By Claude Salhani | Wed, 23 July 2014 21:39 | 0
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In the aftermath of the shoot-down over Ukraine of Malaysian Airways Flight 17 last week, and the deaths of its 298 passengers and crew, the question that many travelers are asking is: just how safe is international air travel these days?
It’s a reasonable question given that 41 wars or armed conflicts are currently going on across the world at the moment.
Most people would be hard pressed to name more than the major conflicts, the ones making headlines on CNN, Al-Jazeera and the BBC: Ukraine, Israel/Palestine, Iraq and Afghanistan.
Sad to say, but there are many more: Somalia; Nigeria (where an Islamist insurgency has killed at least 10,700 people since 1999); Pakistan’s Northwest Province (at least 52,000 killed since 2004); Nagorno-Karabakh, where since 1988 more than 30,000 have been killed in fighting between Armenia and Azerbaijan; in Darfur, some 462,000 people have died; the insurgency in Yemen has claimed 25,000 lives.
And the list goes on.
If the pro-Russian separatists in Ukraine were able to procure anti-aircraft missiles capable of reaching an airliner flying at 35,000 feet, can’t others do the same?
And if they can, does this mean that civilian aircrafts will have to avoid the skies of every conflict-ridden country? With dozens of countries in a state of belligerency at any given moment, that kind of restriction would make flights to many countries much more time consuming not to mention expensive; more flying time means more fuel, which means pricier tickets
The airline industry will generate about $24 billion in profit for oil producers this year, spending an estimated $212 billion on jet fuel – or almost 30 percent of their total operating costs, according to the International Air Transport Association.
The good news to the above questions are yes, for the most part, international air travel over warring regions is safe; and no, most rebel groups around the world are unable to obtain similar weapons for a wide range of reasons.
The first is that this is very expensive equipment; a set of four missiles costs anywhere from $30 million to $120 million. And the countries that manufacture them aren’t in the business of selling them cheaply or handing them over to any group with a grudge.
Second, these are large weapons, usually requiring two or three vehicles to move them. These are not shoulder-held rockets that someone can literally hide under their bed.
Third, the weapons systems require specialized training. Not every rebel group can recruit such talent.
Fourth, it’s highly unlikely that rebel groups believe shooting international civilian plans out of the sky is part of a winning strategy. Most observers believe the Malaysian flight was shot down accidentally.
The type of weapon used to shoot down Malaysian Flight 17 crash is still being investigated, but evidence so far points to the use of either the SA-11 (NATO codenamed Gadfly 1979) or SA-17 "Buk Mk. 2" anti-aircraft missile (NATO designation Grizzly 2007).
That assumes that the weapon was Russian-made. The Ukrainian government said it doesn’t have a weapon capable of bringing down a commercial airliner. The missile was fired from pro-Moscow separatist-held territory.
The Russians also have the more sophisticated SA-20, (S0-300) though it would be highly unlikely that they would have given those to the Ukrainian rebels, U.S. experts say.
The SA-20 are extremely sophisticated and need to be operated by experienced crews with excellent ability to characterize flight paths and read out IIF (Identification friend or foe) and transponder data.
Human error from a SA-20 unit is possible, but very unlikely, says Anthony H. Cordesman, the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies in Washington, D.C.
“There have been no suggestions that these are in rebel hands or they could use them,” Cordesman wrote in a special report on the downing of the Malaysian plane.
We know that at the altitude the plane was flying – 32,000 feet -- it is impossible that it was hit by a portable, shoulder-launched heat-seeking missile of the sort the CIA handed out to Afghan rebels during the Soviet occupation of Afghanistan. Cordesman confirms that those are unable to reach civilian airliners at cruising altitude. Variants of the SA-11 and SA-12 easily can.
General Philip Breedlove, NATO Supreme Allied Commander in Europe, warned in June that the Russian government had been training pro-Russian separatists inside Russia to have an "anti-aircraft capability," Cordesman noted.
By Claude Salhani of Oilprice.com
By Andy Tully | Wed, 23 July 2014 21:43 | 0
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Many residents of South Portland, Maine, were ecstatic over a recent decision by the city council to forbid the use of the city’s facilities to export Canadian oil sands.
The council voted 6-1 on July 21 against allowing the use of the 236-mile Portland-Montreal Pipe Line to ship the Canadian oil to South Portland for export. The line is now used to move imported Portland-Montreal Pipe Line in the opposite direction, to Canada.
“This is so exciting,” Mary Jane Ferrier, a spokeswoman for the group Protect South Portland, told the Portland Press Herald. “This is a big thing with impact far beyond our city.”
Opponents were disappointed, though they said the vote didn’t come as a surprise. One, Tom Hardison, vice president of the Portland Pipe Line Corp., issued a statement saying the vote was “predetermined” and “a rush to judgment,” and that the council was “slanted against [the pipeline] and the entire working waterfront since day one.”
Another industry group, the Working Waterfront Coalition, said it would “evaluate all political and legal means available to us to overturn this ordinance. The fight is not over.”
The Canadian oil is a heavy crude mixed with sand that’s found in great quantities in the western Canadian province of Alberta. Oil companies and governments are working on ways to put this oil on the world market, such as the Keystone XL Pipeline, which would move the crude from Canada through the United States to ports on the Gulf of Mexico.
There are no plans now to use the Portland-Montreal line for this, but supporters of the South Portland ban say they fear its flow of oil may one day be reversed and send sand-laden oil to Maine for shipment overseas.
South Portland, with a population of just 25,000, is a scenic port that also serves as the second-largest oil port on the U.S. Atlantic coast, where it offloads crude from tankers and ships it to Canada through the Portland-Montreal Pipe Line.
Although South Portland is no stranger to handling oil, many residents are strongly opposed to the presence of Alberta crude. They argue that oil sands spills, if they occur, would be much more difficult to clean up, that exporting more oil would contribute further to climate change and that loading the crude onto tankers would create unwanted local air pollution.
Len Langer, a lawyer who specializes in maritime issues, told Reuters that the ban could set a nationwide precedent if industry challenges fail.
“The real question here is, can a municipality regulate interstate and foreign commerce?” Langer said. “If the answer is yes, ... we'll see a lot more municipalities more aggressively regulating commerce within their borders.”
By Andy Tully of Oilprice.com
By James Hamilton | Wed, 23 July 2014 22:16 | 0
Here’s the introduction to a new paper I just finished:
This year the oil industry celebrated its 155th birthday, continuing a rich history of booms, busts and dramatic technological changes. Many old hands in the oil patch may view recent developments as a continuation of the same old story, wondering if the high prices of the last decade will prove to be another transient cycle with which technological advances will again eventually catch up. But there have been some dramatic changes over the last decade that could mark a major turning point in the history of the world’s use of this key energy source. In this article I review five of the ways in which the world of energy may have changed forever.
Below I provide a summary of the paper’s five main conclusions along with a few of the figures from the paper.
Petroleum consumption in the U.S., Canada, Europe and Japan, 1984-2012, in millions of barrels per day. Black: linear trend estimated 1984-2005. Data source: EIA. Figure taken from Hamilton (2014).
2. Growth in production since 2005 has come from lower-quality hydrocarbons.
Amount of increase total liquids production between 2005 and 2013 that is accounted for by various components. Data source: EIA. Figure taken from Hamilton (2014).
3. Stagnating world production of crude oil meant significantly higher prices.
Prices of different fuels on a barrel-of-oil-BTU equivalent basis (end of week values, Jan 10, 1997 to Jul 3, 2014). Oil: dollars per barrel of West Texas Intermediate, from EIA. Propane: FOB spot price in Mont Belvieu, TX [(dollars per gallon) x (1 gallon/42 barrels) x (1 barrel/3.836 mBTU) x 5.8], from EIA. Ethane: FOB spot price in Mont Belvieu, TX [(dollars per gallon) x (1 gallon/42 barrels) x (1 barrel/3.082 mBTU) x 5.8], from DataStream. Natural gas: Henry Hub spot price [(dollars per mBTU) x 5.8], from EIA. Figure taken from Hamilton (2014).
4. Geopolitical disturbances held back growth in oil production.
Global oil supply disruptions, Jan 2011 to June 2014. Source: constructed by the author from data provided in EIA, Short-Term Energy Outlook. Figure taken from Hamilton (2014).
5. Geological limitations are another reason that world oil production stagnated.
And here is the paper’s conclusion:
Although the oil industry has a long history of temporary booms followed by busts, I do not expect the current episode to end as one more chapter in that familiar story. The run-up of oil prices over the last decade resulted from strong growth of demand from emerging economies confronting limited physical potential to increase production from conventional sources. Certainly a change in those fundamentals could shift the equation dramatically. If China were to face a financial crisis, or if peace and stability were suddenly to break out in the Middle East and North Africa, a sharp drop in oil prices would be expected. But even if such events were to occur, the emerging economies would surely subsequently resume their growth, in which case any gains in production from Libya or Iraq would only buy a few more years. If the oil industry does experience another price cycle arising from such developments, any collapse in oil prices would be short-lived.
My conclusion is that hundred-dollar oil is here to stay.
By James Hamilton of Econbrowser
By Manuel Baigorri, Cotten Timberlake and Rodrigo Orihuela Jul 24, 2014 3:23 AM GMT+0700
Talisman Energy Inc. (TLM) said it has been approached about “various transactions” by Repsol SA (REP), as Spain’s largest oil company looks for acquisitions to fuel growth outside its home market.
Repsol is exploring a bid for Talisman after identifying it as a top target, people with knowledge of the matter said yesterday. It is working with JPMorgan Chase & Co. as it evaluates a possible deal, one of the people said, asking not to be identified discussing private matter.
Talisman, which issued a statement after its shares rose in Toronto trading today, said “there is no assurance that any transaction will be agreed,” without providing other details. Repsol issued a similar statement in a regulatory filing.
Based in Calgary, Talisman had a market value of about $11.6 billion after its shares rose 13 percent today. The company’s U.S. and North Sea assets - in particular an opportunity to gain a foothold in the oil-rich Eagle Ford basin in Texas - are likely the most appealing to Repsol, Canacord Genuity analyst Richard Griffith wrote in an note today.
Repsol Chief Financial Officer Miguel Martinez said in May that the company, which is valued at about $34 billion, is looking for targets that offer a “growth platform” and are based in more stable countries than most of its current overseas operations. Its biggest purchase so far, the more than $15 billion acquisition of Argentina’s YPF SA (YPF) in 1999, ended with the Argentine government’s seizure of a 51 percent stake in the company in 2012.
Target Countries
Talisman jumped 13.25 percent to C$11.97 in Toronto trading. Repsol fell about 1.1 percent to 18.42 euros in Madrid.
“There might be assets in the Talisman portfolio that could be of interest -- but a full company bid would be a surprising move,” Jason Kenney, an equity analyst at Banco Santander SA, said by e-mail ahead of Talisman’s statement.
In May this year Repsol received and then sold about $5 billion of bonds from Argentina in compensation for the nationalization of the stake. In the same month the company made a further $1.3 billion from the sale of the 12 percent it still held in the Argentine gas and oil producer.
The $6.3 billion from YPF adds to the roughly $7.1 billion that Repsol held in cash and equivalents at the end of the first quarter. Repsol has said it may spend as much as $10 billion on deals, and any acquisition would probably be in the U.S., Canada or other developed markets, such as northern Europe.
North Sea
Repsol previously considered an acquisition of Pacific Rubiales Energy Corp., Latin America’s largest non-state-owned oil producer, though it decided for the time being not to pursue a deal, people familiar with the matter said in March.
Talisman generates about half it sales from North America and the North Sea, with the rest mostly coming from Southeast Asia, data compiled by Bloomberg show. Talisman Chief Executive Officer Hal Kvisle in May blamed weakness of the North Sea business for weighing on the company’s turnaround.
Talisman said in March it plans to divest $2 billion in assets over 18 months and in June said it hired Miro Advisors Pty to sell its stake in oilfields off northern Australia. Talisman and Statoil ASA ended their effort to sell a joint venture in Texas’s Eagle Ford shale after offers came in lower than expected, people familiar with the matter said this month.
CEO Replacement
The company, which was targeted by billionaire investor Carl Icahn, has underperformed Canadian and global energy peers as it seeks to unwind a portfolio of investments spanning six continents amassed mostly last decade. Kvisle, a director of Talisman, replaced John Manzoni as CEO in 2012 and pledged to boost profits by refocusing the company.
Talisman’s board is seeking to replace Kvisle, who said he plans to step down by the end of the year.
To contact the reporters on this story: Manuel Baigorri in London at mbaigorri@bloomberg.net; Cotten Timberlake in Washington at ctimberlake@bloomberg.net; Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net
To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net Elizabeth Fournier
By Liezel Hill Jul 24, 2014 1:36 AM GMT+0700
Freeport-McMoRan Inc. (FCX), a metals producer that diversified into energy last year, will expand sales of onshore assets to reduce debt as it focuses on deep-water oil and natural gas finds in the Gulf of Mexico.
Freeport plans to sell as much as $5 billion more of onshore assets to help reduce debt and pay for investments in the Gulf of Mexico, Vice Chairman Jim Flores said on a conference call today. The Phoenix, Arizona-based company sees potential for faster growth and better returns by refocusing its oil and gas portfolio in the deep-water Gulf of Mexico, Flores said.
Freeport is considering asset sales across its business to reduce debt, which jumped from $3.5 billion to more than $20 billion after it bought two oil and gas companies last year. The company, which says it wants to cut debt to $12 billion by 2016, is facing lower copper prices than when it announced the purchases. Export curbs that restricted output from its biggest mine have also hurt earnings this year.
“We project that we’ll have $4 billion to $5 billion more of onshore asset sales to further accelerate the debt paydown,” said Flores, who is also chief executive officer of the company’s energy unit. “We will be buying additional interests in the deepwater Gulf of Mexico, to complement our portfolio, in the hundreds of millions of dollars.”
The company in May announced a $3.1 billion sale of Texas shale properties to Encana Corp. (ECA), which it followed a day later with a deal to buy positions in Gulf of Mexico projects from Apache Corp. (APA) for $1.4 billion.
Freeport will look to sell assets with less potential for growth than its other operations, CEO Richard Adkerson said on the call. It’s “actively” looking for ways to do that.
Freeport, the biggest publicly traded copper producer, acquired oil and gas producers Plains Exploration & Production Co. and McMoRan Exploration Co. last year in transactions valued at about $9 billion, excluding assumed debt. The energy unit must be self-sufficient and proceeds from the planned asset sales will help cover negative cash flow expected over the next couple of years, Flores said.
To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Jim Efstathiou Jr., Steven Frank
By Maciej Martewicz Jul 23, 2014 10:06 PM GMT+0700
PKN Orlen SA, Poland’s biggest oil company, posted a record quarterly loss after writing down the value of its refiners in Lithuania and the Czech Republic.
Its second-quarter net loss widened to 5.2 billion zloty ($1.7 billion) from 207 million zloty a year earlier after the Plock, Poland-based company wrote down 4.2 billion zloty from the value of its unprofitable Lietuva unit and cut the value of its Czech Unipetrol AS subsidiary by 711 million zloty, it said in a regulatory statement. The average estimate in a Bloomberg survey of 10 analysts was for a 367.5 million-zloty profit.
“I’m surprised that the management has kept the value of Lietuva at such a high level for so long and only now decided to write it down,” Tamas Pletser, an analyst at Erste Group Bank AG, said by phone from Budapest today. “It’s a cash burning asset with negative Ebitda.”
The Lithuanian unit, which Orlen bought for $2.8 billion in 2006, posted losses after refining margins fell to a 10-year low in 2013 and sales to the U.S., its main market, slumped on a shale boom in North America. The Lietuva refinery, also known as Mazeikiu, exports more than 50 percent of its output by sea.
‘New Reality’
Orlen shares slumped 5.8 percent to close at 40.58 zloty in Warsaw, posting the steepest drop in more than four months and valuing the company at 17.4 billion zloty. Unipetrol, whose second-quarter loss was 3.5 billion koruna ($172 million), fell 3 percent to 126.15 koruna in Prague trading.
“Following the noise around Mazeikiu, the write-offs are probably less of a surprise, but the size of the impairments did come as a surprise,” Robert Rethy, an analyst at Prague-based Wood & Co., said in a research note today.
Orlen cut its forecast for average annual earnings before interest, taxes, depreciation and amortization based on the last-in, first-out accounting standard to 5.1 billion zloty in 2014-2017 from 6.3 billion zloty, it said in a separate filing.
“Given the present market situation, we believe the recent developments in our industry are becoming the new reality,” Chief Executive Officer Jacek Krawiec said in the statement. “We have decided to revise our strategic assumptions and bring them in line with market conditions.”
Temporary Shutdown
Lietuva faces a temporary shutdown in late 2014 or early 2015 and the length of the shutdown will depend on refining margins, the Polish company said. Orlen estimates the cost of Lietuva’s shutdown and restart at less than $20 million, Chief Financial Officer Slawomir Jedrzejczyk said on a conference call with analysts. The company would also incur costs of about $5 million a month during the shutdown.
“If the macroeconomic situation is worsening, the next move will be a full shutdown,” Jedrzejczyk said. “It’s very rare that a refinery is completely closed. It’s very often converted to a storage or logistics facility.”
State-controlled Orlen has no buyers for Lietuva and will speak to the Lithuanian government about the country’s buying its refinery, CEO Krawiec said at a news conference.
European refining margins “are likely to remain weak for at least the next one to two years due to overcapacity, demand and supply imbalances and competition from overseas,” Fitch Ratings said on July 8. Since 2008 oil refineries with total capacity of 1.8 million barrels per day have been closed in Europe, the Paris-based International Energy Agency said in May.
Dividend Plans
Orlen’s total writedowns of Lietuva, with capacity of 200,800 barrels per day, has reached 6.4 billion zloty, cutting the value of the assets to 500 million zloty. The writedowns won’t affect Orlen’s debt covenants, it said in a presentation.
In its updated strategy today, the refiner kept its dividend policy of paying out as much as 5 percent of its average market capitalization in a previous year.
“The dividend was roughly at 1.5 zloty a share from profits of 2012 and 2013 and you have a commitment from the management that we would like to improve this,” Jedrzejczyk said, adding the company may pay dividend from retained profits.
The company also plans to raise about 1 billion zloty by 2017 from selling its “non-core” assets.
The refiner, which bought two Canadian oil-producing companies this and last year, plans to invest about 1.7 billion zloty in Canada to double the production to about 16,000 barrels of oil equivalent a day by 2017, according to the CFO.
To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net
To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net Pawel Kozlowski
Talisman Energy Acknowledges Approach From Spain’s Repsol
By Tina Davis Jul 23, 2014 10:05 PM GMT+0700
Talisman Energy Inc. (TLM) said it’s been approached by Repsol SA (REP), Spain’s largest oil company, “with regards to various transactions.”
“There is no assurance that any transaction will be agreed,” the Calgary-based oil producer said in a statement today. Repsol’s interest in bidding for Talisman was first reported yesterday by Bloomberg News.
Repsol Chief Financial Officer Miguel Martinez said in May that the company, with a market value of 24.9 billion euros ($33.5 billion), is looking for targets that offer a “growth platform” and are based in more stable countries than most of its current overseas operations. The Madrid-based company’s biggest purchase so far, the more than $15 billion acquisition of YPF SA in 1999, ended with the Argentine government’s seizure of a 51 percent stake in the company in 2012.
Talisman’s U.S. assets offer Repsol an opportunity to gain a foothold in the oil-rich Eagle Ford basin in Texas, Richard Griffith, an analyst for Canacord Genuity Corp., wrote in an note to clients today before the announcement. Its North Sea assets will also appeal, he wrote.
To contact the editor responsible for this story: Tina Davis at tinadavis@bloomberg.net
Roc Oil Merger Offers Top Return From Deal Bet: Real M&A
By James Paton and Angus Whitley Jul 23, 2014 2:03 PM GMT+0700
Traders betting that Roc Oil Co.’s planned tie-up with an Australian rival will survive attempts by unidentified bidders to thwart the deal can pocket one of the biggest returns of any acquisition in developed Asia.
Sydney-based Roc and Horizon Oil Ltd. (HZN) struck a $751 million agreement in April to combine oil and gas operations stretching from China to Malaysia. Roc, which owns stakes in projects backed by PetroChina Co. (857) and Cnooc Ltd. (883), has since received two approaches from potential acquirers it didn’t name.
With Roc assessing the merits of those proposals, Horizon shares yesterday traded 15 percent below Roc’s all-stock offer, the second-biggest discount of any major pending deal in the region this year, according to data compiled by Bloomberg. It’s not clear if the approaches for Roc are genuine, and as Horizon shareholders prepare to vote on their accord, Roc-Horizon is more likely to proceed than fail, said Northcape Capital Pty.
“Details of their offers are sketchy at best, which is never a good sign,” said Shannon Rivkin, a director at Rivkin Securities Pty, referring to the unnamed bidders for Roc. “The vast majority of non-binding approaches end in failure.”
Representatives for Horizon and Roc declined to comment on the prospects of the merger proceeding.
Merger Terms
Roc owns about 20 percent of an oilfield project that’s run by Cnooc in the Beibu Gulf off China’s south coast. It also operates an oilfield backed by PetroChina in Bohai Bay, off the east coast of China.
Together, Roc and Horizon would fetch a market value of about A$800 million ($751 million) and have assets in six countries including Malaysia, Australia and New Zealand, according to the April 29 announcement of the deal.
Under the terms of the agreement, Horizon stockholders would receive 0.724 of a Roc share for each one of theirs. That would give them 58 percent of the enlarged group. Horizon shareholders are due to vote Aug. 7 on the proposal, which doesn’t need the approval of Roc investors.
While waiting to close the Horizon deal, Roc said June 25 that it received a takeover approach, and then unveiled another bid on July 10. It described the two separate proposals as “confidential, unsolicited, indicative and incomplete” and said there was no certainty that either would turn into a formal offer.
Deal Risk
Roc had climbed 6.3 percent since revealing the first of those bids until yesterday’s close of 59.5 cents in Sydney trading. That valued the offer for Horizon at 43 cents. Horizon fell 4 percent in the same period and closed yesterday at 36.5 cents.
Among pending deals greater than $500 million announced in the region this year, only Singapore-listed Perennial China Retail Trust (PCRT) traded further below a bid, Bloomberg data show.
Today, Roc gained 0.8 percent to 60 cents at the local time close. Horizon added 1.4 percent to 37 cents.
The gap between Horizon’s stock and the value of Roc’s offer will narrow as time passes without details of either offer for Roc, said John Whiteman, a fund manager at Northcape, which has offices in Sydney and Melbourne. Northcape is Horizon’s fourth-largest investor with a 5.7 percent stake, data compiled by Bloomberg show.
“There’s a certain element of risk the merger deal won’t go through and so that’s being priced in,” said Whiteman. “On balance,” investors expect the deal to proceed, he said.
Roc will consider whether the two offers it received are genuine to ensure it isn’t “walking away from value,” Chief Executive Officer Alan Linn said in a July 11 interview.
Stock Bet
“So far these bids are highly conditional and uncertain,” Peter Strachan, a resources analyst at Perth-based StockAnalysis, said by phone. “There are a lot of tire kickers out there.”
Assuming the approaches evaporate, one option for investors is to bet Roc shares will fall, Strachan said. At the same time, they should buy Horizon stock because with or without a Roc deal, its prospects are positive, he said.
On its own, Horizon’s daily production of 5,000 barrels of oil equivalent this year will more than double by 2020, according to a June presentation on its website.
One Bidder
Not everyone says the merger is certain to go ahead. With more than one bidder circling Roc, its plan to combine with Horizon has less than a 50 percent chance of succeeding, said Simon Marais, Sydney-based managing director of Allan Gray Australia Pty. Allan Gray is Roc’s largest shareholder.
“The deal is far from done,” Marais said in an interview. “The stock market tells you there’s a very good chance this thing won’t go ahead.”
Marais said a combination with Horizon, which leaves Roc as the minority owner, increases Roc’s risk without boosting returns. His firm proposed this month that Roc obtain shareholder approval before being allowed to go ahead with the deal. The proposal failed.
With Horizon’s stock languishing below Roc’s offer, and given the potential payout, some traders are willing to bet the two approaches for Roc will come to nothing.
“Considering the offers are conditional and indicative at this point, they very possibly may,” according to Rivkin.
To contact the reporters on this story: James Paton in Sydney at jpaton4@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net
To contact the editors responsible for this story: Beth Williams at bewilliams@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net Keith Gosman
Angola’s Goal to Rival Nigerian Oil Output Aided by Eni
By Colin McClelland and Manuel Soque Jul 23, 2014 3:00 PM GMT+0700
Eni SpA (ENI) crews in Angola, Africa’s second-largest crude oil producer, upgraded a production vessel for new pumping this year as the southwest African country targets output rivaling its bigger competitor, Nigeria.
Eni plans to start production within five months as operator of Block 15-06’s West Hub fields, estimated to hold reserves of 200 million barrels, and boost flows to 80,000 barrels a day, documents on the Rome-based company’s website show. The block’s East Hub development is due to pump about 49,000 barrels a day after starting in 2016, the documents say.
The block, 350 kilometers (217 miles) northwest of Luanda, the capital, is one of eight offshore projects Petroleum Minister Jose Maria Botelho de Vasconcelos is counting on to help raise production to 2 million barrels a day by next year from 1.66 million last month. That compares with Nigeria’s 2.15 million barrels daily.
One of the largest developments, Total SA (FP)’s Clov in Block 17, started last month and targets output of 160,000 barrels a day. Analysts such as Wood Mackenzie Ltd. said the projects will be too late to boost declining flows by 2015.
“We should think about the need to shorten the time between declaration of oil discoveries and the beginning of production,” Vasconcelos said at the inauguration of the N’Goma, a floating production, storage and offloading vessel for Eni’s West Hub project, the state-run Jornal de Angola reported July 21. Eni is on track to cut in half the eight years it usually takes for output to begin after a discovery, the newspaper said, citing the minister.
Eni Discoveries
Eni declined to comment, Domenico Spina, a spokesman based in Milan for the explorer, said in an e-mailed reply to questions.
“Eni has made 12 discoveries out of 15 exploration wells, and there is still potential remaining and drilling continuing,” David Thomson, a Wood Mackenzie analyst in Edinburgh, said in an e-mailed response to questions July 21. “The success is certainly evidence of the continued prospectivity of the deep water Lower Congo basin.”
Aside from boosting the country’s output, the West Hub development is important for setting up infrastructure for the block’s other discoveries and showing that smaller cluster developments can work even in a high cost deep water environment such as Angola, Thomson said. The West Hub reserves are less than half of other projects such as Total’s Clov and Pazflor and BP Plc (BP/)’s PSVM, he said.
Rig Refurbishment
Eni will finish the refurbishment this month of the N’Goma, known as an FPSO and owned by Sonasing, said Paula Farquharson-Blengino, a spokeswoman for SBM Offshore NV. (SBMO) SBM is a Dutch company that has a stake in Sonasing along with the Angolan state oil company, Sonangol EP, and Schiedam, the Netherlands-based SBM Offshore NV.
The upgrading and 12-year lease of N’Goma costs $1.6 billion, Farquharson-Blengino said. The 100,000 barrel a day capacity FPSO, formerly named Xikomba, was used by Exxon Mobil Corp. (XOM) in Block 15, she said. New sulphate removal and oil hot-pump modules, weighing as many as 541 metric tons, will be lifted into place at the Porto Amboim Paenal Fabrication Yard 262 kilometers south of Luanda, the capital, she said.
N’Goma will be operated on behalf of Eni by Luanda-based Servicos de Producao de Petroleos, Ltd., a joint venture of Sonangol and SBM, Farquharson-Blengino said. The operator, known as OPS, also runs two FPSOs for Exxon.
Eni’s share of output in Angola was about 87,000 barrels of oil per day last year from fields covering 21,489 square kilometers, according to company documents. The Block 15-06 hubs would add 42,000 barrels a day to Eni’s share, the documents show.
To contact the reporters on this story: Colin McClelland in Johannesburg at cmcclelland1@bloomberg.net; Manuel Soque in Luanda at msoque@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Alex Devine, Reed Landberg, Ana Monteiro
By Colin McClelland Jul 23, 2014 11:34 PM GMT+0700
Mozambique’s state petroleum company is building a port city to help develop the largest natural-gas discoveries in a decade off the southern African country.
The 18,000-hectare (44,500-acre) Palma development in the northern Cabo Delgado province will be next to liquefied natural gas facilities planned by Anadarko Petroleum Corp. (APC) and Eni SpA, Empresa Nacional de Hidrocarbonetos EP, said in a statement. It will feature residences, industry, stores, schools, hospitals, parks, farming and tourist attractions built through an ENH unit. Public hearings on the proposal were held today in Maputo, the capital, after sessions in Pemba and Palma, it said.
There are about 8,000 inhabitants in eight villages in the Palma area, and they “are satisfied with the project,” ENH said. “The proposed urban development plan was designed in a manner that will avoid the resettlement of these people.”
Mozambique may become the world’s third-largest gas producer in 2018 after companies such as Eni of Italy and Woodlands, Texas-based Anadarko begin output from reserves estimated at 250 trillion cubic feet. Proximity to gas-hungry India and the Far East is expected to spur investment and margins.
Tracus, a Maputo-based architectural company, started creating the urban development plan in August and the public consultation will help advance the strategy and draft proposal, ENH said.
15 Years
Construction of access roads and power lines will start immediately, while building of infrastructure in the industrial area will start in 2017, it said.
“It won’t be possible to execute this plan in 15 years,” Amad Valy, head of operations at ENHLogistics, said in the statement. “That’s the timeline indicated by the client, but the plan is very big. We believe that if we manage to achieve 25 percent of the plan in 15 years it would have been a success.”
A company known as Cabo Delgado Ports will invest $150 million initially and hold 30-year leases on ports in Pemba and Palma, Transport Minister Gabriel Muthisse said in January, according to website Club of Mozambique. The company is a joint venture between Cia Mocambicana de Hidrocarbonetos and Portos & Caminhos de Ferro de Mocambique, which are both state-owned.
Sasol Ltd. (SOL), the world’s biggest producer of motor fuel from coal, said this month it’s considering a gas-to-liquids plant in Mozambique with Eni and ENH.
Eni alone will invest $50 billion in the country, Italian Premier Matteo Renzi said, according to news agency Ansa.
To contact the reporter on this story: Colin McClelland in Luanda at cmcclelland1@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Ana Monteiro, Alex Devine
BOGOTA, July 23 (Reuters) - Colombia's state oil company Ecopetrol will not adopt Pacific Rubiales Energy Corp's STAR technology to extract heavy crude more efficiently, Ecopetrol said in a regulatory filing on Wednesday.
STAR, which stands for Synchronized Thermal Additional Recovery, is designed to increase the recovery of crude by heating the oil inside the well, bolstering output.
Canadian oil company Pacific Rubiales had said that pilot tests of its STAR technology to extract heavy crude were successful and proposed that its Colombian partner Ecopetrol adopted the technology.
Ecopetrol decided not to use STAR at the Quifa oil field in Meta province which is owned by the two companies. An Ecopetrol spokeswoman said tests did not provide the results the company wanted.
She asked that her name not be used as part of company policy.
The technology is considered secondary because it seeks to extract oil that primary extraction was unable to recover from the wells.
Pacific Rubiales' shares fell 4.37 percent to 35,020 pesos on Wednesday, while Ecopetrol slipped 0.91 percent to 3,270 pesos. (Reporting by Carlos Vargas; Editing by Lisa Shumaker)
© Thomson Reuters 2014 All rights reserved.
India's crude imports from Iran rose by a third in the first half of the year, data from trade sources showed, after the shipments were boosted following an interim deal to slow Tehran's nuclear activity and ease Western sanctions.
India, Iran's top oil client after China, raised the imports to some of the highest levels in nearly two years in the first quarter, partly to make up for deep cuts in 2013 due to the lack of insurance coverage for refineries processing Iranian oil.
Intake rates have eased off since but are still running significantly higher than last year. Indian refiners shipped in 281,000 barrels per day (bpd) of oil from Iran between January and June, up from 211,400 bpd in the same period a year ago, data on tanker arrivals from trade sources shows.
In June, imports from Iran dropped by about a quarter from May to 167,300 bpd, the lowest in 10 months. The June intake was up about 19% from the same month last year.
India cut supplies from Iran by nearly 40% last year, the largest reduction by Iran's top clients - which besides China and India, includes Japan and South Korea.
China also boosted its imports after the temporary deal between Tehran and Western powers was signed in November last year, with imports from Iran rising by 50% in the first six months of this year.
Iran and six world powers agreed to a four-month extension of the temporary deal after missing a July 20 deadline to reach a final agreement on curbing Iran's nuclear programme in return for the end of sanctions.
Asian buyers are expected to import about 1.25 million to 1.3 million bpd of Iranian oil in the first half of the year, industry and government sources have said.
South Korea's imports from Iran fell 11% in the first half of the year, while Japan has yet to report is oil imports for June.
State-run Mangalore Refinery and Petrochemical Ltd was the biggest India client of Iranian oil in June followed by Essar Oil Ltd, the data showed. MRPL and Essar are India's only two regular monthly importers of Iranian crude.
Iran's share of total Indian oil imports rose to 7.3% in the first half of this year compared with 5.4% last year, the tanker arrival data also showed.
In the first half of the year India's import of oil from Latin America and Middle East has declined marginally while that from Africa has risen.
Overall, India shipped in 10.8% less crude in June than a year ago, the data showed. Total crude imports for the January-June period fell 1%.
Copyrights © 2014 Business Standard Ltd. All rights reserved.
India is diversifying its sources of crude oil imports to reduce dependence on any one region, Oil Minister Dharmendra Pradhan told Rajya Sabha today.
Replying to supplementaries during Question Hour, he said India is diversifying its crude purchases, tapping nations like Brazil, Columbia and Venezuela in the Latin America for supplies.
"India's dependence on the Gulf nations is 61%," he said.
The country bought 115.86 million tonnes of oil from Middle East out of 189.24 million tonnes total crude oil imported in 2013-14.
Latin America has emerged as its second biggest supplier region, supplying 31.73 million tonnes of oil. Africa provided 30.39 million tonnes of oil in 2013-14.
Pradhan said the government is attempting to raise domestic oil and gas production so as to reduce dependence on imports to meet its oil needs.
Production of state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) are being monitored on monthly basis. "We have started work on reversing the declining trend in production. This fiscal, the negative trend due to mismangement of the previous governemnt, will be corrected," he said.
He said India pays 45% of its bill for oil imports from Iran in rupee but there is no barter arrangement.
"While there is no existing barter arrangement involving import of crude oil, Government continues to explore possibilities for such an arrangement as it would lead to export promotion and result in saving of foreign exchange," he said.
The government, he said, is insulating common man from the vagaries of international oil markets.
"In order to cushion the common man from the impact of high international oil prices and domestic inflationary conditions, the Government continues to modulate the retail selling price of diesel and subsidised domestic LPG, resulting in incidence of under-recovery (loss) on sale of these products," he said.
Currently, oil marketing companies are losing Rs 2.49 on sale of every litre of diesel and Rs 471.75 per LPG cylinder.
Copyrights © 2014 Business Standard Ltd. All rights reserved.
* Russian firms need to refinance about $112bln over 4 years
* Russia has 10 pct of EMEA maturities of $1.17 trillion
* Share has risen from 8 pct a year ago
MOSCOW, July 23 (Reuters) - Russian companies, including oil giant Rosneft, may face challenges refinancing $112 billion in debt due to mature over the next four years, which includes a peak maturity wall to overcome in 2015, a report by Moody's Investors Service said.
Moody's said there was a very significant bank and bond debt maturity hurdle for Russian companies concentrated among Rosneft and state-controlled gas company Gazprom in 2015.
Russian companies are facing tougher conditions to refinance international loans since the West imposed sanctions on some of them over Russia's involvement in Ukraine. On top of this, the country's economy has slowed and is expected to grow just 0.5 percent this year.
Washington imposed a new round of sanctions last week on Rosneft, gas producer Novatek and bank Gazprombank, companies run by allies of Russian president Vladimir Putin
"This year ... refinancing for Russian issuers may present more challenges than before," Moody's analysts wrote in the report on investment-grade non-financial companies. "The peak annual bank debt refinancing requirements of IG (investment grade) issuers in Russia is in 2015," the report said.
Rosneft will need to repay $26.2 billion between July 2014 and December 2015, with peak repayments of $9.4 billion and $11.8 billion in Q4 2014 and Q1 2015, respectively, according to another recent report by Moody's. Moody's said it estimated that approximately $5-6 billion of this will have to be refinanced.
Analysts have been concerned about Rosneft's ability to attract funds as costs of borrowing have risen for Russian companies after Moscow annexed the Crimean peninsula from Ukraine in March.
But Moody's said that Rosneft has taken steps to mitigate refinancing risks by signing an oil contract with China's CNPC. In June 2013, Rosneft and CNPC agreed to double oil flows to China to 600,000 bpd in a $270 billion deal between 2018 and 2037 with partial pre-payments.
The Moody's report said that bank and bond debt held by Russian investment grade companies accounts for approximately 10 percent of the total $1.17 trillion refinancing requirements due between 2015 and 2018 in Europe, the Middle East and Africa (EMEA). Germany, France and the UK have larger refinancing needs, holding 15 percent each.
It is a greater share of the pie than Moody's year-ago report showed for Russia - holding 8 percent of EMEA debt for the years of 2014 to 2017.
The report said that Russian maturities were significantly concentrated in the energy sector which accounts for 72 percent of total Russian debt maturing in the next four years, with the remaining 28 percent shared among the utilities, metals and mining, transportation services, telecoms and chemicals industries.
For a factbox detailing Rosneft's debt: (Reporting by Megan Davies. Editing by Jane Merriman)
By Felix Imonti | Wed, 23 July 2014 22:19 | 0
A new CIA drone base near Erbil, in the Kurdish region of Iraq, seems to have become America’s portal into the Syrian-Iraqi war – a war U.S. President Barack Obama says the United States will not enter.
Late in the game, it seems Washington has awakened to the realization that a new, powerful force is threatening Middle Eastern oil supplies and seems to have an unstoppable momentum.
August oil futures are showing a spike in the price of crude, but that is more likely a reflection of the situation in Libya and Gaza. Caliph Ibrahim – better known as Abu Bakr al-Baghdadi -- is not yet written into investor’s thinking.
Al-Baghdadi is the founder of the Islamic State of Iraq and Al-Sham – which recently shortened its name to the Islamic State – who has been consolidating the jihadist groups fighting in Syria and Iraq. Through a blend of psychological warfare and skilful business management, al-Baghdadi has taken radical Islam beyond the point most other movements have, in terms of extreme tactics and savage treatment of enemies. The effect has been that the opposition is demoralized and ready to surrender almost before they are confronted. Many other jihadist leaders have rejected him, but that has to do more with his success rather than his ideology.
As al-Baghdadi advanced through Syria and Iraq, his men looted financial institutions and imposed punitive taxes on Christians and other groups. Through Iraqi middlemen, he has been selling stolen oil, which has forced the Iranians to close their frontier to the truck loads of crude.
Saudi Arabia has positioned 30,000 troops on its border with Iraq, but is ignoring appeals from the Iranians to join efforts to stop the advance of IS. Instead, the Saudis are warning Iran not to intervene to support Iraqi Shiites. Tribes linked to Saudi Arabia are fighting alongside IS and the Saudis do not want to provoke a rift with their related tribes that they have been financing by taking a strong position against the Sunni group.
So far, IS has avoided direct confrontations with the Kurds, which has created a false sense of security among investors. The Kurdish Peshmerga is too well organized and directed to be easily defeated, and there is nothing at this time to gain from a conflict. The foremost objective of the IS is to acquire oil fields in Iraq and beyond.
Al-Baghdadi has taken the movement one step further by declaring the creation of a Caliphate, of which he has named himself the leader and taken the title “Caliph Ibrahim.” The Caliphate is to extend worldwide, and included in that global sphere is no small number of oil producing areas. But it is the production in the Middle East that is under immediate threat.
The power of the movement should not be under estimated in spite of the small numbers of actual dedicated members. Caliph Ibrahim grasps that disrupting oil shipments will have a serious impact upon the world economy. Following his usual strategy of audacity and intimidation, we can expect to see him threatening oil flows in order to extract concessions while he consolidates power.
It means that crude producers outside of the Middle East -- where he cannot reach effectively -- will have an advantage. BP is one of the safer majors, with production in North America, the North Sea, and Angola and only a small part of reserves in Azerbaijan, which is relatively safe from disruption. The company pays a dividend while investors are waiting for the potential Islamic storm to sweep across the area.
One development that would raise a red flag that serious trouble in the oil fields is pending is the arrival of Egyptian troops in Saudi Arabia to defend the borders.
In spite of having the most modern equipment available, the Saudi Army is scarcely a real fighting force. They relied in the past upon Pakistani troops and now they will have to depend upon Egyptian forces to protect the oil fields.
Prudent investors should begin establishing small positions to avoid the panic buying when the true extent of the danger in the Middle East is realized.
By Felix Imonti of Oilprice.com
James Bambino, Platts Oil Futures & Options Editor
New York - July 23, 2014
U.S. commercial crude oil stocks fell 3.97 million barrels during the reporting week ended July 18 to 371.07 million barrels, U.S. Energy Information Administration (EIA) oil data showed Wednesday.
Analysts surveyed Monday by Platts had been looking for a 2.6 million-barrel decline.
Steady refinery runs, amid no real rebound in imports, likely contributed to the draw, which was well-distributed across much of the U.S.
Even though crude oil runs at U.S. refineries came off slightly, down 28,000 barrels per day (b/d) to 16.6 million b/d, they were backing off a record high of 16.63 million b/d. The negligible decline left U.S. refinery utilization rates level at 93.8% of capacity.
Analysts had been looking for a 1 percentage-point decline.
The draw was felt most in the U.S. Midwest, where stocks dropped 2.02 million barrels to 86.01 million barrels the week ended July 18. The draw came amid a 28,000 b/d decline in Midwest crude oil runs, which fell slightly to 3.79 million b/d. This reduced the region's run rates to 99.5% of capacity.
The still-strong runs were enough to overshadow a 105,000 b/d boost in imports, which rose to 2.03 million b/d.
But stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract -- fell 1.45 million barrels to 18.82 million barrels. This is the lowest Cushing stocks have been since November 2008.
Much of this decline likely prevented an even larger draw in U.S. Gulf Coast (USGC) crude oil stocks.
USGC stocks fell 910,000 barrels to 196.94 million barrels amid a 23,000 b/d drop in crude oil runs, which fell to a still-laudable 8.62 million b/d.
USGC crude oil runs -- which account for around 51% of total U.S. operable capacity -- have been above 8.6 million b/d for the past three reporting weeks, EIA data shows. Crude oil runs for the week ended July 4 were at a record-high 8.65 million b/d. This time last year, USGC refineries were processing closer to 8.4 million b/d.
Gross refinery inputs, which include feedstocks other than crude oil, were at a record-high 8.69 million b/d the week ended July 11.
IMPORTS FAIL TO RALLY
But flows to the USGC failed to rally the week ended July 18, despite an improved outlook for refining margins for imported grades. Imports actually fell 138,000 b/d to 3.43 million b/d the week ended July 18, putting them 415,000 b/d below year-ago levels.
Even though USGC cracking margins for Nigerian Bonny Light the week ended July 18 averaged around $7.50 per barrel (/b) -- steady to a 60-day, moving average -- margins for comparable North American grades such as Louisiana Light Sweet (LLS) have come off. LLS cracking margins averaged just $9.50/b the week ended July 18, down from a 60-day, moving average of more than $13/b.
This signal, as well as discounted freight rates for ex-West African voyages during much of late-June/early-July, should point to higher imports. That said, EIA data shows U.S. imports of Nigerian crude oil the week ended July 18 were nil for the third straight reporting week, while imports of Angolan crude oil fell to just 67,000 b/d from 137,000 b/d.
Platts margins reflect the difference between a crude oil's netback and its spot price. Netbacks are based on crude oil yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
U.S. GASOLINE STOCKS JUMP
EIA data shows the U.S. is well-supplied with gasoline. Stocks rose 3.38 million barrels to 217.87 million barrels the week ended July 18, almost three times the build analysts had been expecting.
While stocks on the U.S. Atlantic Coast (USAC) drifted 359,000 barrels lower to 60.23 million barrels, supply remains more than 4% above the EIA five-year average. The USAC is home to the New York Harbor-delivered NYMEX RBOB contract.
Stocks on the USGC, however, jumped 2.62 million barrels the week ended July 18 to 73.53 million barrels.
U.S. distillate stocks rose 1.64 million barrels to 125.93 million barrels, largely in line with analysts' expectations. Production, much of which comes from the USGC, continued to surge above 5 million b/d to 5.21 million b/d.
A build in supply in the USGC itself -- where combined low- and ultra-low-sulfur diesel stocks rose 971,000 barrels to 35.03 million barrels - likely points to weaker exports.
The EIA estimates U.S. distillate exports held steady at 1.15 million b/d for the fifth consecutive week. The EIA revises its weekly estimate and publishes a more definitive export figure in its monthly data, due out next week.
Lagos (Platts)--23Jul2014/807 am EDT/1207 GMT
Nigerian oil products marketers said Wednesday they may halt further gasoline imports into the country because they are owed subsidies totalling Naira 190 billion ($1.2 billion) from first and second quarters imports.
The marketers, under the umbrella body Major Oil Marketers Association of Nigeria, or MOMAN said in a statement the government had reneged on the agreed payment scheduled of 45 days after the discharge and submission of import claims, resulting in marketers incurring huge debts on bank charges.
"The Petroleum Support Fund (PSF) payment schedule, which was ratified by all stakeholders, stipulates that subsidy payment should be made within 45 days, after which the banks would start charging interest from the 46th day," the group said.
"Marketers may be forced to stop importation if the necessary payments are not paid," it added.
MOMAN members include the local downstream arms of Total and ExxonMobil, as well Oando, Conoil and MRS. They account for more than 40% of the total gasoline imported by Nigeria.
Nigeria's Finance ministry said July 3 it had paid Naira 45 billion to oil products marketers whose import documents had been properly screened and verified.
But the marketers said the payment only covered cargoes imported in November 2013. They said payments for cargoes brought in December 2013, and between January and June 2014, remained outstanding.
Nigeria imports around 1 million mt/month of gasoline, and pays importers a subsidy to cover the difference between the landing cost and the regulated domestic pump price, currently fixed at Naira 97/liter.
Disagreement over subsidy payments to marketers for fuel imported in the last quarter of 2013 delayed Nigeria's Q1 2014 imports and triggered fuel shortages in the oil-producing country for more than two months.
Local economists and businesses have called on Nigeria to abolish the fuel subsidy regime, seen as a huge drain on the government's resources as well as an avenue for official corruption.
But previous attempts by the government to end the subsidy have been met by strong opposition and widespread protests and strikes by Nigerians who see the subsidy as the only benefit they enjoy from the country's oil wealth.
--Staff, newsdesk@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com
