Total Share Discussion Threads

[maywillow] 24/9/2015 20:08

By Selina Williams

LONDON--A state-backed Chinese investment fund has bolstered the chances of an Arctic natural gas project in Russia moving forward despite U.S. sanctions, according to the chief executive of Total SA, the French oil giant involved in the project.

Yamal LNG, a $27 billion project on a Russian peninsula jutting into the Kara Sea, has been beset by questions over how to pay for it since the lead partner, OAO Novatek, was hit by U.S. sanctions following Russia's annexation of Crimea last year. With most western financing cut off, the partners have turned to Chinese state banks for $12 billion in loans but none have been approved yet.

The project has become a test of whether complicated, expensive Russian energy developments are possible in an era of stringent American sanctions on the country's oil-and-gas industry.

This month, China's $40 billion Silk Road Fund said it would finance part of the project, a development Total CEO Patrick Pouyanné called "a clear commitment by China" in an interview Wednesday. The price paid for Silk Road's 9.9% stake in Yamal wasn't disclosed.

Silk Road, a state-owned infrastructure fund, couldn't be reached for comment.

Mr. Pouyanné said Silk Road would represent part of China's contribution to the project. It joins Total, Novatek and state-owned China National Petroleum Corp. as partners there.

Mr. Pouyanné said the Yamal partners were still seeking financing from Chinese banks but said he didn't know when they would deliver the loans. Geopolitics will affect the outcome of those talks with lenders, he said.

Yamal LNG is a centerpiece of Russian President Vladimir Putin's plan for Russia to reduce its heavy dependence on natural gas exports to Europe by increasing sales to Asia, in turn cementing Russian ties with China.

Much of Yamal's gas has already been purchased by Chinese buyers.

"This project is part of an intergovernmental agreement between Russia and China," Mr. Pouyanné said.

The Russian government has already lent $1.4 billion from its National Wealth Fund to the project. Mr. Pouyanné said the remaining tranche of around $1 billion would be released "very soon."

The partners are also seeking between $3 billion and $4 billion from Russian banks and up to $5 billion from export credit agencies in Asia and Europe, Mr. Pouyanné said.

In the past six months, Total has increased its stake in Novatek, Russia's biggest independent gas producer, to 18.9% from around 18% previously. Total has an agreement with Novatek to buy up to a 19.4% stake.

Total had halted purchases of Novatek stock last summer following the downing of flight MH17 in July over Ukraine. The U.S. has targeted Novatek co-owner Gennady Timchenko and the company was cut off from long-term financing on U.S. markets.

"We observed the stock was down in the spring and we said why not buy?," Mr. Pouyanné said. "I'm not a politician, I run a company."

Total is one of the top foreign investors in Russia and is counting on projects such as Yamal to lift its oil and gas production by the end of the decade.

Write to Selina Williams at [e-mail]



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[maywillow] 24/9/2015 20:04

Russian gas project gets boost from Chinese funding, Total CEO says
Sep 24 2015, 14:40 ET | By: Carl Surran, SA News Editor [Contact this editor with comments or a news tip]

A state-backed Chinese investment fund has improved the chances of the Yamal LNG natural gas project in Russia moving forward despite U.S. sanctions, says the CEO of Total (TOT +0.5%), the company involved in the project.

The $27B project on a Russian peninsula jutting into the Arctic's Kara Sea has been beset by questions over how to pay for it in the face of U.S. sanctions, and has become a test of whether Russian energy projects remain possible.

China’s $40B Silk Road Fund said earlier this week it would finance part of the project, a development TOT CEO Patrick Pouyanné calls “a clear commitment by China”; the price paid for Silk Road’s 9.9% stake in Yamal is not known.

[the grumpy old men] 23/9/2015 17:09

LONDON--French oil giant Total SA will pump less oil than expected in 2017 amid new cost cuts intended to protect its ability to pay investor dividends during a period of low oil prices, company officials said Wednesday.

The company lowered its target for output in 2017 to an average 2.6 million barrels of oil equivalent a day, down from a previous target of 2.8 million. The company's chief financial officer, Patrick de la Chevardière, attributed half of the difference to delays in projects around the world and half to cuts in capital investment.

The new production targets are a sign of the dilemma faced by the world's biggest oil companies.

Along with Royal Dutch Shell PLC, Exxon Mobil Corp. and others, Total is cutting billions of dollars in costs to cope with oil prices that have fallen to their lowest levels since the financial crisis of 2008 and 2009. Supplies of crude are running at more than a million barrels a day higher than demand, weighing down prices.

If oil companies cut too much, they risk losing production growth and profits in the future when oil prices rise again. If they cut too little and bet on increasing their volumes of oil, they could be forced to lower their dividend payouts to investors.

On Wednesday, Total moved along the path of protecting its dividend, assuring investors at a conference in London that a new round of cost-cutting would allow it to cover its shareholder payouts into 2017 even with oil prices around $60 a barrel.

"We are not driven by volume at any cost," Mr. de la Chevardière told reporters. "We are preparing the group for a low oil price for a long time," he added.

The 2017 production estimates are still higher than Total's latest output figures of about 2.3 million barrels a day. The company has big projects in the pipeline, including an Arctic natural gas development in Russia, and officials have said they are interested in returning to Iran after sanctions are lifted.

The announcement came a day after U.S. regulators accused the company of manipulating the natural-gas market in southwestern states from 2009 to 2012. Total denied the charges.

Questions about Total's dividend have swirled since the company raised its last full-year dividend by 2.5% to EUR2.44 ($2.68) a share, but offered shareholders the option of taking a scrip dividend at a 10% discount to the market price. Mr. de la Chevardière said the company would likely offer the discounted stock next year, but expected to be able to pay the full dividend in cash in 2017 with an oil price at $60.

To make that happen at today's oil prices, Total has scrambled to cut its costs so that it can break even at a $45 a barrel by 2019, compared with $70 to $80 today. Back in 2013, when oil prices were regularly above $100 a barrel, Total operated with an overall break-even price of $110. Crude is now trading around $50 a barrel.

Total on Wednesday raised its target for reductions in operating costs to $3 billion by 2017 from a previous target of $2 billion. Tighter cost management and falling raw-material and supplier costs would get Total to its new goal, Mr. de la Chevardière said.

Total is also planning to reduce capital expenditure to between $20 billion and $21 billion next year from a previously targeted range of $23 billion to $24 billion. Thereafter, the group expects yearly capital spending to fall to $17 billion to $19 billion compared with a peak of $28 billion in 2013.

Within a couple of years, Total's cuts in capital spending will lead to a slowdown in production output growth. Total sees output growth slowing to an annual pace of 1%-2% after 2017, down from a revised average growth rate of 5% a year in the 2014-2019 period.

Total has also moved to squeeze its contractors and staff. Arnaud Breuillac, Total's head of exploration and production, said the company has already managed to cut some oil-rig fees by 30% and seismic-acquisition bills by 20%. The company also reduced its payroll by freezing hiring and cutting jobs.

In a note to investing clients, Barclays said Total is "adapting quickly" to low oil prices and noted the company should be able to pay its dividends in cash by 2017 under the new spending and production regime.

The company has been hit hard by the falling oil price, recording a $5.66 billion net loss for the fourth quarter of 2014. It has recovered some since then, posting profits that have been bolstered by its significant refinery business, which does well in times of low oil prices. Total reported a first-quarter net profit of $2.66 billion.

Write to Inti Landauro at [e-mail]



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[grupo guitarlumber] 22/9/2015 19:04

Suncor Energy Inc. said Monday it had agreed to boost its stake in the Fort Hills oil-sands project in Alberta to 50.8% by acquiring a 10% stake from project partner Total SA for 310 million Canadian dollars ($235 million).

The deal reflects diverging bets on Canada's oil sands.

"This opportunity to acquire an additional interest at a discounted price underscores Suncor's confidence in its position within the oil sands," Suncor Chief Executive Steve Williams said in a statement. Total, meanwhile, said separately that it had decided to reduce its exposure to Canada's oil sands after looking at its total asset portfolio in the context of lower oil prices.

The sharp drop in oil prices since mid-2014 has roiled energy companies around the globe, forcing many to slash spending to protect their balance sheets. For Total, the sale is part of a vast program to sell not-so-profitable assets to raise cash as the company grapples with the oil collapse. Total had already decided to suspend its Joslyn project in Canada. The company also recently sold a pipeline operator in the North Sea and a gas station chain in Turkey.

Total said the sale of the Fort Hills stake will reduce the capital it will have to invest in the project by $530 million by the end of 2017. Its stake in the project will fall to 29.2% as a result of the sale.

Suncor, the project's operator, said it could absorb the added spending obligation on Fort Hills without altering its capital-spending plans for the year. In late July, the company slashed another $400 million Canadian dollars from its capital-spending budget and said it planned to spend between $5.8 billion Canadian dollars and $6.4 billion Canadian dollars in 2015, lowering its range from up to $6.8 billion Canadian dollars previously and its original target of up to $7.8 billion Canadian dollars.

"We consider this project to be one of the best opportunities for long-term sustainable growth in the industry today, thanks to the exceptional quality of the resource and our disciplined project execution," Suncor's Mr. Williams said. Fort Hills is expected to start producing oil in the fourth quarter of 2017.

Canada's Teck Resources Ltd. owns a 20% stake in the project. Suncor said Teck had agreed to waive its right of first refusal to purchase a pro-rata share of the offering.

Write to Carolyn King at [e-mail] and Inti Landauro at [e-mail]



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September 21, 2015 11:01 ET (15:01 GMT)

[ariane] 14/9/2015 17:04

Pumping Jacks are shown at the Chevron section of the Kern River Oil Field near Bakersfield, California.
GETTY IMAGES

ROBERT RAPIER: Many oil and gas companies will likely see huge write-downs on their proved reserves at the end of 2015. To understand why, let’s begin by reviewing the difference between a resource and a proved reserve.

A resource is an estimate of the total amount of oil or gas in place in a formation, most of which typically can’t be economically recovered. The portion of the resource that is technically and economically recoverable at prevailing prices is the proved reserve.

For example, the oil resource in the U.S. is well over a trillion barrels, but the current proved reserve according to the Energy Information Administration is around 35 billion barrels.

Because of the requirement that the oil be economically recoverable, proved reserves are a function of commodity prices and available technology. Therein lies the impending reckoning for oil and gas producers.

Each year in their annual reports, companies must report their anticipated future cash flows based on their proved reserves. This is referred to as the Standardized Measure, which must be calculated according to specific guidelines set by the U.S. Securities and Exchange Commission.

The Standardized Measure is the present value of the future cash flows from proved oil, natural gas liquids, and natural gas reserves, minus development costs, income taxes and existing exploration costs, at a 10% discount rate. All oil and gas firms that trade on a U.S. exchange must provide the Standardized Measure in their filings with the SEC.

This is a useful metric for valuing oil and gas companies. In theory, a company should be worth at least its Standardized Measure. If a company is trading at less than the value of its Standardized Measure—in other words, if its enterprise value to Standardized Measure ratio is less than one—the company is, in theory, trading at less than its worth.

But the Standardized Measure is based on year-end proved reserves. The prices used for oil, gas, and natural gas liquids in the Standardized Measure calculation are derived from the 12-month period before the ending date of the period covered by the annual report. And those prices this year are much lower than last year’s prices.

Proved reserves can be further subdivided into proved developed and proved undeveloped. Proved developed means the resource can be produced with existing or minimal investment, while proved undeveloped may be booked as “proved reserves” if the development plan for those reserves provides for drilling within five years of being booked. If circumstances change and a company becomes unable to justify the five-year development, then it may be required to reduce its reserves estimate.

The question at year-end for oil companies will be, “How many of those barrels won’t be developed within five years given prevailing oil prices?” For those with a large fraction of their reserves in the proved undeveloped category, the answer may be “a lot.”

This is where write-downs will come into play. Barrels that won’t be developed at current prices will be removed from the proved reserves category.

These impending write-downs are why so many companies are trading below their expected future cash flows—investors are anticipating that these projections will decline when year-end reports are filed. But proved reserves that come off the books when prices fall can go back onto the books once prices start to rise again.

Robert Rapier (@RRapier) is chief technology officer and executive vice president at Merica International, a forestry and renewable energy company. He serves as managing editor for Energy Trends Insider and is chief investment strategist for Investing Daily’s Energy Strategist service.

Read the latest Energy Report.

[waldron] 10/9/2015 12:15

Calendar



Financial events


Sep. 23, 2015
2015 Mid-Year Outlook - Investors’ Day in London

Oct. 29, 2015
Third Quarter 2015 Results

Dividends for holders of Total shares traded on the Euronext Paris

Sep. 28, 2015
Ex-dividend date for the 1st 2015 interim dividend(1)

Dec. 21, 2015
Ex-dividend date for the 2nd 2015 interim dividend(1)



(1) Pending the approval by the Board of Directors.

[waldron] 10/9/2015 12:15

French oil major Total said it agreed to sell a majority stake of 50 percent plus one share in Geosel Manosque to a 50-50 consortium of EDF Invest and Ardian as part of its $10 billon disposal plan.

The transaction values Total's interest at 265 million euros ($297 million), excluding inventory, the company said in a statement on Thursday.

Total said it will retain 3.4 percent of Geosel, which owns the Manosque underground storage facility in southeastern France, and will continue to use Geosel's infrastructure.

"The sale of this infrastructure asset is part of our programme to sell $10 billion in assets by 2017 and reflects Total's active portfolio management strategy," Total Chief Financial Officer Patrick de la Chevardiere said. ($1 = 0.8923 euros) (Reporting by James Regan; Editing by Leigh Thomas)

[la forge] 08/9/2015 06:43

Time to panic? not yet - CNBC Comment

by Wilfred Frost - 8 September 2015 1:36am

Wilfred Frost is anchor of CNBC’s Worldwide Exchange.

The bull market has further to run, says Wilfred Frost. But there may be better value outside equities

HINDSIGHT is a wonderful thing, but the recent correction in stock markets was hardly surprising. Even its extent and volatility were not totally absurd when you take account of a few crucial factors.

The most relevant factor is that this all occurred in the summer when volumes are thinnest. Moves were therefore larger and more prolonged than perhaps they otherwise would have been in normal trading. While European traders started filtering back last week, the US summer only officially ended yesterday, so we still don’t really know what the majority of traders feel about current levels until we are some way through September.

UNINSPIRING FUNDAMENTALS
The main reason for the correction is down to how strong markets have been in the short and long term, despite uninspiring fundamentals. European and Japanese equities had been unashamedly strong this year, supported by central bank bond-buying programmes, and US equities, while mixed, had not been particularly negative. That’s the short term. In the long term, markets have been fantastically strong since March 2009, all of which has been stimulus-led, and that stimulus is getting closer to being removed than added to in the all-important US market as the Federal Reserve gets ready to hike its interest rates.

China clearly has had a big impact over the last few months, though I consider that to be the spark for the correction, not its cause. I am bearish on China, but not because of the Shanghai market correction. China’s equities were not correlated with fundamentals on the way up and so, on the way down, they do not necessarily imply that the fundamentals are weakening. However, the Chinese economy is slowing and, as I have warned before, I am sceptical as to where it can settle and expect a much larger and sharper correction than most factor in.

RELATIVE ATTRACTION
I have been told more times than I care to count on Worldwide Exchange that equities are attractive relative to other assets. Relative attractiveness is all well and good when there is confidence in the market. But as soon as you have a risk-off moment, investors are quickly reminded that equities (and emerging market currencies and commodities) are risk assets, and will not escape negativity whether yields are higher than bonds or not.

Given the run over the last six years and that developed world growth is only around 1-2 per cent (a level that hardly justifies the global quantitative easing programmes), most risk assets are not attractive in absolute terms. This summer, China sparked a re-evaluation by investors of the long-term fundamental attractiveness of the assets they were holding, and we duly saw a volatile correction.

MORE VOLATILITY AHEAD
I imagine this is not quite the full end to the post-global financial crisis bull market. There will probably be another (volatile) leg to the uptrend, no doubt caused by further dovish sentiment from central bankers – the statement from the European Central Bank’s Mario Draghi last week is a good example.

But ultimately, on any long-term perspective, do we really think that economic growth rates of about 2 per cent are enough to judge QE a success? Not for me. The fundamentals do not justify the action of the last six years. Thus the market rally we have seen is resting on either a sharp improvement in global fundamentals or more dovish action (not just rhetoric) – which would be increasingly ineffective, as China has clearly highlighted.

With that in mind, the yield of over 2 per cent on offer from the US 10-year bond seems quite attractive. There may well be equities available with a higher yield, and we may well be entering a rate-rising period in the US. But with growth still uninspiring, and yields on European and Japanese debt even lower, the US bond market offers some relative and absolute value.

Wilfred Frost is anchor of CNBC’s Worldwide Exchange. Follow him on Twitter: @WilfredFrost

City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.

[ariane] 06/9/2015 08:07

The Total Risk Surrender - Why Oil Investors Will Do Well
Aug. 31, 2015 12:54 PM ET | 21 comments | Includes: BP, COP, CVX, RDS.B

Disclosure: I am/we are long XOM, CVX, RDS.B, BP. (More...)
Summary

Bank of America Merrill Lynch noted that $29.5 billion in mutual funds were sold last Tuesday.
In particular, it seems that investors cannot flee oil stocks fast enough.
However, history indicates that it is precisely this volatility that explains why oil stock investors do so well over the long term.

In a note to Bank of America Merrill Lynch clients, the brokerage arm observed that $29.5 billion was sold on Tuesday. This was the greatest one-day outflow in the past eight years. The lesson seems to be that, no matter how advanced technology gets, the very basics of human nature have not yet changed. There is a significant amount of people out there who abandon rationality and sell perfectly fine long-term holdings as soon as the market quotations exhibit a significant amount of volatility.

There is no phenomenon that exemplifies this trait better than the oil sector. When the price of commodities get cheap, the expectation of investors become so pessimistic that the price of the shares become detached from the likely earnings power of the oil companies over the full course of the business cycle.

It is important to understand that this volatility in the oil sector is the reason why oil stocks outperform over the long run. I'll repeat--oil stocks make lucrative long-term investments not in spite of volatility, but rather, because of it. Dr. Jeremy Siegel of the Wharton School referred to the "bear-market protector" and "total return accelerator" effects of reinvested dividends at low prices.

When you get a chance to reinvest Exxon dividends at 4%, Chevron (NYSE:CVX) and Conoco (NYSE:COP) dividends north of 5%, and BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.B) at north of 7%, good things tend to await the patient investor.

This is not my speculation, but rather, a fact of history that tends to repeat itself over and over again. When Dr. Siegel measured the twenty best performing stocks during the period between 1957 and 2003, exactly ten of the top twenty came from the oil sector. Conoco compounded at 11%. Texaco compounded at 11%. Gulf Oil and Chevron compounded at over 11%. BP compounded at 11.5%. If you bought Amoco, you got 12%. If you bought Exxon, you got 13.5%. If you bought Mobil, you got 13%. If you bought Shell, you got over 13%. And if you bought Royal Dutch Petroleum, you got over 13.5%.

And oil stocks were just as volatile in the 1960s, 1970s, 1980s, and 1990s as they are today. In the early 1970s, the price of oil fluctuated more than 70%, making the current concern about the market seem silly in comparison. It is important to keep in mind that volatility is not a substitute for intrinsic value, and this tendency of investors to fall out of love with oil stocks for years on end explains why the shareholders of oil stocks are able to generate such lucrative returns over the long haul.

I refer to this as the Philip Morris principle because the tobacco giant generated 17% annual returns over the course of the 20th century despite only delivering 11% earnings per share growth over this period. Why were the total returns so much higher than the growth? Because the stock was typically undervalued for long periods of time, and investors that engaged in reinvestment were able to turbo-charge their returns at a rate that exceeded what you would expect by looking at the long-term changes in the earnings per share figures.

When others around you engage in irrationality, you are under no obligation to do the same. People are discarding BP, Shell, Chevron, and Exxon with reckless abandon, but you should keep in mind that these companies are still cash cows even with the price of oil in the $40s. In 2015, each of these companies is expected to generate somewhere between $7 billion and $17 billion in net profits. BP and Chevron will make around $7 billion in net profits, Shell will make somewhere around $14 billion, and Exxon will make somewhere around $17 billion.

The sky is not falling for oil investing. Even at these low prices, the economies of scale for the oil majors is so substantial that they are still able to generate enormous profits. Sure, Exxon isn't generating $35 billion like it did a few years ago, and the dividend payout ratios at the giants have grown quite high, but this is the reason why investors have become irrationally scared and created the opportunity to make fresh investments in these companies.

Volatility is your friend in the oil space. It is almost never an indicator of long-term deterioration in the fundamentals, as far as the oil majors are concerned. Successful oil stock investing involves thinking in 10+ year increments. Look back to the 1990s, the last time oil got unusually cheap. All of these oil majors are making triple the profits and paying almost triple the dividends (with the exception of Shell which always had a higher dividend yield, and BP which had the oil spill) that they did fifteen years ago. Each cycle, the oil majors come out stronger, producing far more and diversifying operations so that the next crash in the price of oil won't hit the company as hard.

Merrill Lynch referred to last week's action as a total risk surrender. The general inability of most investors to stomach 40% to 50% declines in the price of their oil stock investments is the reason why the buy-and-hold investors are able to generate such outsized returns. If you pay attention to the historical performance of oil companies, what we are going through right now is perfectly normal. The times when the stock gets cheap provide you with the opportunity to make hefty new investments, or at least reinvest dividends and accumulate more shares than you would be able to do in a higher commodities market. The enterprising investor with the knowledge of history surrounding these stocks can recognize that the recent mutual fund sales and abandonment of the energy sector is the reason why oil stocks do so well in the long term. It's not "in spite of", but rather, "because of." As far as oil stocks are concerned, volatility is your best friend.

[sarkasm] 02/9/2015 07:29

Will Oil Cause the Next Recession?
Sept 2, 2015 2:00 AM EDT
By A. Gary Shilling

If oil prices take another dramatic slide, as I believe they will, who wins and who loses? And could plummeting oil prices sow the seeds of the next recession?

Oil-importing countries are obvious winners from falling crude prices. That includes the U.S., where -- despite a surge in domestic production -- imports still account for nearly 50 percent of petroleum consumption. The net oil-importing countries of western Europe and Asia also benefit from falling crude prices. India and Egypt, which subsidize domestic energy use, will surely benefit. Some of that, however, will be offset because crude oil is priced in U.S. dollars, and those countries' currencies have grown weaker against the greenback.

The windfall for U.S. consumers is considerable, with average gasoline prices down 24 percent to $2.47 a gallon from $3.77 in June 2014. No doubt, prices will fall even more when the summer driving season ends after Labor Day.

Most forecasters believe consumers will spend the windfall, and thus boost the economy. But almost all of the savings from lower pump prices so far have been used to rebuild household assets and reduce debt. Consumers tend to increase their savings in tough times; they've been doing so during the six-year recovery, even as real wages and median household incomes remain flat.

Lower oil prices, however, could come with a downside. As they work their way through the system, deflation could follow. Already, 10 of the 34 largest economies in the world have seen year-over-year declines in consumer prices. The risk is that deflationary expectations could follow, encouraging consumers to withhold purchases in anticipation of even lower prices.

If that happens, excess capacity and inventories would build, forcing prices down more. When buyers' suspicions are confirmed, they further delay consumption, in a vicious downward cycle. The result is little if any economic growth, as deflation-prone Japan has seen over the last two decades.

The losers from declining oil prices obviously include producers and oil-services companies, especially those that are highly leveraged. U.S. shale-oil frackers are taking a hit, and yet they stubbornly refuse to leave the business. One reason is that well-drilling costs are also declining. Another is that oil prices are still above frackers' marginal costs, which encourages them to increase output to make up for falling revenue.

Employees in the U.S. oil- and gas-extraction industry make up just 0.14 percent of total payrolls, but they were paid an average of about $41 in July -- almost twice what other U.S. workers are paid. Since late last year, jobs are down only 4 percent in the sector and weekly pay has declined just 3 percent. With another big leg down in oil prices, vacancy signs may soon appear in the once-booming North Dakota fracking fields.

Further drops in oil prices will add to the woes of African exporters Ghana, Angola and Nigeria. Oil exports finance 70 percent of Nigeria's budget. Ditto for economic basket case Venezuela, where the bolivar has collapsed from 103 per U.S. dollar in November to 701 on the black market. (The official rate remains a fanciful 6.29 to the greenback.)

Russia depends heavily on oil exports to finance imports and government spending. With Western sanctions over Ukraine squeezing the economy and Russian banks unable to borrow abroad to service their foreign debts, another drop in oil prices could precipitate a rerun of the country's 1998 default. The ruble has dropped to 66 per dollar from 49 per dollar in May, inflation is running at a 16 percent annual rate, and the economy contracted by 4.6 percent in the second quarter versus a year earlier.

With no other meaningful source of foreign exchange, Russia no doubt will continue to produce and export oil even if prices fall below marginal costs. And who knows what President Vladimir Putin might do next to divert domestic attention from this miserable situation? According to Shakespeare, the dying King Henry advised his son, Prince Hal, to "busy giddy minds with foreign quarrels."

Energy stocks are already down substantially on oil price weakness, with stalwart Royal Dutch Shell off 35 percent over the past year. Expect more punishment for speculators and investors who hold oil and related securities if prices drop toward my $10- to $20-a-barrel target.

Persian Gulf stock markets have been hurt and will probably nosedive with further oil-price weakness, especially since they're dominated by retail investors who have used cheap credit to rack up sizable margin debt. The Saudi bourse was the region's top performer this year, partly in anticipation of its opening to foreigners in June. Still, it's down 10 percent for the year so far. Oil provides 90 percent of the Saudi government's revenue and 40 percent of gross domestic product.

The U.S. Federal Reserve has put off raising short-term interest rates until labor markets and inflation data are more to its liking, but it now seems to many that it will take action before the end of 2015. I believe the Fed will hold off on a rate hike until next year, at the earliest. But if it does move this year, and commodity prices tumble, China slumps and deflation sets in, it could soon wish it hadn't.

The combination of all these forces may be the shock that precipitates the next global recession.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
A Gary Shilling at [e-mail]

To contact the editor responsible for this story:
Paula Dwyer at [e-mail]

[the grumpy old men] 31/8/2015 11:04

Posted on Sun, 30 August 2015 00:00 | 0

When the price of a commodity falls, there are two ways for companies to react: Either cut costs and even sell assets to improve cash flow, or to invest – if you can afford to.

The past week saw examples of both approaches. On Aug. 26, Schlumberger Ltd., the world’s largest oilfield services company, said it will spend about $12 billion to buy Cameron International Corp., a leader in making oilfield equipment. The deal is intended to streamline Schlumberger’s operations and attract customers by bundling service and equipment fees at lower prices.

The next day, Total, France’s oil and gas giant, took the other tack, saying it would sell a gas pipeline and a gas terminal in the North Sea for $905 million as part of restructuring plan that includes a reduction in investments, an increase in oil production and a cut in investment costs.

Related: OPEC Divorce And Self-Destruction Thanks To Saudi Oil Strategy?

Total said it will sell its 225-mile Frigg UK Pipeline, which stretches from the Frigg field in the North Sea, and its terminal in St. Fergus in northern Scotland to North Sea Midstream Partners. Although the Frigg field is no longer operating, the pipeline still serves the St. Fergus terminal, which can accommodate 2.6 billion cubic feet of gas per day.

Total says it hopes to dispose of $5.5 billion worth of its minor assets this year to boost revenues at a time of depressed oil prices. The company says it’s been overproducing crude for Europe at a time when demand there has fallen by 15 percent since 2008. The company attributes the lower demand to Europe’s desire to reduce dependence on fossil fuels and the increased efficiency of new cars.

Related: Oil Prices Compound Iraq’s Stability Concerns

The Paris-based company also is facing strong competition from oil producers in the United States, who have been relying greatly on hydraulic fracturing, or fracking, to extract generous amounts of oil and gas from underground shale formations.
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Already, in July, Total made more than $880 million by selling a 20 percent stake in Laggan-Tormore, a deepwater gas field about 75 miles west of Scotland’s Shetland Islands. The buyer was the British energy generator SSE.

More sales may be coming. Total CEO Patrick Pouyanné said in February that his company would increase and accelerate its program to cut expenses begun by the previous CEO, Christophe de Margerie. Pouyanné said much of the cost-cutting would focus on energy fields in the North Sea, where Total has lately been investing “almost zero.”

Related: Sweden’s Nuclear Shutdown A Sign Of What’s To Come

As for the sale of the Fergus pipeline and terminal, Total’s chief financial officer, Patrick de La Chevardiere said it was “another example of Total’s strategy of active portfolio management and the strong potential to unlock value from a range of infrastructure assets.”

North Sea Midstream said the sale will breathe new life into the North Sea energy industry. Revenues from the region have plunged not only because of the plunge in oil prices during the past year, but also because decades of drilling have depleted its energy fields. Further, drilling equipment is aging and requires investment in maintenance and, in some cases, replacement.

“We see midstream infrastructure as crucial to the longevity of the North Sea and firmly believe that the independent ownership of such infrastructure can help maximize the ultimate economic recovery of the British continental shelf’s oil and gas reserves,” North Sea Mainstream CEO Andy Heppel said.

By Andy Tully of Oilprice.com