Thursday, December 12, 2019

The world has its first $2 trillion company. But for how long?

 Saudi Crown Prince Mohammed bin Salman aka MBS: Since his father became king in early 2015, MBS has made powerful enemies. Photograph: Fayez Nureldine/AFP/Getty Images
 Saudi Crown Prince Mohammed bin Salman aka MBS: Since his father became king in early 2015, MBS has made powerful enemies. Photograph: Fayez Nureldine/AFP/Getty Images


London (CNN Business)Saudi Aramco shares zoomed higher on Thursday, turning the massive state oil producer into the world's first $2 trillion company and achieving the valuation long sought by Crown Prince Mohammed bin Salman.

The stock gained 10% for a second consecutive day, reaching 38.70 riyals ($10.32) per share before giving up some of its gains.
 
Saudi Aramco has gained roughly $300 billion in value since its shares debuted on the Riyadh stock exchange on Monday in the biggest initial public offering on record. It's by far the most valuable company in the world, dwarfing runner up Apple, which is worth around $1.2 trillion.
 
The vast majority of buyers for the stock are in Saudi Arabia. Samba Capital, which managed the IPO, said Tuesday that 97% of retail investors who received shares were from the country. And more than 75% of shares sold to institutional investors went to Saudi companies, funds and government institutions.
 
The $2 trillion valuation was a priority for the crown prince ever since he first touted the partial privatization in 2016, but many analysts considered the figure a stretch despite Aramco's monopoly on oil production in Saudi Arabia, the world's largest exporter of crude.
 
Analysts at Bernstein Research said Thursday that the $2 trillion valuation was "too much, too soon" given weak expected earnings growth and little upside for global oil prices. The company looks expensive, they said, compared to peers such as Exxon (XOM) and Royal Dutch Shell (RDSA)
 
"Aramco should trade at a discount rather than premium to international oil majors," the analysts said. More than 98% of the company is still owned by the kingdom, they noted, suggesting that investors should be concerned about corporate governance. Bernstein reckons the company is worth as little as $1.4 trillion.
 
"Aramco could trade in a league of its own for some time, but the stock market is a weighing machine in the long term and the laws of economic gravity will eventually apply," said the Bernstein analysts. They recommended that investors sell Aramco shares now.

The long road to an IPO

International skepticism over the valuation, combined with low oil prices, the climate crisis and geopolitical risk, forced Saudi Arabia to scale back its initial ambitions for the flotation. 
 
The IPO was supposed to usher in a new era of economic liberalization and foreign investment in Saudi Arabia. The Saudi government discussed floating 5% of the company in 2018 in a deal that would raise as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh.
 
But the deal was hampered by concerns about the valuation and potential legal complications in the United States. It was shelved after the murder of journalist Jamal Khashoggi in a Saudi consulate in Turkey sent a chill through business ties with the kingdom. 
 
Yet the listing was revived earlier this year, and Aramco moved ahead despite receiving muted interest from international investors. Aramco ultimately raised $25.6 billion by selling 1.5% of the company at a valuation of $1.7 trillion. 
 
Gianna Bern, an energy expert who teaches at the University of Notre Dame's Mendoza College of Business, said the local offering was able to attract a "friendly audience" of Saudi nationals. International investors will watch how the company handles disclosure and regulatory requirements before considering whether to buy into a potential future international listing.
 
"The real test will be a global offering, in another jurisdiction, such as London or Asia with more stringent regulatory requirements," said Bern, who is also the founding principal of energy consultancy Brookshire Advisory and Research.

Wednesday, December 11, 2019

Saudi Aramco spikes 10% in first day of trading, now valued at $1.9 trillion

Aramco
Markets Insider

https://markets.businessinsider.com/news/stocks/saudi-aramco-share-price-10-spike-after-biggest-ever-ipo-2019-12-1028753870
  • Saudi Aramco shares spiked 10% on Wednesday soon after the company started trading its shares publicly for the first time. That's the daily limit on the exchange. 
  • The surge in share price means the company is now worth $1.9 trillion.
  • That massive market capitalization dwarfs giant publicly listed Goliaths like Apple and Alphabet. 
  • Crown Prince Mohammad bin Salman had been seeking a valuation of $2 trillion.
  • View Business Insider's homepage for more stories.
Saudi Aramco shares spiked 10% on Wednesday on their first day of trading publicly on the Tadawul exchange.

The surge hit the exchange's daily limit and means the company, which earlier this week was valued at $1.7 trillion after raising $25.6 billion in its initial public offering, is now worth a whopping $1.9 trillion. That dwarfs the market capitalizations of the biggest US giants, including Microsoft, Apple, and Google's parent, Alphabet. 

Crown Prince Mohammad bin Salman had been seeking a valuation of $2 trillion for the state-owned oil giant, whose public offering was meant to help finance his Vision 2030 plan of diversifying the Saudi economy away from oil.

According to The Wall Street Journal, Saudi officials had been pushing for the country's wealthy to buy shares in the company when it went public, and according to the Financial Times, that was happening until Tuesday evening.

The stake in Aramco that was actually offered in the IPO, however, was tiny compared with listings from other companies. Apple, Amazon, and Alphabet have over 84% of their shares held by public investors, according to Bloomberg data. For Facebook, public holders own about 98.8% of its shares. That compares with just 1.5% for Aramco.

Tuesday, December 10, 2019

Monday, December 9, 2019

Saudi Aramco IPO proceeds rise to $29.4 billion after option exercised: TV

The Saudi Tadawul exchange will host the shares
Riyadh stock exchange

https://www.reuters.com/article/us-saudi-aramco-ipo/saudi-aramco-ipo-proceeds-rise-to-294-billion-after-option-exercised-tv-idUSKBN1YD174

RIYADH (Reuters) - The proceeds from Saudi Aramco’s record initial public offering have risen to $29.4 billion after the oil company exercised an option to sell 15% more stock, an executive at one of the banks leading the deal told Al Arabiya news channel on Monday. 

Wassim Al Khatib, head of investment banking at the investment arm of Saudi Arabia’s biggest bank, National Commercial Bank (1180.SE), said the state-controlled oil giant had exercised the so-called over-allotment option.

Aramco’s main IPO raised $25.6 billion on Thursday. 

“The final number of shares sold is 3.450 billion shares, and the final value of the deal is $29.4 billion,” Khatib said. 

Aramco is listing its shares on Wednesday on the Saudi exchange after completing the largest IPO on record. 

Reporting by Marwa Rashad and Davide Barbuscia, Editing by Louise Heavens and Mark Potter

Sunday, December 8, 2019

How Aramco’s Huge I.P.O. Fell Short of Saudi Prince’s Wish

Credit...Tasneem Alsultan for The New York Times

https://www.nytimes.com/2019/12/06/business/energy-environment/saudi-aramco-ipo.html

By Kate Kelly and

As investors balked, some bankers and Saudi officials still hoped to achieve the crown prince’s target price of $2 trillion. They wound up settling for less.

Early on Oct. 15, a group of international investment bankers delivered some unwelcome news to top executives of Saudi Arabia’s giant oil company, Saudi Aramco. 

The bankers, gathered at Aramco’s headquarters in Dhahran, reported that global investors weren’t as bullish on the company’s initial public offering of stock as the officials had expected, said two people who were in the room and three who were briefed on the meeting. That meant Aramco appeared unlikely to reach the $2 trillion valuation wanted by Saudi Arabia’s crown prince, Mohammed bin Salman.

Instead, a banker from JPMorgan Chase, presenting on behalf of the group, explained that investors viewed Aramco as worth $1.1 trillion to $1.7 trillion. 

Aramco executives, who hadn’t seen the news coming, were angry. Saudi Arabia was counting on the I.P.O. to attract foreign investment to help diversify its economy away from oil. An Aramco I.P.O. valuation reduced by forecasts of weakening global demand for oil and geopolitical jitters could hurt that effort.

On Thursday, Saudi Aramco priced the I.P.O at 32 riyals, or $8.53, a share, valuing the company at $1.7 trillion. The offering is expected to raise $25.6 billion — a fraction of the $100 billion that Prince Mohammed originally imagined. The company’s shares are set to begin trading Wednesday on Saudi’s stock exchange, known as the Tadawul.

The result was not what Saudi officials had in mind. Rather than being listed in New York or London, shares of Aramco are being sold primarily to investors in Saudi Arabia and in neighboring countries. Some of the international banks hired to underwrite the deal have instead taken on secondary roles, with the I.P.O. share sales being overseen by two Saudi banks and the British bank HSBC.

“The Aramco I.P.O. was meant to be Saudi Arabia’s debut ball to global investors,” said Karen Young, a resident scholar at the American Enterprise Institute. “Instead, it will be more of a family reunion.”

According to interviews with a dozen underwriters, strategists and others briefed on the I.P.O., who spoke on the condition of anonymity to discuss confidential negotiations, Aramco’s journey from private to public company was an unwieldy and at times fractious deal-making process. It involved 25 banks, three financial advisers, numerous Aramco company officials, at least two Saudi government committees and the crown prince himself.

The idea to sell shares in state-owned Aramco, the world’s most profitable company, which for decades has been an engine of the Saudi economy, was foundational to Prince Mohammed’s Vision 2030 plan to modernize that economy. Released in 2016, that blueprint helped vault Prince Mohammed, then the deputy crown prince, to become the heir apparent to his father, King Salman. JPMorgan, Morgan Stanley and HSBC were brought in to start the long process of preparing the company for sale to public investors.

The I.P.O. was initially proposed to take place in 2018, but then shelved amid concerns over how highly the company would be valued and where it should list its shares. That year also saw Prince Mohammed come under global condemnation after the brutal killing of Jamal Khashoggi, a Washington Post columnist, by Saudi agents in Istanbul. Western intelligence agencies linked the crown prince to the killing, but he has denied involvement.

Then, this year, plans for the I.P.O. were revived.

Over two days of meetings on Sept. 3 and 4, international banks gathered in Aramco’s London offices to pitch the company for roles on the I.P.O. underwriting team. 

Many of the banks said they envisioned situations where the company could be worth $2 trillion or more, said four people who attended the meeting, another three who were briefed on it and documents reviewed by The New York Times. Bank of America’s estimates reached $2.5 trillion on the high end, these people added; JPMorgan’s drifted as low as $1.4 trillion, according to the documents and two people with knowledge of their presentation.

Around the same time, Prince Mohammed installed Yasir al-Rumayyan, a close confidant who favored the $2 trillion valuation, as Aramco chairman, replacing Khalid al-Falih, a former Aramco chief executive with an engineering background. Mr. al-Rumayyan, the powerful governor of the kingdom’s $320 billion Public Investment Fund, had discussed the plans with bank officials over the summer.

Then on Sept. 14, on its path to going public, Aramco was jarred by an aerial attack on its production facilities, blamed on Iran, that temporarily cut its oil output in half. The attack underscored the risk of operating in the Middle East, but it did not deter the march to an I.P.O.

Deal makers soon fanned out over Asia, Europe and North America to gauge interest in Aramco by Fidelity Investments, Capital Group, BlackRock and other major investors. To make Aramco more attractive, the banks persuaded it to establish an enormous investor dividend, or annual payout — $75 billion a year. 

But in meetings with roughly 80 mutual funds, hedge funds and sovereign wealth funds, underwriters and investors said, potential buyers balked at the $2 trillion valuation, which struck them as too high relative to other major oil companies and in light of low oil prices, climate-change concerns and other geopolitical pressures.

“We felt that a valuation in the range of $1.2 to $1.3 trillion would represent fair value,” or a reasonable price, “but it would need to I.P.O. at less than that to offer decent upside,” or investor profit potential, said Tal Lomnitzer, a portfolio manager at the fund company Janus Henderson who participated in the early investor discussions.

His was in some ways the typical buyer’s position at the onset of a negotiation: to argue for the lowest price in hopes of making money on the purchase if Aramco shares went up in public-market trading. But given the wide gap between views like Mr. Lomnitzer’s and the Saudi government’s $2 trillion expectations, some of the bankers were concerned.

Then came the meeting on Oct. 15 at Aramco’s headquarters in Dhahran on the kingdom’s Persian Gulf coast, and one that would follow the next day. Of all the crucial moments in the lead-up to the I.P.O., these gatherings may have been the most tense, according to four people who either attended the meetings or were briefed afterward. It was then that some of the bankers — motivated by the promise of enormous fees for evaluating the oil company’s investment potential and then selling shares to respected investors — clashed with kingdom officials and other advisers who were fixating on an increasingly elusive $2 trillion deal. 

The banks, who had been sizing up investor demand for the I.P.O., delivered their findings to Amin H. Nasser, Aramco’s chief executive. Mr. Nasser was angry and taken aback by the news, said two people who were in the room and three others briefed on it later. He pointed out that some of the bankers had promised an Aramco valuation of even more than $2 trillion, and that his company had curbed spending plans and made other changes to accommodate the $75 billion dividend.

After the tense exchange, the bankers piled into cars and drove four hours across the desert to Riyadh to explain their reports, one by one, to Mr. al-Rumayyan, the Aramco chairman, said two of the people who were on the trip.

Mr. al-Rumayyan was also deeply unhappy. During the JPMorgan group’s presentation, according to four people with knowledge of the meeting, he criticized them for talking the valuation down. By the next day, Oct. 16, when the banking syndicate met to regroup, two camps had emerged: Citigroup, Goldman Sachs and Bank of America said that until they could share additional research on Aramco’s finances and hold more detailed conversations with potential buyers, they could not determine what price investors would truly be willing to pay, said three people who were part of the discussion and three who were briefed on it later. 

Bankers from Morgan Stanley and JPMorgan, who had been working on the deal for years, were skeptical that investors would be willing to pay much more than they were already suggesting. The bankers argued that Saudi officials in charge of the I.P.O. should be given more details on why investors were cooler to the deal than expected. Underscoring that point, said three people who were there, was Franck Petitgas, head of Morgan Stanley’s international division, who asked how the underwriters could, in good conscience, not share the dozens of investor comments the bankers received in their initial meetings. (Through a spokesman, Mr. Petitgas declined to comment.)

Michael Klein, a New York investment banker who was hired to advise Aramco, urged the more forward-looking approach. After another meeting with the bankers, a Saudi I.P.O. committee opted to delay the deal to hold additional investor discussions.

Aramco decided to carry on and on Nov. 3 issued its formal plan to go public. Its prospectus reported enormous profit — $68 billion for the first nine months of the year. But there were also caveats: Those earnings were down 18 percent from the year before, and risk factors to investing in the I.P.O. ranged from concerns over the impact of fossil fuels to the possibility of terrorist attacks.

The banks talked with investors, but their prices didn’t fundamentally change; at meetings held Nov. 15 and Nov. 16 with Mr. al-Rumayyan in Riyadh, banks reported that foreign investors were still valuing Aramco somewhere between $1.3 trillion and $1.8 trillion, according to two people who were there. 

Faced with that, the kingdom abruptly canceled a series of more formal investor meetings in Asia, Europe and North America. It relegated most of the American banks to lesser roles and refocused on the plans for a domestic listing.

In the run-up to the I.P.O., interest in Aramco shares in Saudi Arabia appeared strong, buoyed by a substantial marketing campaign and low-interest-rate loans for stock purchases. 

Hussam A. al-Saleh, a financial adviser based in Riyadh, predicted last month that most of his Saudi clients would wind up buying shares. Some of the interest stemmed from Aramco’s reputation in the kingdom as a classic stock, he said: “People believe in the company.” 

And for the Saudi leadership, the pursuit of a $2 trillion valuation continues. 

“It will be higher than the $2 trillion. I can bet that this will happen,” said Prince Abdulaziz bin Salman, the Saudi energy minister, who is the half brother of Prince Mohammed, speaking Friday at an OPEC news conference. 

“It is the proudest day for Prince Mohammed to celebrate,” he said, referring to the offering. “We kept it to our family and friends.”

Kate Kelly is a reporter in the Business section, where she covers big banks, trading and lending, and the crucial players setting financial policy in both politics and business. She is also the author with Robin Pogrebin of "The Education of Brett Kavanaugh: An Investigation." @katekelly
 
Stanley Reed has been writing from London for The Times since 2012 on energy, the environment and the Middle East. Prior to that he was London bureau chief for BusinessWeek magazine. @stanleyreed12 Facebook
 
A version of this article appears in print on , Section B, Page 1 of the New York edition with the headline: A $2 Trillion Wish That the Markets Just Couldn’t Grant. Order Reprints | Today’s Paper | Subscribe

Thursday, December 5, 2019

Oil whipsaws as traders await OPEC output decision

An OPEC branded flag sits on a table ahead of the 169th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, June 2, 2016. Saudi Arabia is ready to consider a surprise deal with fellow OPEC members, attempting to mend divisions that had grown so wide many dubbed the group as good as dead. Photographer: Akos Stiller/Bloomberg via Getty Images
An OPEC branded flag sits on a table ahead of the 169th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, June 2, 2016. Saudi Arabia is ready to consider a surprise deal with fellow OPEC members, attempting to mend divisions that had grown so wide many dubbed the group as good as dead. Photographer: Akos Stiller/Bloomberg via Getty Images 


Oil whipsawed on Thursday as traders awaited the decision from OPEC on its production policy.

Ahead of the meeting in Vienna Russian energy minister Alexander Novak said that OPEC+ was discussing a larger-than-expected 500,000 barrel a day production cut for the first quarter of 2020. 

But oil gave back its gains after Novak also said to Bloomberg that the deeper cuts would only be implemented if each member complies with its current production quota.

U.S. West Texas Intermediate fell 6 cents to trade at $58.37 a barrel. Brent crude futures were up 20 cents at $63.20. 

Ahead of Thursday’s meeting, Iraq said that it was pushing for a 400,000 barrel a day production cut on top of the existing agreement for cuts of 1.2 million barrels per day.

Helima Croft, RBC head of global commodities strategy, said to CNBC ahead of the meeting that it was her understanding that a larger cut has the support of the OPEC core operating group, as well as its partner Russia.

24-country OPEC+ has cut output by 1.2 million barrels per day since the beginning of the year, and the current deal runs through March of 2020. Production cuts were first implemented in January of 2017 in an attempt to bolster prices as the U.S. kicked up its shale oil production, among other things.
As the meeting kicked off reports conflicted over who proposed the cuts. WTI briefly sold off after CNBC reported that one senior Saudi oil official denied pursuing a deeper round of production cuts. On Monday Reuters had previously reported that Saudi Arabia could be in favor of deeper cuts in order to give Aramco a boost as it hit the public market.

Also in focus will be individual country’s production output. Again Capital’s John Kilduff said that he believes Saudi Arabia is “open” to a cut, but that the most important thing to the nation is that country’s comply with the quotas that are currently in place.

This is the first meeting with the new Saudi energy minister, Prince Abdul Aziz bin Salman, who is the son of the King and half-brother to Crown Prince Mohammed bin Salman.

Wednesday, December 4, 2019

Oil rises 3% ahead of OPEC output talks

GP: Azerbaijan Oil Industry 191008
Azeri oil workers operate a large field of drilling rigs on October 12, 2003 outside the capital city of Baku, Azerbaijan. Oleg Nikishin | Getty Images

https://www.cnbc.com/2019/12/04/oil-markets-opec-meeting-in-focus.html

Oil gained on Wednesday ahead of an expected extension to production curbs by OPEC and its allies, with further support from industry data showing a larger than forecast drop in U.S. crude stockpiles.

Brent crude futures were up $1.94, or 3.2%, at $62.77 a barrel. U.S. West Texas Intermediate (WTI) crude futures were up $1.86, or 3.3%, to $57.96 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) and allies that include Russia - a group known as OPEC+ - could approve deeper crude output cuts when they meet in Vienna this week.

Iraqi oil minister Thamer Ghadhban told reporters in Vienna on Tuesday that “a deeper cut is being preferred by a number of key members.”

There is still some market skepticism over a deepening of cuts, though it is accepted that the producer group is keen to support prices, with many analysts expecting an extension of the existing supply pact.

“Amid (the) trade war uncertainty, OPEC will be even more determined to maintain a floor on oil prices and will work to deliver precisely that outcome,” said Stephen Innes, chief Asia market strategist at AxiTrader.

OPEC members meet on Thursday, with the OPEC+ group meeting the following day. OPEC+ has been curbing supply since 2017 and is expected to keep the cuts in place to balance out record production in the United States.

U.S. crude oil inventories fell more than expected last week, according to the American Petroleum Institute (API). The API said crude stocks dropped by 3.7 million barrels, more than double the expected 1.7 million barrels.

“Tuesday’s inventory number from API won’t have done crude any harm ... Expectations for the U.S. Energy Information Administration release today are for a smaller drawdown, which could provide another boost for oil prices,” said Craig Erlam, senior market analyst at OANDA Europe.

Oil prices are being held back by the uncertainty over prospects for a trade deal between the United States and China. The dispute between the world’s two biggest economies has weakened the global economy and limited oil demand growth.

U.S. President Donald Trump on Tuesday said an agreement to end the trade conflict may have to be delayed until after the American presidential election next November.

Prices are likely to fall next year as oil supplies keep rising, outweighing any pick up in growth, Fitch Solutions said. It predicted Brent crude will drop to an average of $62 a barrels in 2020 and $58 in 2021, from a $64 average this year.

Tuesday, December 3, 2019

Opec Could Fall To $40 If OPEC+ Fails To Deepen Cuts

 
 Russia's President Vladimir Putin and Saudi King Salman bin Abdulaziz Al Saud


Barring additional oil production cuts by OPEC in 2020, Rystad Energy forecasts a substantial build of global crude stocks and a corresponding drop in oil prices.

A showdown is taking place in Vienna as OPEC countries plus Russia will gather in the Austrian capital on 5-6 December to discuss oil output levels in 2020.
“We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020,” says Bjørnar Tonhaugen, head of oil market research at Rystad Energy. “The outlook will be bleak if OPEC+ fails to agree on additional cuts.”

According to Rystad Energy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020.

Empirical evidence has demonstrated that a 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.

“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period,” Tonhaugen said.
“In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd – a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels – given our forecast for demand, non-OPEC supply and the impact of new IMO 2020 regulations on global crude runs,” Tonhaugen added. Related: How Much Crude Oil Do You Unknowingly Eat?

New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the IMO rules on crude demand turns out to be zero the “call on OPEC” - the amount of OPEC oil needed to meet demand - drops by 1.9 million bpd year-on-year to 28.3 million bpd.

“Despite decent cut compliance from the group as a whole and large involuntary declines in Iran and Venezuela this year, OPEC’s current crude production of about 29.7 million bpd is far above the ‘call’ for 2020. Alas, without deeper cuts taking effect in January 2020, large global implied stock builds are on the cards,” Tonhaugen remarked. Related: OPEC’s Number Two Suggests Deeper Oil Output Cuts

Rystad Energy sees three alternative OPEC+ decision scenarios:

**Base case: Extension of current production cuts to June 2020. Global oil market will be oversupplied to the tune of 1.2 million bpd in 2020. Significant oil price correction, possibly down to the low $40s for a short period, is likely.

**Deeper cuts: Additional cut of 0.75 million bpd on top of the 0.3 million bpd in the extension scenario would reduce the supply overhang and ensure stable prices.

**No deal/market share war: A ramp-up to maximum production capacity in all countries could have devastating effects. With potential stock builds of 2.3 million bpd, oil prices could fall below $30/bbl – lower than during the previous lows of 2016. Such a scenario would be devastating for the forward curve structure as potential stock builds would be larger than what we have observed historically.

Rystad Energy finds that OPEC+ as a whole has cut oil production by 2.6 million bpd year-to-date, compared to October 2018 reference levels and the cut target of approximately 1.2 million bpd. The additional 1.4 million bpd of “cuts” are owed entirely to involuntary declines from Iran and Venezuela, both of which are exempt from the agreement. Saudi Arabia has led the group’s compliance by cutting 870,000 bpd in 2019, or 2.7 times its target cut of 322,000 bpd.

“Saudi Arabia has signaled that it seeks stricter compliance by other producers and is no longer willing to shoulder the burden of sub-compliance by others, such as Russia, Iraq and Kazakhstan, which have all failed to reach 100% compliance with their target cuts,” Tonhaugen said. 

The challenge for OPEC+ is the strong supply growth elsewhere in the world. Rystad Energy forecasts a supply growth of 2.6 million bpd year-on-year in 2020, led by US shale, Norway and Brazil against weak global demand growth of only 1.0 million bpd year-on-year. Rystad Energy forecasts that non-OPEC non-US supply will grow 1.2 million bpd year-on-year in 2020, OPEC estimates this number at 0.6 million bpd year-on-year.

By Rystad Energy

Monday, December 2, 2019

Conoco Looks To Claim Citgo Assets

Just a few days after the U.S. Department of Treasury said it will not allow anyone to claim the assets of refiner Citgo as compensation for damages suffered from its parent PDVSA, ConocoPhillips has filed a claim that seeks to do just that.

Reuters reports that the supermajor filed a motion with a court in Delaware to gain access to shares in Citgo as a way to enforce an arbitration award another court granted it against Venezuela’s PDVSA.

The International Chamber of Commerce ruled that Conoco was due $2 billion in compensation for the nationalization of its assets in Venezuela by Nicolas Maduro’s predecessor, Hugo Chaves, and since then, the U.S. company has been looking for ways to get what is due to it.

Last year, Conoco seized the assets of PDVSA in the Caribbean, after obtaining two court orders to use these assets to enforce the ICC’s ruling. Several months later, however, Conoco and PDVSA reached an agreement on the compensation due and the supermajor released the Caribbean assets. Now, it seems the agreement has fallen through, but getting its hands on Citgo shares will be difficult for Conoco.

Last week, the Department of Treasury blocked any attempts by PDVSA compensation claimants and creditors to get their hands on the Venezuelan company’s U.S. subsidiary, banning all moves to “transfer or otherwise alter or affect property.”

The Treasury allowed for exceptions, but said these will be only granted to parties that had a special license.

Conoco noted in its filing that seizing Citgo assets would not be an easy task, Reuters reports, citing the company as saying “The ability of any creditor to foreclose on the PDVH Shares … may turn on the status and interpretation of sanctions, authorizations and/or licensing from the Office of Foreign Assets Control of the U.S. Department of the Treasury.”

Meanwhile, half of Citgo’s shares have been used as collateral for a loan PDVSA received from Rosneft, and the other half is collateral for a bond that matures in 2020.