One of the world’s renowned specialist in Turnarounds predicts economic revival in the Gulf. Dubai’s state owned entities and Kuwait investment companies have been hit the hardest.

Strong corporate governance and getting the right people are being enforced in Dubai’s state owned companies.  (FT)

The National reports that Middle East Sovereign Wealth Funds may come to rescue of embattled BP.  BP which is facing potential $ 60 billion liability related to oil spill in the Gulf of Mexico, has seen its finances come under scrutiny and several of its counterparties have capped tenor of trades with the company.  The company’s share price has declined by 50% to 15 years low.  BP has in essence  become a political punching bag in the USA aided by its perception as penny pincher and cutting corners.

The Sovereign wealth Funds like ADIA in Abu Dhabi, QIA in Qatar and KIA in Kuwait might see this as an opportunity to repeat their sucess with investment in distressed banks back in 08/09.

BP’s US assets represent only 25% of its asset portfolio and the company still has sought after assets elsewhere. The Sovereign Wealth Funds may get competition this time from the Oil Majors such as Exxon, Shell and the Chinese Oil majors such as CNOOC and Petro-China.

In our opinion, BP may opt to attract friendly Sovereign Wealth Funds with convertible issues to shore up its balance sheet rather than become a sitting duck for the Oil Majors.

Related articles

• Kuwait Investment Office in talks to raise BP stake (guardian​.co​.uk)
• BP seeks investors, help with cleanup (msnbc​.msn​.com)

Kufpec, the overseas upstream arm of Kuwaiti state-owned oil firm KPC, has branched out into Vietnam, picking up a 35pc stake in the offshore block 51 in the south of the country.    Kufpec last year said it was seeking acquisitions because stalled growth was cutting into its production targets, hoping to buy producing assets to offset declining output.   Output of 55,000 b/d of oil equivalent (boe/d) in 2008 was nearly 9pc down on the previous year, making a previous 100,000 boe/d target by the end of this year highly unlikely. Kufpec was to focus its acquisition attentions on Asia-Pacific, the Middle East and north and west Africa. (Argus)

Kuwait Petroleum Corporation (KPC) is seeking to involve private sector in the ownership and management of some oil activities in Kuwait, according to KPC managing director for planning sector and chairman of the Oil Development Company (ODB) Hashim Al-Refaai. (ArabianOilandGas)

Kuwait Energy Company (KEC) reported at its AGM its full 2009 results. Revenue stands at $ 88.3 million and net profit of $5.6 million. KEC’s production now stands at 15,927 barrels of oil equivalent per day (68% increase on 2008) and proven and probable reserves by 18% to 51.2 million boe.  The company will continue to focus on Egypt and has rafter of upstream assets in Eurasia.  The target for 2010 is to achieve 50,000 boe per day and reserves of 300 mmboe. KEC is also planing an IPO in 12 months time on both the London and Kuwaiti stock markets. (Zawya : Kuwait Energy reports $5.6 million net profit in 2009)

Iraqi Elections:

NYT reports on Iraqi Elections. As expected no clear majority winner. Weeks if not months will follow in an effort to unite parliament to elect a Prime Minister. Maliki would most probably stay in power. But should be interesting to watch.

Egyptian Oil Discovery :

Kuwait Energy Company (KEC) announced discovery of new oil well in Egypt with initial flow of 280 barrel per day of 33 API.

Kuwaiti Firm Struggles to Hold to Aston Martin

WSJ reports that Investment Dar of Kuwait will seek protection under Kuwait’s Financial Stability Law in order to keep its prized assets such as aston Martin.  The company is currently in discussion with its creditors (HSBC & Lloyds Banking Group) that may end up in restructuring of the company.

Aref Energy Holding, a subsidiary of Kuwaiti Investment company Aref Investment Group to sell 95% of its 50% stake in US company GeoGas for $ 117 million.  The company is reported to make $ 70 million profit from the sale. (AMEinfo)

As reported in earlier post in Al Neft, the debt Tsunami maybe hitting Kuwait‘s Investment Companies as debt repayment approach. Kuwait is unique in the Gulf in having over 100 Investment companies with majority listed on its stock market. These companies used short term financing to fund acquisitions in international trophy assets (Aston Martin, Grosvenor House, Tunisair, Orbit Showtime etc). Locally, the Investment companies web of cross shareholding have added to the opaqueness of the stock market in Kuwait in general and made it difficult to understand shareholding structure of some of the major Kuwaiti Companies.  At their peak in 2007, the Kuwaiti Investment Companies assets reached $ 52 billion. These have been revalued down slightly to $47 billion but no where near what they actually should be according to analyst.

First casualty like Global Investment House and Investment Dar have had to restructure and  renegotiate with their creditors. Still majority of the Investment Companies need to follow suit or even merge / sell their assets. Majority are still resisting even in the face of upcoming repayments. This has propelled the Kuwaiti Banks to stop lending to this sector all together and Moody’s has negative outlook on the Banking sector due to its exposure to those troubled Investment Companies.   The Regulators and the Central Bank have a big role to play to unwind the leverage and improve transparency and reporting by Investment Companies in Kuwait.  Their job is complicatedby the fact that majority of those investment companies are backed by powerful Kuwaiti families who are also represented in the country’s disjointed Parliament.  As observed elsewhere during the financial crisis, a mismatch between short term lending to finance long term equity investment, is a recipe for disaster in the face of declining asset and equity valuation.  As Bob Dylan once sang “you don’t need a weatherman to know which way the wind blows”

Kuwait Targets 4 Million Barrels a Day Oil Production by 2020 – Bloomberg​.com.

The $ 14.5 billion 615,000 bbl / dayAl Zour refinery & Petrochem complex is given preliminary approval by Parliament in Kuwait. (The National)

• Al Neft is still skeptical about the prospect of getting anything through in a disjointed Parliament that has been gripped by infighting and political squabbling. We see further delays in the offings.

Kuwait trying to resolve penalty payment ($2.5 bn) following cancellation of the Dow Chemical Petrochemical complex.(AMEinfo​.com)

Dubai to import up to 37 billion cubic feet per year of natural gas from Qatargas 4 (JV between Shell & Qatar Petroleum) as more LNG cargos are diverted from North America. China will take 40% and Dubai 10% of Qatargas 4. … Continue Reading

Kuwait which holds 10% of world oil reserves, may be heading to a political crisis. This is exemplified by Parliament’s recent demand that the state bail out its indebted citizens by buying US$ 23 billion of consumer loans.

The continued political spat between the Ruling Family and the Islamist (majority in Parliament), five Government resignations in past 3 years, over US$ 8 billion of Oil contracts cancelled last year is driving away foreign investment and damaging the country’s economic reputation. The country has lagged its GCC peers in all economic parameters. Will be hard to see how it can achieve its goal of increasing its oil output to 4 m bpd from its current below 3 m bpd. (WSJ​.com)