Home' Trinidad and Tobago Guardian : December 18th 2014 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 2014 • WEEK THREE
Oil demand for 2015 is now expected to grow by
0.9 million barrels a day to reach 93.3 million barrels,
230,000 barrels less than the previous forecast, the
International Energy Agency said in its fourth downward
revision in five months.
Crude prices have collapsed by almost 50 percent
since June, and are now trading around US$60; levels
last seen five years ago, as increased US shale production
adds to oversupply.
But the cheap oil is not expected to prompt more
"It may well take some time for supply and demand
to respond to the price rout," the IEA said.
Market share lost to renewable energy sources was
unlikely to be replaced again by cheaper crude, the
In the OECD (Organisation for Economic Co-oper-
ation and Development) rich countries, "a tepid eco-
nomic recovery, weak wage growth and ... deflationary
pressures will further blunt the stimulus of lower
prices," it added.
Any boost that cheaper crude could give to oil-
importing economies would be outweighed---if not
more than outweighed---by the damage done to oil
In focus is Russia, which relies on its energy exports
for half of its revenues. Its economy has been hammered
by the double whammy of sliding oil revenues and
The IEA said it was making the biggest cut to Russian
demand, now expecting it to drop to 3.4 million barrels
a day, 195,000 barrels below last month's estimate.
"Lower oil prices significantly dent potential export
revenues in net oil-exporting countries, slashing their
income streams and in turn denting demand.
"In particularly cash-strapped economies, such as
Venezuela and Russia, this impact is likely to be mag-
nified as the risk of default escalates," said the IEA.
"The resulting downward price pressure would
raise the risk of social instability or financial difficulties
if producers found it difficult to pay back debt," it
Russia has said that it is losing up to USUS$100
billion a year due to weak crude prices. But that was
in November, when trading was at around US$80.
On Friday, the US benchmark West Texas Inter-
mediate (WTI) for January delivery was trading well
under the psychological US$60 barrier---at US$58.80.
Brent crude had dived to US$62.75.
The plunge in oil prices is sparked in part by a fun-
damental shift in the energy market.
Countries are turning to more energy efficient or
renewable sources while new technologies have led
to a shale boom, particularly in the United States.
While oil cartel OPEC has in the past acted against
low prices by cutting output, this time round, the
group is sitting firmly against reducing supplies.
The government announced on Thursday
the start of bidding for oil exploration rights
in 14 areas of the Gulf of Mexico being
opened to domestic and international com-
panies as Mexico ends a seven-decade state
monopoly on the petroleum business.
Bidding will continue until July 15. Com-
panies wishing to bid must meet a set of
requirements, including showing their par-
ticipation in at least three exploration proj-
ects and oil extraction of at least USUS$1
billion and capital on hand of at least the
Mexico nationalised its oil industry in
1938. Prior to this year's reforms, the state
company Petroleos Mexicanos was the only
one allowed to do oil exploration and pro-
The parcels up for bid are in shallow
water, less than 500 meters (1,640 feet),
off the coasts of Veracruz, Tabasco and
Later Thursday, Juan Carlos Zepeda,
president of the National Hydrocarbons
Commission, said experts believe the parcels
contain a total of 687 million barrels of oil
and forecast production of 80,000 to
100,000 barrels daily.
The areas will be explored through shared
production contracts running for 25 years,
in which exploration can occur for a max-
imum of five years and the remainder is
dedicated to production.
Businesses may bid independently or as
part of a consortium, but no company can
try for more than five blocks. Interested
companies will have access for six months
to detailed data about each of the parcels
through a Web site if they pay US$363,000.
"Mexico is betting a lot on this audacious
opening," said Energy Secretary Pedro
Joaquin Coldwell. "For that reason the
Mexican government's commitment to
transparency is crucial."
Undersecretary of Energy Lourdes Melgar
said every contract will include a clause
stating that any corrupt practices will lead
to cancellation of the deal.
Corruption has cast a long shadow in
Mexico since local police in a southern city,
allegedly on orders of the mayor, intercepted
43 students from a rural teachers college
and turned them over to gang members in
late September. The remains of only one
have been confirmed, but the government
says testimony from people detained in
the case indicate they were all slain and
their bodies incinerated.
Additionally, cries of a conflict of interest
have been aimed at President Enrique Pena
Nieto since it was revealed that his wife
had bought a mansion from a businessman
who had received public contracts. An
entity of the same company was also
awarded a contract to build a high-speed
train, which was subsequently cancelled
after the outcry and put out again for bid.
Energy officials said all of the oil contracts
will be public to avoid corruption.
Mexico's oil and gas production reached
a maximum of 3.4 million barrels a day in
2004. Since then, it has fallen to 2.4 million
barrels. The government hopes the opening
of the industry will entice foreign firms
with access to greater exploration tech-
nology and help boost daily production to
3 million barrels by 2018 and 3.5 million
Analysts have estimated that investment
in the sector could reach US$15 billion a
Global oil demand to
slow despite price rout
Mexico opens bidding for
outsider oil exploration
Repsol SA, Spain's largest energy company, agreed to buy Tal-
isman Energy Inc for USUS$8.3 billion, ending a months-long
search for acquisitions to help boost crude reserves and produc-
Talisman shareholders will receive USUS$8, or CUS$9.33, in
cash for each share they own, according to statements from both
companies. That's a 60 per cent premium to Talisman's 30-day
weighted average price, the Calgary-based company said.
Repsol has been seeking to spend about US$10 billion on
takeovers since receiving compensation in May from Argentina
for the 2012 nationalisation of YPF SA. The total deal value is
about US$13 billion, including Talisman debt, making it the biggest
foreign takeover by a Spanish company since 2007, according to
data compiled by Bloomberg. Repsol's offer comes as a slump
in crude drove the Canadian explorer's stock below CUS$5 for
the first time in 14 years.
"They're paying a full and fair price that Talisman shareholders
should be satisfied with," Brendan Warn, an analyst at BMO
Capital Markets in London, said by phone. "If oil had stayed
above US$100, the deal may not have happened as Talisman
would have ploughed on."
Repsol fell for a seventh day, dropping 0.4 per cent to 15.64
euros at the close in Madrid. Talisman rose 47 per cent to CUS$8.79
in Toronto, after earlier gaining the most intraday in 30 years.
The stock is down 17 per cent since July 22, when news of Repsol's
interest in the company first surfaced, as oil prices plunged to
US$55 a barrel, the lowest in more than five years.
In losing the Argentine producer YPF, Repsol gave up almost
half of its oil and gas reserves and has been looking for ways to
replace them. The Talisman deal will boost Repsol's crude reserves
by 55 per cent and production by 76 per cent, the Madrid-based
company said in a regulatory filing. Talisman, which has operations
spanning six continents, is focused on the Americas and Southeast
"The transaction with Talisman is the result of a thorough
analysis of more than 100 companies and assets around the
world," Repsol Chief Executive Officer Josu Jon Imaz said in a
statement. "Talisman has always been the best option due to the
excellent quality of its assets."
Similar-sized targets in oil exploration have commanded an
average premium of about 38 per cent in the last three years,
according to data compiled by Bloomberg.
Repsol dropped its original interest in Calgary-based Talisman
after carrying out due diligence, people familiar with the matter
said at the time.Repsol may sell as much as 5 billion euros (US$6.26
billion) of hybrid bonds to help finance the transaction.
The deal requires the approval of two-thirds of Talisman share-
holders, who include billionaire Carl Icahn. Icahn's representatives
on Talisman's board support the offer, Repsol chairman Antonio
Brufau told reporters in Madrid today.
Shareholders will probably support the deal, said David
Neuhauser, who oversees Talisman holdings as part of funds
under management at Livermore Partners in Northbrook, Illinois.
Talisman couldn't afford to grow its business in the current oil
price environment and didn't have a replacement for Hal Kvisle,
its outgoing CEO, Neuhauser said.
Low oil prices, limited options to reduce spending, a difficult
environment to sell assets and risks associated with its debt all
pose challenges for the company, Kvisle said.
Repsol agrees to buy Canada's Talisman for US$8.3bn
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