Archive for the ‘oil’ Category

Brazil confirms hydrocarbon strategy

Santos basinMuch has been made of Brazil’s offshore hydrocarbon deposits particularly in the Tupi oil & gas reserves which have been touted by state owned energy firm Petrobras as containing up to 5-8 billion barrels of recoverable oil.

Tupi,which is located in the pre-salt region, is estimated to contain between 5 billion & 8 billion barrels of light crude, & is the world’s biggest new field since a 12-billion-barrel find in Kazakhstan in 2000. The pre-salt region covers an offshore area 800 kilometers long and 200 kilometers wide between the states of Espirito Santo and Santa Catarina, is estimated to contain up to 80 billion barrels of light crude under a thick layer of salt far beneath the ocean floor.

As discussed in a previous article, Petrobras (NYSE: PBR)  & partners including Repsol and BG Group discovered vast deposits of oil under more than 4,000 meters of water, rock and salt in 2006. These deposits are at previously untapped depths and will be costly to extract. It is thought that other reserves may be nearby in other as yet unexplored blocks.

To capitalise, Brazil’s regulatory agency the ANP has announced that it will be excluding Tupi from a new round of block concessions scheduled for spring 2010, as Brazil looks to protect it’s strategic reserves & is currently changing the concession framework for blocks in the area. According to proposed legislation, which is being heavily pushed by President Lula, Petrobras will operate all blocks in pre-salt areas with a minimum 30% stake. Output would belong to the federal government under a production sharing model & participating IOCs will receive a fixed share of the revenues.

This is a canny move & possibly a very good gambit to make, as IOCs are now on the backfoot with new capacity for exploitation becoming scarce. More tellingly, companies such as Royal Dutch Shell, Total, Chevron & Exxon Mobile have come under increasing pressure in countries such as Nigeria & Angola in recent months, especially from Chinese state firms.

Last month, CNOOC, made a bid to acquire concessions in 23 prime blocks in Nigeria, which could see the Chinese state-controlled oil giant securing more than 20% of Nigerian hydrocarbon assets. There has been some speculation that Nigeria may be using the Chinese approach as a heavy hammer to extract more favorable terms on concessions that are due for re-newal, however, it underlines the fact that oil majors must look for more stable environments in which to do business.

ANP Director Nelson Narciso has expressed confidence that oil majors will still be interested in new pre-salt areas despite market uncertainty over the new terms because of both economic & political stability.

“As long as the production sharing agreements are preceded by a fair competition, there is no reason for not being happy with Brazil,” he said. “I expect that if everything goes well, by the end of next year we’ll be in a position to start the bidding for the new pre-salt round”

Lula has a knack of getting his way, as he is seen as being instrumental in pulling Brazil out of the global recession via his socialist policies, which have been very popular with Brazil’s citizens. Our view is that the IOCs will be forced to accept these terms on the pre-salt fields, whilst picking up other concessions in more mature blocks as a sap. We have been bullish on Petrobras for a good while & we see no rason to change that view on the basis of this news.

 

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Russia, Italy, Turkey confirm Samsun-Ceyhan pipeline deal

ENI logoThe Vice Prime Minister of the Russian Federation, Igor Ivanovich Sechin, the Russian Minister of Energy, Sergei Shmatko, the Minister of Energy of the Republic of Turkey, Taner Yildiz and the Minister for Economic Development of the Italian Republic, Claudio Scajola, signed today in Milan a joint statement concerning the construction of the Samsun-Ceyhan oil pipeline between Turkey’s Black Sea coast and its Mediterranean coast.

The agreement testifies the level of cooperation among the three Governments, in particular in the energy sector, and it underlines their joint commitment to enhance energy security in their respective countries and in the European market through the diversification of transport routes, as well as the protection of the environment.

In line with the agreements signed in Ankara on August 6th 2009 by the representatives of the Russian Federation and the Republic of Turkey, which envisage the participation of Russian oil companies in the Samsun-Ceyhan Project, the Ministers agree that this initiative will contribute to strengthening security of supply, to protecting the environment and to enhanced cooperation.

At the same time, representatives of Eni, Calik Holding, JSC Transneft and Rosneft, the energy companies involved, signed a Memorandum of Understanding which envisages the commitment to discuss the definition of the economic and contractual conditions for Russian companies to participate in the Samsun-Ceyhan Project in order to ensure the volume of crude that would guarantee the economic sustainability of the project.

Eni (NYSE:ENI) has been heavily involved in the oil pipeline project since 2005 and will play a leading role in its realization. In 2006, Eni bought 50% of Trans Anadolu Pipeline Company (TAPCO), the company designed for the realization and management of the Samsun Ceyhan pipeline.

The project has been developed taking environmental issues into consideration and adopting measures which comply with the most rigorous international safety standards. Furthermore, in order to cause minimal disturbance to the environment and existing infrastructure, the pipeline will be built along existing pipeline routes.

The Samsun-Ceyhan pipeline will facilitate safer transport across the Bosphorus and Dardanelles Straits as well as reducing the impact on the region’s complex and delicate ecosystem.

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Heritage makes a move on oil in Kurdistan

oil donkeyHeritage Oil Plc, an independent upstream exploration and production company, provides the market with information in relation to the Taq Taq oil field in the Kurdistan Region of Iraq (“Kurdistan”) and an update on the proposed acquisition of Genel Energy International Ltd (“Genel”). Further to its announcement on 5 October 2009, Heritage issues this announcement in part to comply with its obligations under the FSA Disclosure and Transparency Rules in relation to the Taq Taq licence in which Genel has an interest.

Heritage (LSE:HOIL) understands that since 14 October 2009, all production from the Taq Taq oil field has been diverted into the local market. Production for export has ceased, in coordination with the other operators in the region, and export production is not expected to recommence until a payment mechanism is in place. Exports commenced on 1 June 2009, so far no revenue has been received for any exported production and none is expected until there is an agreement on the payment mechanism between the Federal Government of Iraq and the Kurdistan Regional Government.

According to Genel, the current gross production capacity of the Taq Taq oil field is approximately 35,000 bopd which is expected to increase to approximately 60,000 bopd by the end of December 2009 as new production facilities are completed. Average gross production for the Taq Taq oil field in September 2009, according to Genel, was 29,580 bopd, of which approximately 52% was sold into the domestic market, in part driven by the opening of the Erbil refinery in July. Current local demand for oil products in Kurdistan, as estimated by Douglas-Westwood Limited, an independent provider of business research and analysis, is approximately 130,000 bpd and this has historically been met through imports from neighbouring countries or other parts of Iraq.

Elections took place in Kurdistan at the end of July and a new government is in the process of being formed. A caretaker government is currently in place whilst the new Prime Minister forms his government, which is expected to be completed by early November. Heritage and Genel continue to monitor progress on the formation of the new government and expect formal approval of the proposed transaction once the new oil and gas committees are formally appointed, together with an understanding of the pricing and payment mechanism which is to be established for international sales from Kurdistan.

In addition, Heritage understands the FSA investigation previously disclosed continues and that the parties concerned are assisting with the FSA’s enquiries. Heritage confirms that discussions with Genel are continuing with the terms of the merger nearing formal agreement. Both sides remain committed to successfully completing the proposed transaction, however the transaction is taking longer to conclude than had originally been estimated. We hope the implementation agreement can be signed and the prospectus published before the end of the year.

Tony Buckingham, Chief Executive Officer, commented: “The understanding we have obtained in the past few months of the Genel assets and the domestic market for petroleum products in Kurdistan means that we remain committed to the Genel Energy merger.

It will create a leading company with oil production, exploration and refining capacity in the Kurdistan Region and is expected to generate significant value for shareholders as well as substantial tax revenues for the people of Iraq. The transaction is taking longer to conclude than both parties had originally planned, however we believe the implementation agreement can be signed and the prospectus published by the end of the year.”

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China in “Scramble for Africa”

Guinea

Guinea

Chinese interest in acquiring “strategic assets” continues unabated, with recent acquisitions & investments in a number of companies in Australia & South America.

As we saw in last weeks bullish approach regarding Nigerian oil, China is looking a little further afield & it’s all seeing eye has settled upon Africa. The latest country to be courted is the Republic of Guinea as China seeks to gain access to the West African nation’s large mineral deposits.

The impoverished nation possesses more than 25 billion tonnes of bauxite ore, with more than 150 mineable deposits having been prospected to date. Additionally, Guinea’s mineral wealth includes more than 4 billion tonnes of high-grade iron ore, significant diamond and gold deposits & as yet undetermined quantities of uranium. Bauxite exports account for more than 75% of GDP, according to Wiki sources.

Guinea’s Minister for mines was quoted in the Financial Times as saying that the Guinean government is in talks with the China International Fund (CIF) regards a $7Bn investment into a number of projects including infrastructure, minerals & oil.

“Instead of just giving natural resources… in exchange for promises of developing our infrastructure, we decided to take the joint venture approach and co-own not only the infrastructure development companies and projects, but also whatever natural resource companies or projects are developed jointly.” said Mohamed Thiam “All the government’s stakes in various mining projects will be put in that mining company. Future mining permits or concessions that the government decided to develop on its own will be put in that company,”

China still doesn’t seem to be too picky regarding who it does business with, as the present Guinean government is a military dictatorship that has recently put down a bloody coup last month. 150 people were killed on September 28, when troops opened fire on a crowd  gathered in  the capital Conakry, in order to protest at ongoing corruption in Captain Moussa Dadis Camara‘s rule.

Sidya Toure, who leads the only effective opposition & is a former prime minister was quoted “I do not understand how you can believe that we can inject this kind of money into the economy of Guinea where the total gross domestic product is only three billion dollars.”

CIF is also planning to form a consortium with the Guinean government & near neighbour Angola’s state oil company Sonangol to look at prospecting for oil off Guinea’s coast. As we reported previously, West Africa has become a hotbed of speculation & investment, as new oil fields are coming under development in Ghana, Angola, & Senegal. It is considered likely that offshore Guinea will also provide new hydrocarbon deposits that can be exploited.

What is interesting is that CIF on the face of things, does not seem to be an officially backed government company, whereas all the recent deals have been undertaken either by the Chinese Development Bank or via large state owned enterprises such as CNOOC or Chalco. CIF is registered in Hong Kong & an inspection of the website gives very little information on the structure of the entity.

Last November, as it became clear that the global economy was heading into a recessionary period, central government in Beijing implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels, with energy receiving a special focus.

Adopting various measures such as tax reductions, rebates, fiscal subsidies, improved access to credit & direct government expenditure, central government has been encouraging state owned oil companies such as Petrochina & CNOOC to expand foreign investment in upstream opportunities, whilst increasing domestic refining capacity & oil product stockpiles.

We have seen a number of examples of this with Russia signing a 20 year $25Bn oil supply contract in February, which will see Rosneft supplying up to 300,000 bpd of oil via it’s East Siberia-Pacific Ocean (ESPO) oil pipeline to China. This was closely followed by the China Development Bank extending a $10Bn loan to Brazil’s state owned company Petrobras in return for securing strategic oil supply contracts & this month CNOOC has made a bid to acquire more than 16% of Nigeria‘s stated oil reserves.

It would appear that sentiment is currently running against Western based IOC’s & countries in emerging markets that have currently untapped or underdeveloped  hydrocarbon deposits are enjoying the ability to play interested parties off against one another. What is interesting to me is the fact that China seems to be playing Guinea at arms length via what is in effecr a shell company, allowing them to hold up a clean pair of hands on an international basis.

This desire to secure resources at what would seem “any cost” should, in our opinion, receive close attention from both a geo-political & investment point of view. IOCs will not be able to compete in areas where there are no rules, particularly in Africa, whilst it looks like China will circumvent accepted norms using any available route to acheive their aims.

Original article published at MyStockVoice

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Egypt urges closer ties with EU for Arab states

CB018560Arab states have much to gain from their European neighbours and vice versa, but the emergence of China and Russia offer new opportunities.Egypt turned a page in its relations with the EU in 2007.
With the signing of the European Neighbourhood Policy (ENP) action plan, Cairo committed to a deeper level of political, economic and social co-operation with Europe, based on common values and objectives. We have agreed to join the EU in promoting stability, prosperity and good governance, and to work for the creation of a free trade area in the Mediterranean basin by 2010.
But now, after many rounds of discussion and on the 50th anniversary of the EU, both parties must ask themselves a basic question: is the ENP the most relevant response to the common challenges that face our two regions going forward? Is it the most effective response to shared problems such as terrorism or climate change? More importantly, will the promise of closer integration with Europe continue to have the same pull on the ‘neighbourhood’ it does today, as new players such as China and Russia court the region with aid, trade and investment?

The greatest pressures that will face Europe over the next 50 years will come from sources outside the union rather than internal ones. The neighbourhood policy tacitly recognises this fact by setting out a framework for deeper co-operation with Europe’s neighbours in the Mediterranean basin. By offering economic incentives in return for co-operation on political, economic, security and technical fronts, the policy seeks to limit the impact on the EU of the effects of conflict, crime and migration – spillovers from a troubled neighbourhood.

That Egypt should sign up for such closer co-operation with the EU is of course natural. Egypt is Europe’s longstanding ally in the region. Today, Europe is Egypt’s largest trading partner, with total trade standing at almost Eur 12,000 million ($16,000 million) in 2006.

Europe is also a significant foreign direct investor in Egypt, with more than £E 22,000 million ($3,860 million) worth of investments in 2006. Under an association agreement with Europe that came into force in 2004 (a forerunner of the ENP action plan), bilateral trade in industrial products is being fully liberalised. Active negotiations are under way to liberalise trade in agricultural produce, critical to Egypt’s exporters, as well as services.

The benefits to Arab states of such economic integration with Europe in terms of jobs, investment and technology transfer are tangible. Trade with Europe is an essential catalyst for economic liberalisation at home: the prospect of access to European export markets acts as an incentive to local industry to try to meet EU standards.

Our ties with Europe are also an asset in Egypt’s efforts to market itself to foreign direct investors. Egypt’s proximity to Europe and our strong economic ties are increasingly persuading investors to relocate their production base and move their operations closer to European customers. Over the past six months,

100 Turkish companies have visited Egypt to begin establishing factories on the Mediterranean coastline from which to export to the EU. A Russian industrial zone targeting light industry exports to global markets including Europe will be open in May. Another project is under way, with German investment, to create the first hub for automotive components to supply Europe’s largest car manufacturers. However, it is worth noting that Egypt and its regional peers have also been boosting economic ties with new partners such as China, Russia and even Kazakhstan.

Today, Middle East companies are as determined as European ones to take full advantage of the opportunities that markets such as China can offer. Egypt and China in 2006 signed a co-operation agreement to boost bilateral trade to $5,000 million by 2010, compared with about $3,100 million today. This includes plans to build the first dedicated industrial zone for Chinese manufacturers in the country. If we stay this course, China should overtake the US to become Egypt’s largest single trading partner over the next five to seven years – not by political design but through simple market economics.

So, when it comes to implementing the ENP, all parties should bear in mind that the world moved on while we were negotiating. With the rise of inter-emerging market investments, Europe’s neighbourhood today has more options in terms of trade and investment than it did just five years ago. This means that the carrots and sticks offered by the EU must also evolve to keep pace with this reality. Closer economic integration with Europe may not continue to be a sufficient incentive on its own.

by Rachid Mohamed Rachid is Egypt’s Trade & Industry Minister

MyStockVoice.com is now alive & kicking

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It’s taken a while & it’s been an interesting experience, but am pleased to say that we released MyStockVoice.com into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks

Paul

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Global Expansion of Emerging Multinationals: Post-Crisis Adjustment

SkolvokoThe SKOLKOVO Institute for Emerging Market Studies has released an analytical survey “Global Expansion of Emerging Multinationals: Post-Crisis Adjustment”. The survey reviews the activities of the active participants of this process – Russian and Chinese multinational companies (MNCs) – and analyses the impact of the economic slowdown on expansion, performance and role of these companies under the new conditions.

The last decade was characterized by impressive growth of outward foreign direct investments carried out by companies from emerging countries, including those of China and Russia, which has led to visible changes in global investment flows. Chinese and Russian companies were given ample opportunities for international expansion in the beginning of 2000s. The key role in this process belonged to the changes in policies of both countries and to the public support given by their governments to investment abroad. The main tendencies characterizing the entrance of Russian and Chinese companies to foreign markets are presented below.

Russian international expansion has been carried out mainly by private companies, whereas, in China, on the contrary, under the government’s auspices, the most large-scale activity has been shown by state-owned enterprises. Europe has become the main target region of investment for the Russian companies, whereas the Chinese companies have concentrated on Asia-Pacific. At the same time, USA market has been equally attractive both for Russia and China.

Growth of Russian and Chinese companies’ foreign investments started from roughly similar levels; however, the number of Chinese running projects has been growing considerably faster. 2008 became a record year for Chinese companies-investors. According to different estimates, in 2008, the Chinese multinationals spent abroad US$35 to US$46 billion on company mergers, whereas the Russian MNCs – around €12 billion.

The impact of the crisis on the expansion of Russian and Chinese companies differed depending not only on sector, but also on strategic model of expansion. Entrance of Russian extractive companies, such as Norilsk Nickel and Rusal, to foreign markets was carried out, primarily, to increase the scale of activity; these companies in particular have been the most severely affected by the crisis. At the same time, a number of large Russian mining and energy corporations (such as Lukoil, Gazprom and others) have been implementing a strategy combining entrance to new markets with vertical integration towards the clients. A tendency for creation of value-added products (and services) has to some extent reduced their dependability on volatile raw materials prices. Thus, as regards investment capability, they are in a better position, which is confirmed by the deals carried through the last half-year.

Most of the largest Chinese multinationals also belong to the resource sectors, such as oil and mining. However, unlike other Russian multinationals from extractive industries, they are mainly importers rather than exporters, and most of their outward investment is directed towards securing the access to strategic natural resources and, as a result, national safety. Apart from the extractive companies, government-controlled companies, which implement large infrastructural projects, also take an active part in international activity. Due to China’s solid financial standing and its aspiration to invest abroad, virtually all of these resource and infrastructure concerns are in a better position to withstand the crisis and actively continue to seek for attractive objects for investment all over the globe, all the more so as the prices have decreased.

Market seeking expansion into emerging countries is typical for the leading Russian companies working on consumer markets, such as telecommunications, retail, food products and entertainment; this process has somewhat slowed down due to hindered access to financial resources, but certainly has not stopped.  Chinese manufacturing companies, which have been using their advantages in cost price for conquering the developed markets for several years now, currently are starting to pay more attention to the emerging markets.

A distinct group of investors is comprised of Russian and Chinese manufacturing companies, which hold on to the “product-line import” strategy. It involves purchasing relatively smaller but technologically more advanced manufacturers in developed countries and localizing the production of their main lines in Russia and China. Such projects were actively carried on in 2008, however, presently, in conditions of the weakened market, they seem much less profitable and are curtailed on many instances.

It is apparent, that owing to international investing, both Chinese and Russian companies acquire knowledge and new skills, expand their managerial capabilities, create global brands and enhance their competitive advantages on the global market. The overwhelming majority of both Chinese and Russian companies, that had led the foreign expansion in the previous decade, were able to preserve their organizational integrity and position on the key markets under the conditions of the global crisis. Moreover, currently there is an opportunity of acquiring potentially interesting foreign assets with price considerably lower than before. But whether the Russian and the Chinese companies would be able to continue their active investing and to take an advantage of the emerged opportunities depends on their ability to solve their primary domestic issues exacerbated by the current economic situation.

Professor Sam Park, President of SIEMS:

“The time has passed that emerging economies offer nothing but cheap input materials. The world has seen a fast surge of emerging multinationals from Russia, China, India, and other newly developing economies that are reshaping the global competitive dynamics. It was the Japanese multinationals in the 1970s and other Asian multinationals in the 1980s that changed the global market structure. The 21st century is now filled with new breeds of emerging multinationals mostly from BRIC countries. SKOLKOVO research examines this new, but critical, phenomenon in global competitive structure. Following the ranking survey of Russian multinationals over the last two years, the current report presents a comparative overview of these multinationals from China and Russia, along with an in-depth analysis of their strategic motivations. It further examines whether there have been noticeable changes in their global expansion due to the current financial crisis. There will be a follow-up report later that examines the challenges these multinationals often run into in their global operations, which should also be able to provide valuable insights on how to address them.”

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