The drilling of the relief well in the Gulf of Mexico continues to hold our attention. But in the aftermath of the spill and – as pointed out several times here at the Econotwist’s Blog – the fate of BP’s global assets may provide the greatest long-term complications.
“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts.”
Dr. Kent Moore
Selling its assets is one way for BP to put together the funds needed to pay its expected liabilities. Those sales are moving right into a new round of mergers and acquisitions that are taking place anyway in the oil and gas sector due to rising volatility and the inability of some to withstand the uncertainty. So, the Big Oil are about to get much bigger – except for BP, of course.
BP are likely to emerge from the mess it created in the Gulf as a smaller, leaner, and hopefully, wiser company.
“Though, having been an adviser to these guys on three continents, I would not hold my breath on that last one,”oil industry expert Dr. Kent Moore writes in a recent newsletter.
But they do, however, have an overall plan:
Public attention remains focused on the $20 billion fund for compensation and the payments that are beginning to be made from it.
Yet the BP brain trust has decided the aggregate liability could well extend to $50 billion.
At least that seems to be the line they are drawing on the courtroom floor, as they move into years of litigation, assessing of damages, and counter-suits with other affected companies – Transocean, Halliburton, Anadarko Petroleum and Cameron International.
Dr. Kent Moore
“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts,” Dr. Moore writes
BP is acquiring lines of credit in the amount of $15 billion to $20 billion, one already secured from Credit Suisse (more on that one in a moment).
Then they plan to obtain between $15 billion and $30 billion from the sale of assets.
And, finally, they will either issue a supplemental placement for the remainder in BP common stock or float bonds.
Of course, the more they have to rely on this last option; the more they are effectively diluting existing shares or mortgaging future cash flow.
After all, a private placement with a buyer not interested in reselling the shares anytime soon would be the preferred approach, as would bonds with a likely rollover potential.
Here’s The Basic Problem
BP will be spinning off assets. They have already done so in several parts of the world.
Moving forward, that reduces the company’s profit base – not a preferable environment for issuing additional shares. Or, for securing bank credits, for that matter…
Because in addition to the assets it puts on the auction block, BP will need to tie up other assets as collateral for the loans it will take out.
BP To Become RP?
And that has some governments concerned. Like the Kremlin, for instance.
Trouble in Russia… Vietnam… Venezuela…
About-to-be-replaced CEO Tony Hayward (you remember, the poor fellow who wanted his life back) was jetting around the Persian Gulf looking for financial support to avoid either a collapse or a takeover.
Exxon Mobil, for one, has been flying circles overhead, waiting to see if the patient dies.
(According to the Norwegian oil industry expert professor Øystein Nordeng, Statoil is also hunting for leftovers from the BP cadaver.)
In the middle of the trip, Hayward was summoned to Moscow.
Officials there were livid.
BP used a stake it owns in their state-controlled oil giant Rosneft as collateral for that Credit Suisse loan, mentioned above.
Russian officials literally called Hayward on the carpet and demanded to know what the company’s overall strategy was going to be.
From Russia With...Nothing
Here’s one clue that you are in hot water with the government: You come into town as one of the major foreign investors in the country, yet neither President Dmitry Medvedev or Prime Minister Vladimir Putin has time to see you.
For BP and Hayward, the best they could rustle up was Deputy Prime Minister Igor Sechin, who has oil and gas in his portfolio.
Now, Sechin is a no-nonsense administrator.
He had a great concern in assessing BP’s intentions: the fate of the half BP owns of one of Russia’s top five oil producers, TNK-BP.
(The investor’s play is with the holding company actually controlling the joint venture’s assets – OTC:TNKBF.)
The Kremlin apparently received the assurance they were looking for – BP will not be selling its holding abroad.
Don’t be surprised if the Russian partners in TNK-BP end up buying the whole package outright…
Needs Cash – Now!
BP needs to raise cash quickly, and for that to happen, it will need to select assets carefully and sell them at a discount.
Plus, the Russian government is always paranoid about national resources being owned by foreign parties.
And then there is the curious fact that TNK-BP is uncomfortably grandfathered under a new Russian statute.
The venture controls strategic fields that, the law says, can have foreigners owning only minority positions.
“And there is BP, sitting out there like a sore thumb, owning half of all of them,” Mr. Moore comments.
Recognizing that BP is in an untenable position, some other governments are not waiting.
Vietnam has decided that BP will be removed as operator in a new offshore project. Hanoi is actively shopping around the position to other international majors.
And then there is Caracas…
TNK-BP was one of five Russian majors banding together in a major deal to develop fields in Venezuela’s Orinoco heavy oil belt. BP is pulling out, under pressure from President Hugo Chávez.
In areas as far-flung as Columbia, Texas, Egypt, Pakistan, and Alaska, BP has sold, or is planning to sell, its production assets.
Here’s cash the only thing that matter – no fancy stock swaps allowed in these transactions!
The Harder They Come, The Harder They Fall
The sales may end up accounting for more than 10% of the company’s about $250 billion in worldwide assets and reduce the company’s production figures by at least that much.
“This means that the money problems facing the company may be the longer-term problem in the aftermath of the Macondo spill. The production assets BP has to relinquish to survive could end up plaguing the company’s bottom line long after it has settled the lawsuits,” Dr. Kent Moore concludes.
But there are those living in the Gulf States who might have a word for that – “Justice”.
The euro continues its slide Monday, followed by stocks, oil and U.S. index futures. After a short rally last week, the euro turned sour again after the Spanish government came to the rescue of a small savings bank over the weekend, refocusing market attention on the risks associated with euro-zone lenders.
“We have our eyes on the exit and we’re not going to be afraid to walk through.”
Ted Weisberg
Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits, Bloomberg reports.
The euro fell Monday after the Spanish government came to the rescue of a small savings bank over the weekend, refocusing market attention on the risks associated with euro-zone lenders.
The rate banks say they charge each other for three-month loans in dollars has almost doubled since February.
“This is a quintessential liquidity crisis,” said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit.
“It’s not inconceivable to imagine a situation where the markets behave so poorly, the liquidity behaves so badly, and risk-tolerance just evaporates that — particularly in Europe — consumers contract, businesses stop hiring and stop investing, and economic activity halts.”
Exxon Mobil Corp. fell 1.1 percent and Merck & Co. retreated 0.8 percent in Germany, pacing losses among Dow Jones Industrial Average shares in Europe. Campbell Soup Co., the world’s largest soup maker, and Phillips-Van Heusen Corp., owner of the Calvin Klein brand, may be active before releasing their latest earnings.
Futures on the S&P 500 expiring in June lost 0.5 percent to 1,078.9 as of 10:18 a.m. in London. Dow average futures retreated 0.4 percent to 10,126 and Nasdaq-100 Index futures fell 0.5 percent to 1,809.75.
“I don’t think we’re out of the woods yet on the downside but markets are so volatile that they can easily flip,” Ted Weisberg, president of Seaport Securities in New York, says in an interview with Bloomberg Television.
If gains from May 21 don’t continue, “we have our eyes on the exit and we’re not going to be afraid to walk through.”
Market Snap Shots
Euro market at noon, CET; note the declining On-balance Volume indicator.
Arbeiderpartiets vedtak om å utsette avgjørelsen om leteboring i Lofoten og Vesterålen ble møtt med jubel av både politikere, miljøvernere og oljebransjen selv. Men mest grunn til å juble har StatoilHydro.
Arbeiderpartiet vedtok på sitt landsmøte denne uken å utsette avgjørelsen om å åpne for oljeboring i områdene utenfor Lofoten og Vesterålen.
Området er miljømessig sårbart, og argumentet for å utsette leteboringen er at det trengs mer informasjon om konsekvensene for miljøet.
Området er miljømessig sårbart, og argumentet for å utsette leteboringen er at det trengs mer informasjon om konsekvensene for miljøet.
Oljebransjen har i lang tid presset på for å få tilgang til områdene lengst i nord, som ifølge beregninger inneholder noen de største olje- og gassfeltene i verden.
Ifølge oljedirektoratet inneholder Barentshavet cirka 1 milliard kubikkmeter oljeekivalenter med olje og gass. Over 50 prosent er gass, og tilsvarer den samlede gassproduksjonen i Norge i ett år. Norskehavet har 1,2 milliarder kubikkmeter oljeekvivalenter, mens Barentshavet har 1,18 milliarder.
Og med stadig færre oljefunn, er hele den globale oljeindustrien nå i ferd med å sikte seg inn på de arktiske områdene.
Ifølge det internasjonale energibyrået trengs det nye oljereserver tilsvarende fire saudiarabiske for å møte etterspørselen de kommende årene.
Gigantenes kamp
Norske myndigheter er i ferd med lisensrunde 20 der til sammen 79 blokker på norsk kontinentalsokkel tilbys.
28 av disse ligger i Barentshavet, og disse vil ikke bli tildelt i denne runden.
Det er kommet inn 46 søknader, mot 24 ved forrige lisensrunde i 2006, opplyser Oljedirektoratet.
Blant søkerne finner vi Exxon Mobil, Chevron, Shell og Total, altså de største oljeselskapene i verden.
Oljeselskapene må bare betale 100 000 kroner for en lisens, som tildeles etter strenge kriterier med krav til ekspertise, erfaring og finansiell styrke.
I tillegg kreves det grundige analyser av risiko knyttet til potensielle skader på miljøet.
StatoilHydro er fremdeles det klart best kvalifiserte oljeselskapet når det gjelder dypvannsboring, og foreløpig er eneste oljeselskap som har fått lov til å starte prøveboring i Barentshavet.
Men i løpet av det siste året har selskapet blitt et av de økonomisk svakeste.
Det kan bli skjebnesvangert.
Låner penger
Mens Exxon Mobil og Chevron brukte de ekstra inntektene av den høye oljeprisen i fjor sommer til å fylle opp kontantbeholdningen, har Helge Lund og StatoilHydro brukt pengene til oppkjøp av selskaper, lisenser og rettigheter rundt om i verden, fra Amerika til Mexico-gulfen og Midt-Østen.
Exxon og Chevron sitter nå med til sammen 40 milliarder dollar i tilgjengelige kontanter, en firedobling i løpet av de siste 12 månedene.
Exxon alene har nesten 30 milliarder dollar til disposisjon.
De meste av pengene er investert i statsobligasjoner, som er relativt sikre, lett omsettelige og kan hurtig benyttes til investeringer og oppkjøp.
StatoilHydro har på sin side solgt obligasjoner og tatt opp ny gjeld for 6,2 milliarder dollar i samme periode, og har ifølge siste kvartalsrapport en kontantbeholdning på 7,9 milliarder dollar.
En strategi som øker selskapets finansielle risiko ytterligere.
Det er for øvrig ikke bare på norsk sokkel at StatoilHydro møter stadig hardere konkurranse.
Budkrig
I Irak har Vice President Adel Abdel Mahdi nå invitert en gruppe oljeprodusenter, ledet av Total og Chevron, til budkamp om rettigheter til å utvinne verdens tredje største oljereserve.
StatoilHydro kan bli nødt til å bla opp adskillig flere milliarder i tiden fremover for å henge med i konkurransen.
En mulig konsekvens av dette kan bli mer samarbeid, flere strategiske avtaler og flere fusjoner og sammenslåinger.
En rekke mindre oljeselskaper, som for eksempel Det Norske Oljeselskap, North Energy og Discover Petroleum, har inngått avtaler med store oljeselskaper som Chevron, Shell og Repsol, om leteboring på norsk sokkel.
Disse begynner også å utgjøre en seriøs trussel mot gigantenes dominans på oljemarkedet.
En høy gassprisen har holdt liv i StatoilHydro frem til nå. Men etter tre år med stigende gasspriser, er også disse på vei ned.
Utspilles
Hadde tildelingen av oljelisenser i Barentshavet skjedd nå, kunne StatoilHydro lett bli spilt ut i blitt spilt ut over sidelinjen og mistet sin dominerende posisjon i de arktiske områdene på grunn av sin midlertidige svake økonomi.
Den kan selskapet fremdeles gjøre hvis ikke oljeprisen kommer betydelig opp igjen.
Det kan derfor ha sine fordeler å ha staten som største eier.
Det er lite trolig at det økonomiske perspektivet ikke har vært vurdert når regjeringen besluttet å utsette oljeletingen i nordområdene i minst er til.
Låner tid
Ekspertene tror oljeprisen vil holde seg rundt 50 dollar fatet ut året, men vil etter hvert stige.
50 dollar fatet er break-even pris for StatoilHydro.
De fundamentale forholdene rundt tilbud og etterspørsel tilsier at en økning i oljeprisen er uunngåelig.
Spørsmålet er hvor lang tid det vil ta. Og det er det ingen som kan gi noe svar på
Den norske oljegiganten er det selskapet i bransjen som er mest utsatt i forhold til svingningene i oljeprisen.
Letingen etter ny drivverdige felter må fortsette, men samtidig må StatoilHydro finne andre ben å stå på.
Norges industrielle bærebjelke trenger å omstruktureres, kutte kostnader og samtidig posisjonere seg for vekst i nye områder.
Til sammenligning kan nevnes at verdens største oljeselskap, Exxon, bare står for 3 prosent av verdens oljeproduksjon fordi man har diversifisert virksomheten slik at man er mindre avhengig av oljeutvinning og oljepris.
Det StatoilHydro i øyeblikket har mest behov for er tid. Tid til at oljeprisen kan komme opp på et nivå slik at leting og utbygging av nye prosjekter kan tas opp igjen.
Og tid til å skape en bæredyktig strategi for fremtiden.
Følger man resonnementet om at “tid er penger” er utsettelsen av oljeboringen i Barentshavet – som sikkert kommer i gang på et eller annet tidspunkt – i realiteten en solid krisepakke.
StatoilHydro lever i øyeblikket både på lånte penger og lånt tid.
EUR/JPY:
EUR/GBP:
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EconoTwist's 
How Will BP Raise $50 Billion?
The drilling of the relief well in the Gulf of Mexico continues to hold our attention. But in the aftermath of the spill and – as pointed out several times here at the Econotwist’s Blog – the fate of BP’s global assets may provide the greatest long-term complications.
“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts.”
Dr. Kent Moore
Selling its assets is one way for BP to put together the funds needed to pay its expected liabilities. Those sales are moving right into a new round of mergers and acquisitions that are taking place anyway in the oil and gas sector due to rising volatility and the inability of some to withstand the uncertainty. So, the Big Oil are about to get much bigger – except for BP, of course.
BP are likely to emerge from the mess it created in the Gulf as a smaller, leaner, and hopefully, wiser company.
“Though, having been an adviser to these guys on three continents, I would not hold my breath on that last one,” oil industry expert Dr. Kent Moore writes in a recent newsletter.
But they do, however, have an overall plan:
Public attention remains focused on the $20 billion fund for compensation and the payments that are beginning to be made from it.
Yet the BP brain trust has decided the aggregate liability could well extend to $50 billion.
At least that seems to be the line they are drawing on the courtroom floor, as they move into years of litigation, assessing of damages, and counter-suits with other affected companies – Transocean, Halliburton, Anadarko Petroleum and Cameron International.
Dr. Kent Moore
“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts,” Dr. Moore writes
BP is acquiring lines of credit in the amount of $15 billion to $20 billion, one already secured from Credit Suisse (more on that one in a moment).
Then they plan to obtain between $15 billion and $30 billion from the sale of assets.
And, finally, they will either issue a supplemental placement for the remainder in BP common stock or float bonds.
Of course, the more they have to rely on this last option; the more they are effectively diluting existing shares or mortgaging future cash flow.
Support from sovereign wealth funds, especially those in the Persian Gulf, may temper that somewhat.
After all, a private placement with a buyer not interested in reselling the shares anytime soon would be the preferred approach, as would bonds with a likely rollover potential.
Here’s The Basic Problem
BP will be spinning off assets. They have already done so in several parts of the world.
Moving forward, that reduces the company’s profit base – not a preferable environment for issuing additional shares. Or, for securing bank credits, for that matter…
Because in addition to the assets it puts on the auction block, BP will need to tie up other assets as collateral for the loans it will take out.
BP To Become RP?
And that has some governments concerned. Like the Kremlin, for instance.
Trouble in Russia… Vietnam… Venezuela…
About-to-be-replaced CEO Tony Hayward (you remember, the poor fellow who wanted his life back) was jetting around the Persian Gulf looking for financial support to avoid either a collapse or a takeover.
Exxon Mobil, for one, has been flying circles overhead, waiting to see if the patient dies.
(According to the Norwegian oil industry expert professor Øystein Nordeng, Statoil is also hunting for leftovers from the BP cadaver.)
In the middle of the trip, Hayward was summoned to Moscow.
Officials there were livid.
BP used a stake it owns in their state-controlled oil giant Rosneft as collateral for that Credit Suisse loan, mentioned above.
Russian officials literally called Hayward on the carpet and demanded to know what the company’s overall strategy was going to be.
From Russia With...Nothing
Here’s one clue that you are in hot water with the government: You come into town as one of the major foreign investors in the country, yet neither President Dmitry Medvedev or Prime Minister Vladimir Putin has time to see you.
For BP and Hayward, the best they could rustle up was Deputy Prime Minister Igor Sechin, who has oil and gas in his portfolio.
Now, Sechin is a no-nonsense administrator.
He had a great concern in assessing BP’s intentions: the fate of the half BP owns of one of Russia’s top five oil producers, TNK-BP.
(The investor’s play is with the holding company actually controlling the joint venture’s assets – OTC:TNKBF.)
The Kremlin apparently received the assurance they were looking for – BP will not be selling its holding abroad.
Don’t be surprised if the Russian partners in TNK-BP end up buying the whole package outright…
Needs Cash – Now!
BP needs to raise cash quickly, and for that to happen, it will need to select assets carefully and sell them at a discount.
Plus, the Russian government is always paranoid about national resources being owned by foreign parties.
And then there is the curious fact that TNK-BP is uncomfortably grandfathered under a new Russian statute.
The venture controls strategic fields that, the law says, can have foreigners owning only minority positions.
“And there is BP, sitting out there like a sore thumb, owning half of all of them,” Mr. Moore comments.
Recognizing that BP is in an untenable position, some other governments are not waiting.
Vietnam has decided that BP will be removed as operator in a new offshore project. Hanoi is actively shopping around the position to other international majors.
And then there is Caracas…
TNK-BP was one of five Russian majors banding together in a major deal to develop fields in Venezuela’s Orinoco heavy oil belt. BP is pulling out, under pressure from President Hugo Chávez.
In areas as far-flung as Columbia, Texas, Egypt, Pakistan, and Alaska, BP has sold, or is planning to sell, its production assets.
Here’s cash the only thing that matter – no fancy stock swaps allowed in these transactions!
The Harder They Come, The Harder They Fall
The sales may end up accounting for more than 10% of the company’s about $250 billion in worldwide assets and reduce the company’s production figures by at least that much.
“This means that the money problems facing the company may be the longer-term problem in the aftermath of the Macondo spill. The production assets BP has to relinquish to survive could end up plaguing the company’s bottom line long after it has settled the lawsuits,” Dr. Kent Moore concludes.
But there are those living in the Gulf States who might have a word for that – “Justice”.
Here’s more from Dr. Kent Moore: “How To Play In The Big League”
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Related by the Econotwist:
BP Collecting Millions In Government Stimulus Funds
BP’s Oily Aftermath – Colbert Style
So, You Thought BP Was An OIL Company?
Response To The BP Derivatives Story
New CEO Isn’t the Long-Term Answer at BP, Expert Says
Statoil May Buy BP Assets, Expert Says
BP Rules Out Issuing New Shares
Norway’s Oil Fund Among BP’s Largest Shareholders As Bankruptcy Rumors Hit Market
Fears Of Oil Spill Consequences Subside, CDS Spreads Show
EU To Seek Temporary Ban On Deep-Water Oil Permits
Gulf Oil Spill: A Carefully Planned Inside Job?
Readers Response: The BP Conspiracy
Oil Spill Makes Waves
BP Is Drowning In Its Own Oil Spill
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Tagged as Business, Deputy Prime Minister Igor Sechin, Dr. Kent Moore, ExxonMobil, Financial Markets, Government of Russia, Gulf of Mexico, Health and Environment, International Econnomic Politics, Oil and Gas, Persian Gulf, Russia, TNK-BP, Tony Hayward, Views, commentaries and opinions