Home' Trinidad and Tobago Guardian : November 5th 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 5 • 2015
Royal Dutch Shell outlined Tuesday its strategy
for making its merger with BG profitable in a world
with falling oil prices, revealing another US$1 billion
in cost savings from the deal.
Chief executive officer Ben van Beurden said cost
savings for the deal are now expected to be US$2
billion, bringing total synergies to US$3.5 billion in
2018. Examples include savings on corporate costs
such as real estate.
"The US$1 billion increase is in operating cost syn-
ergies and has arisen from both de-risking our original
assumptions but also from identifying further oppor-
tunities," he told reporters on a conference call. "Plans
also call for US$1.5 billion of synergies for the combined
exploration portfolio in 2018."
Shell agreed to buy British rival BG Group for 47
billion pounds (US$69.7 billion) in April, in a deal
widely seen as an effort by the energy company to
adapt to lower prices. The deal will boost Shell's oil
and gas reserves by 25 per cent and give it a bigger
presence in the fast-growing liquefied natural gas
Companies were once accustomed to oil at US$100
a barrel or more. But oil dropped to a six-year low
in August as Brent crude, the benchmark for North
Sea oil, averaged US$50.26 a barrel in the third quarter,
down 51 per cent from a year earlier.
The price of oil was about US$58 a barrel on the
day the deal was announced.
Van Beurden said only the most competitive projects
would go ahead and that Shell was planning for a
"We are reshaping the company and this will accel-
erate once the transaction is completed," Van Beurden
The boards of both companies had recommended
that shareholders approve the deal. AP
As the price of oil continues its decline, economists
have warned on a lack of upward price pressures
for the commodity for at least another two years.
Thomas Pugh economist at Capital Economics
predicts oil could hit US$55 per barrel for Brent
crude at the end of 2015, with oil to remain in
surplus for another couple of years.
"The market is still going to be in surplus by this time next year,
so by the time you actually have supply and demand starting to
equate, it will be well into 2017," he told CNBC via telephone.
The oil industry is full of booms and busts. The norm for oil
for the last decade has been US$90-US$100 per barrel, but Brent
is currently trading closer to US$45 a barrel.
The UK oil giant BP announced on Tuesday it was slashing costs
as it prepares for a long term low oil price environment. The
company is planning for oil to be around US$60 per barrel until
Jason Gammel, equities analyst at Jefferies, believes that US$60
will not even be sufficient to balance the market and highlights
pressure coming from Iranian barrels coming back onto the mar-
ket.As international sanctions on Iran are lifted, an increase in oil
exports is expected from the country, adding to global supply and
However, Pugh also highlights an obvious concern over Iranian
supplies. He explained that the "market is expecting all this Iranian
oil to come back", adding that there is a risk that Iran does not
comply with its side of the bargain when it comes to exports.
A BP employee uses ultrasound to scan a section of pipe along
an oil transit pipeline at Prudhoe Bay oil field on Alaska's North
BP cuts costs, bracing for US$60 barrel oil until 2017
The Organisation of Petroleum Exporting Countries or OPEC,
which is largely made up of producers based in the Middle East,
is the main group responsible for coordinating production levels
in order to influence prices. OPEC's next meeting will be held in
Vienna on December 4, 2015.
Frances Hudson, global thematic strategist at Standard Life
Investments said: "The feeling is that oil prices have been unnaturally
low, but in terms of supply and demand it seems reasonable as
Saudi (Arabia), as a producer, has decided to produce just enough
to keep markets at this level. "
"Saudi is the dominant player within OPEC and is estimated
to cut production. When Saudi decides they are going to raise pro-
duction that changes the output for OPEC." said Hudson.
Hudson warns there is also an outside chance of an oil price
shock within the next few months. If this happens, this would see
the oil price rise, he added. CNBC.com
Brazil's main oil union began a nationwide strike
Sunday to halt asset sales by state-controlled Petroleo
Brasileiro SA at a time the company is slashing invest-
ments to reduce the biggest debt load in the oil indus-
try.The Oil Workers Federation, known as FUP, said
the nationwide strike started November 1. Some of
the FUP's regional member unions began work stop-
pages on October 29. FUP also wants Petrobras to
resume investments in the refining network and
maintain Buy in Brazil policies to protect jobs, it said
in the statement in its Web site.
Petrobras said in an emailed statement sent to
Bloomberg News that a work stoppage from some
units won't affect its production or deliveries to the
The strike is the latest in a series of setbacks for
the Brazilian producer, which had its debt downgraded
to non- investment grade in September as it tries to
deal with a collapse in commodity prices and a widen-
ing graft scandal that has resulted in some of its sup-
pliers seeking bankruptcy protection.
Petrobras plans to continue holding talks with the
union and it has offered an 8.1 percent wage adjust-
ment, the company said in the statement. The union
has been negotiating with Petrobras for more than
100 days, it said on its website.
Petrobras plans to sell US$15.1 billion in assets this
year and in 2016 to raise cash for investments and
debt reduction. On October 24, Petrobras's board
approved the sale of a 49 per cent stake in its gas
pipeline unit Gaspetro to Mitsui & Co Ltd for 1.9
billion reais (US$490 million). Bloomberg
Global oil and gas acquisitions should
accelerate heading into 2016 and a recovery
in crude prices may follow, according to San-
ford C Bernstein & Co.
National oil companies in Asia will probably
resume purchases with PetroChina Co and
Oil & Natural Gas Corp. of India among
potential buyers, Bernstein analysts including
Neil Beveridge wrote in a report Monday.
Possible targets include Occidental Petroleum
Corp, Devon Energy Corp, Genel Energy Plc
and InterOil Corp, according to the report.
"We expect companies with strong balance
sheets and limited organic growth to acquire
resource-rich companies with stretched bal-
ance sheets," the analysts wrote. "An increase
in M&A activity will be a leading indicator
for a commodity price recovery. While we
may not quite be there yet, the next 12 months
are likely to see an increase in activity."
There has been a hiatus since the deal
between Royal Dutch Shell Plc and BG Group
Plc earlier this year amid expectations that
the market hasn't yet reached a bottom,
according to the report. Brent oil prices have
fallen more than 50 per cent since June 2014
as US production grew, while OPEC members
decided to sustain output to protect market
"History has shown than every major
downturn in oil price over the past 50 years
has been accompanied by significant increase
in M&A activity," the analysts wrote in the
report. Australia's Santos Ltd. last month
rejected a A$6.88-per-share offer from
Scepter Partners, an investment firm backed
by Asian and Middle Eastern royalty. Oil
Search Ltd. in September rejected an US$8
billion bid from Woodside Petroleum Ltd,
saying the proposal undervalued its expansion
plans in Papua New Guinea.
Canadian Oil Sands Ltd., the largest owner
of the Syncrude venture in northern Alberta,
said last week that it's considering alternatives
to Suncor Energy Inc's C$4.3 billion ($3.3
billion) hostile takeover bid and has already
had interest from possible suitors.
PetroChina Co, the nation's biggest explorer
and producer, said in August it's eyeing targets
and is in discussions about assets swaps in
North America, while China Petroleum &
Chemical Corp, Asia's largest refiner, also
signaled it's looking at overseas acquisitions.
Shell defends BG
deal in time of
low oil prices
Petrobras oil workers
begin strike, seek to
block asset sales
Oil price recovery seen as downturn spurs M&A activity
Pouring oil on troubled
waters: 'Surplus until 2017'
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