DNO International ASA is looking for outside Iraq for Growth as dispute between KRG and the Central Government in Iraq intensifies with revenues remain unpaid and exports blocked. (Bloomberg)
The FSA in the UK is investigating the Oil Minister for Kurdistan Regional Government (KRG) for insider trading related to Heritage PLC that is listed on FTSE. It is reported that he made GBP 13 million profit from the share dealings. (Times Online)
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”
Aramco & Total to issue Sukuks and Bonds to finance $12 billion 400,000 barrel per day refinery in the Kingdom. The Joint Venture which aims to sell 25% to the public, will raise around US$ 1 billion via issue of islamic bond or Sukuk. According to Bloomberg, lead managers have been appointed including DB, Calyon and Samba. The refinery will start operations in 2013. (Bloomberg)
The Oil Kingdom: Part One – 60 Minutes – CBS News.
Good documentory by 60 Minutes even though it is a bit out of date. It gives a good insight into Aramco and Saudi Oil Strategy.
Tadawul (Saudi Stock Exchange) reported that Alujain, an Investment holding company with focus on Petrochemical sector in Saudi, is to acquire the remaining of National Petrochemical Company in a share swap. Alujain currently holds 57.4% of NatPet. NatPet share have been stagnant since going public in Aug 2009. At of yesterday’s closing price, the premium of the deal is 8%. (the graph shows NatPet share price from Aug 09 to current).
The Petrochemical sector in the Kingdom is suffering from depressed margins and increased competition from new facilities coming on stream.
Abu Dhabi’s Masdar to build 200 MW wind farm in Egypt as country plans to generate 20% of its needs from renewable resources (AMEinfo.com)
Depending on supply-demand balance and thirst by India and China for Crude Oil, having a stable producer would elevate the pressure on Saudi being the Central Bank of Oil. Saudi compensated lost volumes from Iraq and Iran during conflicts. On the other hand, if Iraq reaches 4 m bbl / day, a key level and on par with Iran’s stagnent production, this could induce Iran to politicize negotiations at OPEC.
In case of sluggish World demand and rising Iraqi production, the threat would be to Saudi as it needs higher oil price to balance its budget. This year the Kingdom would require $ 70 / bbl oil price. By 2030, according to bankers, Saudi would require $ 165 / bbl oil price. The Caveat is that Iraq itself also needs higher oil price to rebuild its devastated economy.
A private Saudi petrochemical company is accused of smuggling petroleum products to France & other European countries for over 11 years. (ArabianOilandGas.com)
Libya is opening up its banking sector to foreign ownership. The Central bank of Libya will issue two licenses to foriegn banks who would have 49% ownership and full managment control. The remaining 51% will be owned by domestic investors. The qualifying banks will need to have a minimum Tier 1 capital of $ 2 billion and Baa2 rating by Moody’s (or BBB rating by S&P).
Libya has been building quietly a portfolio of international assets. Recently took a minority stake in ENI and the Central Bank of Libya with another Libyan investor hold 5% of UniCredit SpA. Libya also recently founded a $ 500 million fund with Mediobanca to invest in Distressed Italian Companies. (WSJ.com)
Cost of insuring against a Dubai default rose sharply to reach 660 bps points as of Monday fueled by disagreement over restructuring of Dubai World $ 22 billion debt with its creditors. The first proposal according to Dow Jones meant an effective recovery value of 20-30 cents on the dollar. This is far below the creditors worst estimates. (FT.com )
Having its hand strengthened by the recent flurry of oil deals with International Oil Companies and refusal to make payments for Oil exported from the Kurdish Region, the Iraqi Central Government in Baghdad is now turning the screws on the oil companies operating in the Kurdish Region. Shahristani said that they “will pay the exploration & extraction cost of the oil companies working in Iraqi Kurdistan but not their profits”. (Reuters)
Al Neft > This is the first explicit sign that the Central Government in Baghdad could be taking over control over oil rights in the Kurdish region. This could mean the end of the adventurous journey for companies such as DNO and Turkey’s Genel Enerji that rushed into the Kurdish region 7 years ago. At the very least, their deals with KRG will need to be renegotiated in line with Baghdad’s recent deals with IOCs.
Although most of the oil companies in KRG stress tested their assumptions and investment models on the country descending further into the abyss, none probably thought hard enough about the risk of improving conditions in Iraq could mean to their fragile legal rights.
Aramco to inject CO2 into giant Ghawar field that pumps 5 m bbl pr day (almost half of Saudi’s output). Carbon capture and injections into oil fields is viewed favorably by O&G companies as it maintains oil field pressure and can then utilize natural gas from the field in electricity generation. (Reuters)
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