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The set of small oil and gas advisory groups bought up by investment banks in recent years continue to do well for their owners.
BP’s hire of Standard Chartered to help sell $10-$20bn of upstream assets has much to do with Martin Lovegrove, the veteran oil and gas banker whose boutique, Harrison Lovegrove was purchased by StanChart in 2007.
New York-listed Jefferies’ buy out of Randall & Dewey has also been integral in making the bank one of the top dealmakers in the booming US unconventional gas market.
Jefferies last year advised XTO in its $31bn sale to Exxon, the largest deal in the sector since Chevron-Texaco. More recently Jefferies acted for East Resources when it sold $4.7bn of Marcellus shale assets to Royal Dutch Shell.
Elsewhere, Macquarie, the Australian bank, bought energy boutique Tristone for C$116m last year.
Now, Russian investment bank Renaissance Capital is getting in on the action.
RenCap has struck a partnership with banker Jeffrey Waterous to form a new advisory business focusing on oil and gas asset sales the Middle East, Africa and other emerging markets.
If Mr Waterous’s name sounds familiar, it is because he too established one of the leading oil and gas boutiques back in 1987, which was later bought by Canada’s Scotia Bank to become Scotia Waterous.
Since selling out Waterous – one of the first Western bankers to advise on sales to Chinese oil companies – has spent his time working on downstream and midstream transactions in the Middle East, adding further to his already sizable client list.
Based in Bahrain, the new business will be looking to feed asset hungry energy companies eager to do deals in emerging markets.
However, unlike the examples mentioned above, the RenCap outfit – to be named Renaissance JMW Energy – will remain independent from the wider bank, meaning the new entity will be more likely to retain its existing culture.
This, the bank will be hoping, will be a shrewder move than simply splurging cash on an established franchise, only to see its people – an advisory house’s main asset – dash for the exit.
At a time when demand for oil and gas assets shows little sign of fading, it would be no surprise to see other banks follow RenCap’s lead.
When BP finally resummes dividend payments after the 2010 moratorium how much can cash are shareholders expect to receive?
The answer, via the dividend swaps market, is a lot less than the 56 cents (or 14 cents a quarter) BP has paid for the past couple of years.
Tables and graphics from Citigroup.
Based on the pixel time share price of 372p that implies a prospective dividend yield of 4 per cent for 2011 and 5.3 per cent in 2012.
So how does that compare with BP’s peers?
Well, Royal Dutch Shell offers a prospective dividend yield of 6.3 per cent for 2011 based on consensus forecasts from Reuters, while Total stands at 5.9 per cent. (We will update the post with a dividend swaps forecast when available).
The good news for BP shareholders it that Citi believes BP will certainly be able to afford the dividend implied by the swaps market. And it thinks a payment of 7 cents a quarter in 2011 is possible, against the 5.25 cents forecast by the USD swaps market.
Management will consider restarting dividend payments with its Q4 2010 results in Feb 2011, at which point they should have a better understanding of the extent of the leak, clean-up costs, litigation risk etc; elements which at this stage are unquantifiable. However, management appears to be taking a very prudent approach with its balance sheet, while also being politically pragmatic – i.e. planning to sell $10bn of assets and suspending dividend payments. It is reasonable to assume that BP will be in a position to resume dividend payments with its Q4 2010 results, and that a dividend set around half the current level (i.e. c$0.07/sh), its yield would be comparable to its peers.
Macondo, in historical Hollywood context – FT Alphaville
As the execs turn themselves in, BP turns itself over… – FT Alphaville
Who’s not trading with BP? – FT Alphaville
BP has nothing to fear… – FT Alphaville
With BP planning $10bn of “non core” asset sales many of its rivals are likely to be licking their lips.
The question is, what counts as “non core”?
For BP, as for many of the majors, a logical first step would be to put its low growth European and US downstream operations on the block.
- Democrats Divided on Energy Bill – WSJ
- Frustrated U.S. left with few answers – Houston Chronicle
- BP’s lobbyists still court members of Congress – Washington Post
- Polish shale gas drilling starts – Argus
Oil retreated below the $60 a barrel mark on Friday as crude’s recent weakness slump continued unabated.
A mildly bullish mid-term outlook from the International Energy Agency did little to lift sentiment.
The IEA, the energy watchdog of the developed world, said it expected global oil demand to rise by 1.7 per cent next year as economic activity is rekindled, with demand coming mainly from developing economies.
Oil tumbled to a five-week low on Monday as last week’s parade of negative news, notably the US jobless rate hitting its highest level in 26 years, continued to eat away investor enthusiasm for commodities.
Data last week showing Eurozone unemployment rose to a ten year high further undermined the idea of a swift global economic recovery, with confidence in the market also knocked by the revelation that the large spike in oil seen last Tuesday was the work of unauthorised positions taken by a trader at the brokerage PVM.
Nymex August West Texas Intermediate, the US benchmark oil futures contract, fell $2.72 to $64.01 per barrel, while ICE August Brent lest $1.71 to $63.90 a barrel.
WTI is now down 13.2 per cent from the eight month high reached last week in the wake of the PVM trades.
“A sharply lower equity market was undoubtedly the driver [for lower prices] and combined with the US dollar this is likely to continue to offer guidance for the energy complex,” said Marius Paun of ODL.
“While the decline could have been exacerbated by the pre–holiday position squaring it seems that the balance is slowly starting to shift with bears getting stronger again.”
Oil slipped further on Friday amid light trading as bleak US jobs data continued to weigh on the market.
Crude dropped almost 4 per cent on Thursday after closely watched non-farm payrolls data showed the jobless rate in the world’s largest economy hit a 26-year high, dashing latent hopes that commodities would continue to rally on the back of a sharp global economy.
The US Independence Day holiday meant the US market was closed and volumes of West Texas Intermediate trades were at a minute fraction of their normal level.
“We have repeatedly warned that the bullish market sentiment was overdone,” analysts at Commerzbank said. “We also believe that the market needs to be positively surprised, in order to maintain current price levels”.
Nymex WTI for August delivery fell 25 cents to $66.48 a barrel, meaning the US benchmark has now fallen almost 10 per cent since rising to an eight month high overnight on Tuesday. ICE August Brent shed 23 cents to $66.38.
Base metals also dropped, with copper losing 1 per cent to $4,985 per tonne, and aluminium falling 0.3 per cent to $1,634 per tonne.
Gold however recovered a small amount of ground, rising 0.2 per cent to $934.3 a troy ounce, as the US dollar weakened slightly, thus boosting the appeal of the dollar denominated yellow metal.
Oil fell on Thursday as the market continued to digest US government data showing a large increase in petrol stocks, increasing worries that consumer demand was flagging and the energy markets had been overbought.
Crude sagged as investors across most asset classes adopted defensive stances after closely-watched US non-farm payrolls data showed unemployment in the world’s leading economy fell more than expected.
Data on Wednesday from the Energy Information Agency, the statistical arm of the US Department of Energy showed crude inventories fell for the fourth consecutive week but this was overshadowed by the sharp rise in petroleum products.
Nymex August West Texas Intermediate, the US benchmark, fell $1.40 to $67.87 a barrel. ICE August Brent fell $1.35 to $67.43 a barrel.
“We see prices as being likely to stay largely within the $65-75 range in the current quarter, with brief forays possible either side of that range, and have adjusted price forecasts to reflect that core view,” said Barclays Capital.
“The main dynamic within the US data recently has been one whereby the overhang of crude oil inventories is being turned into a greater overhang of oil product inventories. Indeed, that dynamic has been the reason why we have remained wary of long exposure to product cracks in recent weeks and have preferred long crude but short products”.
Base metals meanwhile were broadly weaker ahead of the US data. Copper fell 2.9 per cent to $4979 per tonne and aluminium was down 1.9 per cent to $1633 per tonne.
Gold slipped as the dollar strengthened and reduced the relative value appeal of bullion. Spot gold lost 1.4 per cent to $929.10.
Oil hit an eight month high on Tuesday and was on track to post its largest quarterly gain since 1990 as optimism for an economic recovery rather than clear news flow continued to drive crude prices.
The energy market defied predications of a quiet US holiday trading period as US crude again broke through the $72 a barrel level, adding to a 3.7 per cent rise in the previous session.
“Crude posted a strong advance yesterday proving that among all those warnings of a cautious approach, optimism about the economic outlook is still making headlines,” said Marius Paun of ODL. “The employment report on Thursday is likely to be the main influencing factor for the energy complex offering guidance on the short term.”
A softer dollar added to crude’s upward momentum, with a weaker greenback boosting the appeal of dollar-denominated commodities such as oil and gold.
Nymex West Texas Intermediate futures for August delivery, the US benchmark, rose 56 cents to $72.03, while ICE August Brent gained 66 cents to $71.65.
Earlier WTI hit $73.38 a barrel, the highest level since late October last year.
Spot gold rose 0.4 per cent to $940.50 a troy ounce, the sheen of the yellow metal enhanced by the dollar’s falls, while base metals were broadly stronger.
“Gold has stabilised against the euro over the past few sessions, recovering from a plunge at the start of last week, but sill in an overall lower trend from recent highs at the start of June,” said analysts at UBS.
Copper rose 0.8 per cent to $5143 per tonne, with aluminium up 0.7 per cent to $1651a tonne.