Fri, 27th May 2016

Anirudh Sethi Report


Archives of “bp” Tag

Keeping KG -D6 alive took Rs 4500 Crore for RIL, BP, Niko

The less-than-anticipated gas production from Reliance Industries’ flagship KG-D6 fields may have impacted fortunes of a number of its customers, but the company and its two partners have made almost two dozen interventions to arrest the decline from D1 and D3 discoveries. RIL, British Petroleum (BP) and Niko have together invested Rs 4,500 crore in the past two years to sustain production, said a person close to the development.

Of the 23 interventions, 13 have worked while nine failed, the person said. “These have assured that rather than dying, the fields sustain production. It is tricky to drill a depleting reservoir. RIL and BP have done a lot in the past four years since they came together,” added the person.

  • RIL began production in 2009
  • Projected gas output was 80 mscmd
  • After hitting a peak of 69.43 mscmd in March 2010, production declined
  • Current production 11.4 mscmd
  • Estimated volume of the fields 10 tcf
  • So far, 2.1 tcf gas produced

$18.7bn BP Deepwater settlement -Full Details

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BP has reached a settlement with the US government and five states over the 2010 Gulf of Mexico oil spill, which will see it pay up to $18.7bn spread over a period of 18 years.

Here is the detail. The five Gulf states refer to Alabama, Florida, Louisiana, Mississippi and Texas.

  • BP’s US subsidiary is to pay the United States a civil penalty of $5.5bn under the Clean Water Act (CWA) – payable over 15 years.

  • It will pay $7.1bn to the United States and the five Gulf states over 15 years for natural resource damages (NRD). This is in addition to $1bn already committed for early restoration. The US subsidiary – BP Exploration and Production (BPXP) – will also set aside an additional amount of $232m to be added to the NRD interest payment at the end of the payment period to cover any further natural resource damages that are unknown at the time of the agreement.

  • A total of $4.9bn will be paid over 18 years to settle economic and other claims made by the five Gulf Coast states.

  • Up to $1bn will be paid to resolve claims made by more than 400 local government entities.

RIL, BP give up 2 more oil and gas blocks; tally down to 4

Reliance Industries and its partner BP plc have surrendered two more oil and gas blocks, reducing their tally to four exploration acreages from 21 they held four years back.
“During the year, RIL opted to relinquish two blocks KG-DWN-2003/1 and CY-PR-DWN-2001/3 as part of the ongoing effort to high grade its upstream asset portfolio,” the company said in its annual report for 2014-15.
RIL had in February 2011 announced a “transformational” deal when UK’s BP picked up 30% stake in its 23 oil and gas blocks. However, in August that year the government allowed them to form a partnership in only 21 blocks. Since 2012, RIL and BP have been pruning their portfolio, shedding not so viable acreage.
RIL said block KG-DWN-2003/1 is been surrendered because of operational restrictions imposed by the defence ministry while CY-PR-DWN-2001/3 “was relinquished as prospectivity was not commensurate with the high geological risk involved”.
“In KG-DWN-2003/1 further progress in petroleum operations was impeded by defence restrictions imposed in October 2012. Since then the JV had continued to seek unrestricted access to the block without success. RIL and its JV partners finally decided to relinquish the block in line with government’s policy,” it said.

Emerging Markets: An Update

1) China churns out more measures
2) The Bank of Israel increased the level of FX reserves that it considers adequate
3) Nigeria has a new president
4) Chile is joining Mexico in setting a hawkish tone
5) Brazil’s president Rousseff’s popularity fell off a cliff
6) Thailand’s military junta ended martial law after more than ten months
Over the last week, Brazil (+8.4%), Russia (+8.4%), and UAE (+8.0%) have outperformed in the EM equity space as measured by MSCI, while Hungary (-2.3%), Korea (-0.2%), and Singapore (flat) have underperformed. To put this in better context, MSCI EM rose 3.7% over the past week while MSCI DM fell -0.1%.
In the EM local currency bond space, Brazil (10-year yield -26 bp), Ukraine (-22 bp), and Russia (-20 bp) have outperformed over the last week, while Chile (10-year yield +13 bp), China (+7 bp), and Indonesia (+5 bp) have underperformed. To put this in better context, the 10-year UST yield fell -9 bp over the past week. 
In the EM FX space, BRL (+3.3% vs. USD), RUB (+2.0% vs. USD), and CLP (+1.4% vs. USD) have outperformed over the last week, while COP (-0.4% vs. USD), CZK (-0.3% vs. EUR), and ARS (-0.2% vs. USD) have underperformed.
1) China churns out more measures. PBOC Governor Zhou hinted at additional stimulus and the central bank lowered the down payment required for some second home buyers. After increasing the QFII quota for a large US asset manager last week, officials now indicate that money managers no longer need to be part of QFII program in order to invest in HK shares through the exchange link. 

6 Points For This Week

1.  The recent string of US economic data showed not only an upward revision in Q3 GDP to 5%, but also strong consumption data, rising confidence and continued improvement in the labor market (weekly initial jobless claims). This has reinforced market expectations for the Fed’s take-off next year.  Both the December 2015 Fed funds and Eurodollar futures contracts imply the highest rates in two months.   At the same time, it is important to recognize that after growing above trend in Q2 and Q3, the US economy should be expected to return to toward trend, even though holiday sales appear strong.    This anchor of the divergence theme remains solid.  
2.   The divergence theme is not just based on favorable developments in the US, but more accommodative polices in Europe and Japan.  Expectations that the ECB will expand the assets it is purchasing to include sovereign bonds are widespread, and have helped push many European bond yields to record lows (10-year benchmarks).  The money supply and lending report is arguably more important than the final manufacturing PMI (January 2, flash 50.6).  It is slowly improving, and this is important for the second phase of the TLTRO program which is linked to new non-mortgage lending.  
3.  Complimenting the unorthodox Bank of Japan monetary policy, the Abe cabinet approved a JPY3.5 trillion supplemental budget over the weekend.  It estimates this spending will boost GDP by 0.7 percentage points.  It has been under preparation for a couple of months, but follows on the heels of disappointing and unexpected declines in industrial production and retail sales.  Despite the BOJ expanding its balance sheet by 1.4% of GDP a month and the decline in the yen, inflation pressures continue to subside. The supplemental budget will be financed by tax revenue anticipated by the stronger growth and unspent funds.  About half of it will be used to public works.  Of the remaining half, a third will be used to revitalize regional economies and two-thirds on programs to help households (e.g. shopping vouchers and subsidized heating fuel for low income households)  and small businesses (low interest rate loans for businesses hurt by rising input costs, i.e., weak yen).  

Reliance Industries to give up KG basin gas discovery block

Reliance Industries will relinquish its Krishna Godavari basin gas discovery block, KG-D3, mainly because of operational restrictions placed by the Defence Ministry.

Reliance Industries, which had made four consecutive gas discoveries with close to 500 billion cubic feet of in-place reserves in block, proposed immediate relinquishment, its minority partner Hardy Oil and Gas plc of UK said today.

Hardy said the block oversight panel headed by upstream regulator DGH yesterday considered  Reliance Industries proposal.

Without stating what the Management Committee (MC) decided, Hardy in a statement said the firm has agreed to the relinquishment proposed by the operator, Reliance Industries.

Hardy holds 10 per cent stake in the block which is operated by Reliance Industries with 60 per cent interest. BP of UK has the remaining 30 per cent stake.

Standard & Poor’s Rating Warning For BP, Shell & Total

The six-month rout in oil prices is casting a pall over the credit ratings of energy companies BP, Royal Dutch Shell and Total, agency Standard & Poor’s warned on Monday.

The almost 50 per cent decline in crude since the end of June has reverberated through financial markets, precipitated an economic crisis in Russia and has forced oil producers to scale back their ambitions.

The rating agency said:

We have revised to negative our outlooks on three oil majors, while affirming the credit ratings on these companies to reflect that we will further evaluate management’s actions in reducing negative free cash flow by cutting costs and gradually reducing capital expenditures (capex).

BP had its outlook cut to negative from stable.

Royal Dutch Shell had its outlook reduced to negative

Total also had its outlook trimmed to negative

British Petroleum Plc writes down KG-D6 value by $770 million

 BP Plc today wrote down the value of its $7.2-billion investment in India’s oil and gas fields made in February 2011 by a little over 10 per cent.

Unveiling its third-quarter results on Tuesday, BP said it had written down the value of its investment in KG-D6 — the deep-water field operated by Reliance Industries in Krishna Godavari basin — by $770 million.

The oil behemoth attributed the charge to the “uncertainty in the future long-term gas price outlook following the introduction of a new formula for Indian gas prices”.

On October 18, the Narendra Modi-government approved a new formula that capped the gas price from deep-water fields at $5.61 per million British thermal unit (mBtu).

The new gas price will come into effect from November 1 but it won’t apply to Reliance Industries, which has filed for arbitration in a dispute with the government over the admissibility of certain cost recoveries on account of the huge shortfall in gas production from KG-D6 gas field.

BP Faces $18 Billion Fine For “Gross Negligence” In Gulf Of Mexico Spill.Mkt Cap Down by $ 7bn ,Stock Down 5%


U.S. District Judge Carl Barbier in New Orleans ruled today that BP was “grossly negligent” in the 2010 Deepwater Horizon rig explosion and may face up to $18 billion in civil penalties, according to The WSJ. In addition, Transocean and Halliburton were found ‘negligent’ – a lessor offense – (fines up to $1,100 per barrel for ‘negligence’, $4,300 for ‘gross negligence’). This result comes 2 years after BP agreed to accept criminal responsibility for the disaster and to pay $4.5 billion in fines and restitution. BP quickly issued a statement that it will appeal the decision and believes the findings “are not supported by evidence at trial.”

As Bloomberg reports,

In a turning point after four years of legal wrangling over responsibility, U.S. District Judge Carl Barbier’s ruling laid the bulk of the blame on BP for the explosion, which killed 11 men and caused the largest offshore oil spill in U.S. history.