of product into the region were also limited. "With the freight being higher, product is not coming from Northwest Europe into the Med, it doesn't make sense for now. But we'll see what happens if the freight comes down."
However, other sources said the Northwest European market remained the best pool of product for West Mediterranean players.
"I'm not seeing any product in the Med, so if you want to buy, you need to bring product from Northwest Europe," a trader said. "[The arbitrage from Northwest Europe] is open into West Med. It might not work going further into the Med but in Tangier, Algeciras, Ceuta, Gibraltar, it works."
--Maude Desmarescaux, maude.desmarescaux@platts.com
--Edited by Maurice Geller, maurice.geller@platts.com
Singapore (Platts)--31Jul2014/640 am EDT/1040 GMT
* Run rates at teapot refiners drop to 34.5% over July 24-30
* New tax system curbs interest for crude, asphalt as feedstock
* Domestic 180 CST prices dip on weak shipping demand
Weak demand and high inventory of refined oil products restrained teapot refiners' buying interest for feedstock crude, asphalt and fuel oil, said trade sources Thursday.
Average run rates at Shandong's teapot refineries in East China fell to 34.5% of capacity over July 24-30, from 36.7% the previous week, Beijing-based energy information provider JYD said in its latest weekly survey of 36 teapot refineries.
Three teapot refineries, with a combined crude distillation capacity of 4.5 million mt/year, shut for maintenance over the week, while the 5 million mt/year Kenli refinery restarted its CDU. The total number of CDUs at teapot refineries shut this week is 12, JYD said.
"Refining losses widened further due to high inventory of oil products and fall in prices [of products] of around Yuan 50/mt for both gasoline and gasoil. Although teapot refineries now use a big portion of crude as feedstock, they are still making losses," said an analyst with JYD.
Buying interest for feedstock crude and asphalt was also thin because a new tax reporting system, effective August 1, will make it difficult for refineries to claim crude or imported asphalt purchases as fuel oil purchases, sources said.
The new system requires all value added tax invoices to be encrypted with digital and quick response codes that will be optically machine readable. These codes will contain detailed information about the cargoes, including the identities of buyers and sellers as well as volumes traded. This will make it more difficult to mask asphalt imports or crude purchases as fuel oil, and reduce their competitiveness over fuel oil, sources said.
There is no consumption tax imposed on products refined from fuel oil, like gasoline and gasoil, but refiners using crude or asphalt as feedstock still need to pay the consumption tax on refined oil products.
Buying interest in 380 CST fuel oil and 280 CST fuel oil has returned over the past weeks as a result, with some teapots starting to purchase small quantities of the cargoes.
However, "even if buyers cannot mask their purchases of asphalt or crude as fuel oil to evade the consumption tax levied on their finished products, it's unlikely for all teapot refineries to purchase imported fuel oil as feedstock, as fuel oil is too expensive to source," said a trader.
Dragon Aromatics, a petrochemical producer in Southern Fujian province, was heard to have imported some cargoes of Iranian 280 CST straight-run fuel oil in the past months at a premium of around $20/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessment.
Meanwhile, Zhejiang Meifu, a petrochemical producer in South China, bought a 40,000-mt cargo of Russian M100 fuel oil at $110/mt to MOPS 180 CST HSFO assessment in July, according to a trader at Tianhong New Energy.
Tianhong, a regular importer of Russian M100 fuel oil, had sold the cargo to Meifu in Zhejiang.
"The petrochemical producers are able to use expensive Russian M100 or Iranian 280 CST fuel oil as feedstock, as they can get refund of the consumption tax, but teapot refineries can not," said the source at Tianhong.
Producers of petrochemicals who use fuel oil or naphtha as feedstock, can claim refund of consumption tax levied on their feedstock, as the government seeks to support the petrochemical industry.
But trade sources do not expect to see more Russian M100 fuel oil coming into China due to tight supply from Russia.
"Blended fuel oil cargoes from Malaysia, however, are still coming in," said another source.
Malaysia supplied 396,725 mt of fuel oil to China last month, accounting for about 28.7% of the total.
DOMESTIC 180 CST FUEL OIL PRICES SLIDES
The price of domestically blended 180 CST bunker fuel continued to fall in South China's Huangpu market this week, as demand from the shipping segment weakened further, trade sources said Thursday.
Bunker fuel traders were forced to lower their selling prices in order to attract buying interest from shipowners.
Some traders have cut the price to around Yuan 4,300-4,320 ($699)/mt from around Yuan 4,300-4,330/mt last week in a bid to attract some orders from ship owners, but that seemed to be not working.
Those traders, in return, lowered their purchasing price of domestically blended 180 CST bunker fuel. "Some already lowered their purchasing prices to around Yuan 4,150-4,190/mt from Yuan 4,190-4,210/mt last week," said a trader source.
But in East China's Shanghai market, the price of bunker fuel oil was more or less the same as last week.
In Shanghai, domestically blended 180 CST fuel oil was heard sold to ship owners at around Yuan 4,400-4,450/mt this week, unchanged from last week.
--Staff, newsdesk@platts.com
--Edited by Haripriya Banerjee, haripriya.banerjee@platts.com
London (Platts)--31Jul2014/932 am EDT/1332 GMT
Gas prices on the Dutch and German trading hubs were stable to slightly weaker Thursday morning, as the focus edged away from concerns over events in Ukraine which have dominated recent sessions to center more on bearish supply and demand fundamentals.
At midday London time, the day-ahead contract on the Dutch TTF was seen at Eur17.20/MWh, down 15 euro cent from its Wednesday assessment, while, on its last day as front-month contract, August shed 30 euro cent to Eur17.30/MWh.
On the German NetConnect, the day-ahead contract was down 15 euro cent to Eur17.45/MWh, while on the GASPOOL it shed 25 euro cent to Eur17.25/MWh.
Further out, Q4 14 on the TTF edged 5 euro cent lower to Eur23.10/MWh, while Winter 14 remained at Eur23.95/MWh.
According to Norwegian exporter Gassco, 115 million cubic meters/day of Norwegian gas was reaching Dornum and Emden on the Dutch-German border at 1200 BST, down by about 5 million cu m/d from Wednesday, but still at normal levels.
Russian exports to the EU were similar to previous sessions, with 87 million cu m/d and 82 million cu m/d nominated to reach Germany via the Nord Stream and Yamal pipelines respectively, while 87 million cu m/d was nominated for delivery at Velke Kapusany on the Slovak-Ukrainian border, according to Platts unit Bentek Energy.
Bentek data showed German demand on Thursday expected to be at 132 million cu m/d.
Tokyo (Platts)--31Jul2014/459 am EDT/859 GMT
Japan's Hiroshima Gas has signed a sale and purchase agreement with Osaka Gas to buy 50,000-130,000 mt/year of LNG for 15 years starting in 2016, the two utilities said Wednesday.
LNG will be delivered ex-ship, and Hiroshima Gas will receive partially loaded cargoes at the Yokkaichi LNG terminal, a spokeswoman for Hiroshima Gas said.
Hiroshima Gas bought 365,000 mt of LNG for the fiscal year ended March 31, up 5.2% year on year.
"We believe the expansion of procurement sources would lead to stable LNG supply and would help us cope with future growth in demand," Hiroshima Gas said in a statement.
Osaka Gas bought 7.75 million mt of LNG in fiscal year 2013-14, down 2% from 7.9 million mt in fiscal year 2012-13.
--Eriko Amaha, eriko.amaha@platts.com
--Edited by Meghan Gordon, meghan.gordon@platts.com
