Thursday, July 30, 2015

Bukit Asam’s H1 Profit Plunges on Falling Domestic Sales, Weak Coal Prices

Jakarta. Indonesian state-controlled coal miner Bukit Asam’s profit declined during the first half of the year, dragged by a decline in domestic sales and persistently weak coal prices.

In a listing on the local stock exchange on Wednesday, Bukit Asam reported a 31 percent fall in profit to approximately Rp 795 billion ($59 million) in profit in the first half of the year from Rp 1.2 trillion in the same period last year.

The state miner’s revenue contributed equally by exports and domestic sales saw meager growth at 1.6 percent to Rp 6.5 trillion from Rp 6.4 trillion last year as sales volumes rose by a slight 2 percent to 9.03 million metric tons.

Much of the company’s woes during the six-month period stemmed from the continued decline of coal prices globally, which dragged the average selling price of Bukit Asam by 3 percent to Rp 703.005 per ton from Rp 726.766 per ton in the same period last year.

On top of that, Bukit Asam saw a steep decline in domestic sales between January and June despite an increase in coal exports volume. Domestic sales fell 10 percent to 4.62 million ton, making up 51 percent of the miner’s total sales. In comparison, exports which are mostly to 
Taiwan and Japan, rose 20 percent to 4.41 million ton.

“Bukit Asam’s net profit in the first half is roughly in line with our expectations. We believe that the stronger performance in the second quarter is mostly due to lower operating costs compared to the first quarter, which have increased gross and operational margin,” said Ariyanto Kurniawan an analyst from Mandiri Sekuritas, in a memo to investors on Tuesday.

“Even though there was stronger growth in the second quarter, we believe that [there is] outlook for revenue in the short-term because of weak commodity prices,” he said, recommending a “neutral” stance on Bukit Asam’s stocks.

Bukit Asam targets to boost sales volume by 33 percent to 24 million ton by the end of the year. To achieve that goal, the state miner recently increased the capacity of its port in Bandar 
Lampung, Lampung to 25 million ton from 13 million ton last year.

Joko Pramono, corporate secretary at the state miner, said in a statement on Wednesday that the company is also working to grow its export sales, assessing countries such as Cambodia, South Korea, Sri Lanka, Bangladesh and Vietnam as potential export destinations.


Shell to Axe 6,500 Jobs, Cut Spending to Cope With Lower Oil Prices

London. Royal Dutch Shell is to axe 6,500 jobs this year and step up spending cuts to deal with an extended period of lower oil prices which contributed to a 37 percent drop in the oil and gas group’s second-quarter profits.

The Anglo-Dutch company also said it was planning more asset disposals as it pushes ahead with its proposed $70 billion acquisition of BG Group, bringing total asset sales between 2014 and 2018 to $50 billion.

“We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery,” Chief Executive Officer Ben van Beurden said.

Shell said it anticipated 6,500 staff and direct contractor reductions in 2015 from a total of nearly 100,000 employees. And the group said it would reduce 2015 capital investment for the second time this year to $30 billion, down by 20 percent from a year ago as it expects the downturn in oil prices to last for several years.

Big oil companies have cut 2015 spending by 10 to 15 percent from 2014 to cope with a halving of oil prices over the past year to below $55 a barrel. Rivals BP and Total announced further cuts this week.

Shell said its operating costs were expected to fall by $4 billion, or around 10 percent, in 2015 as part of a broad efficiency drive to boost its balance sheet.

It also expects $30 billion of asset sales between 2016 and 2018, on top of a total of $20 billion in disposals for 2014 and 2015 combined.

The company announced on Thursday the sale of a 33 percent stake in the Showa Shell refinery in Japan to Idemitsu for about $1.4 billion.

BG deal

Shell hopes to complete its BG deal by early 2016 and is still awaiting key regulatory approvals from the European Union, China and Australia after Brazil, the United States and South Korea formally cleared it.

The deal is expected to generate pretax benefits of around $2.5 billion per year starting 2018. The tie-up will turn Shell into the world’s leading liquefied natural gas company and one of the largest deepwater oil producers with a focus on Brazil.

“We see significant value in the combined entity which over time will reduce the breakeven price,” analysts at Bernstein, who rate the stock as “outperform”, said.

Shell shares rose more than 2 percent, while the European oil and gas sector was up just over 1 percent.
Shell’s second-quarter cost of supplies earnings, excluding identified items, the company’s definition of net income, came in at $3.835 billion, down from $6.13 billion a year earlier and $3.25 billion in the previous quarter. 

The results beat expectations of $3.18 billion, according to an analyst consensus provided by the company.

The drop in earnings is against a backdrop of lower oil prices, which averaged $60 a barrel in the second quarter of 2015, up around $5 a barrel from the previous quarter but down from $110 a barrel a year earlier.

A sharp decline of around 75 percent in revenue from oil production was once again offset by refining and trading, where earnings more than doubled in the second quarter from a year earlier.

Shell maintained its quarterly dividend at 47 cents per share and committed to rewarding shareholders with at least the same payout in 2016.


Tuesday, July 28, 2015

Oil Hits 4-Month Low on China Stock Market Dive, Supply Concern

New York. Crude oil futures hit four-month lows on Monday after a steep drop in China’s stock markets sparked concern about the economic health of the world’s biggest energy consumer, while evidence of a growing crude glut mounted.

Oil was also pressured by a sharp increase in U.S. drilling activity with data on Friday showing producers added 21 rigs last week, the most in over a year, suggesting a ramp up in output as crude futures recovered from six-year lows seen in the first quarter.

A weaker dollar on Monday cushioned some of oil’s losses as crude and other commodities denominated in the greenback saw higher demand from users of the euro.

Chinese stocks tumbled more than 8 percent in Asian trading, the biggest one-day drop in eight years, driving European equities markets to a two-week low.

Brent crude oil settled down $1.15, or 2 percent, at $53.47 a barrel. In post-settlement, it fell to as low as $52.90, its lowest since mid-March.

U.S. crude closed down 75 cents, or 1.6 percent, at $47.39. It fell below $47 post-settlement, the lowest since late March.

“The combination of the Chinese stock market rout and creeping crude glut is weighing on oil,” said Carl Larry, director of business Development for oil and gas at Frost & Sullivan.

“That said, Brent’s still seeing support above $50 and U.S. crude is staying above $45. There’s a lot of hedging going on at those levels.”

Technical analysts, however, said U.S. crude could lose another $15 or more, falling below the lows of the 2007-2009 financial crisis, if the dollar started rallying again on talk of a U.S. rate hike while the oversupply in oil persists.

Major oil producers in the Middle East Gulf, competing for market share, were pumping 2-3 percent more than needed, analysts say.

Exports from Iraq’s southern oilfields were on track for a monthly record, having topped 3 million barrels per day so far this month.

Hedge funds and other money managers slashed their net long positions in Brent for the first time in four weeks in the week to July 21, data showed.

“In the next couple of months, even if the global oversupply and seasonal weakness are becoming priced in, it is difficult to see where any price uplift will come from,” said Societe Generale oil analyst Michael Wittner.

Cameron: Britain Can Easily Double Indonesia Investment, Eyes Infrastructure

Jakarta. British Prime Minister David Cameron sought to forge closer business ties with Indonesia on Tuesday, saying British investment could easily double if deals could be clinched on infrastructure projects.

Indonesia is Cameron’s first stop on a four-day trade mission to Southeast Asia to spur lucrative business deals and encourage new political alliances to counter Islamist militancy.
Britain, Indonesia’s fifth-largest foreign investor, is particularly interested in investing in Indonesia’s infrastructure, insurance and Internet services industries.

“When Indonesia announced its 276 billion pound [$430 billion] infrastructure plan, the next opportunity for British businesses became clear,” Cameron told a Jakarta forum of government and business officials from both countries, according to a pool report.

Cameron highlighted Britain’s 15 billion pound Crossrail project, which will connect Heathrow airport west of London to the county of Essex in the east, through 42 kilometers of new tunnels, as an example of the expertise it could bring to Indonesia’s traffic-clogged capital.

He also lobbied officials to allow British companies to help build infrastructure for Indonesia to host the Asian Games in 2018.

Britain ships only 0.2 percent of its total exports to Indonesia but last year invested $1.6 billion, excluding the banking and energy sectors.

“We could frankly double, triple, quadruple that number without making a huge change to the overall picture,” Cameron said.

“The scale of the opportunity here is immense.”

On Monday, the prime minister met President Joko Widodo and announced that the British government would make available up to 1 billion pounds of export finance credit to Indonesia.

But for Indonesia, the problem with fixing dilapidated roads, ports and bridges is not about the money. The Indonesian government has struggled to spend its own budgeted funds due to bureaucratic infighting and burdensome red tape.

“I say to my ministers if you want to introduce a regulation, you want to cut two regulations first. I made that as a free offer to Indonesian ministers as a great idea,” Cameron said.


Thursday, July 16, 2015

Asia Ready to Buy More Iranian Oil When Sanctions Lifted

New Delhi/Singapore. Asian refiners are set to buy more crude oil from Iran once they receive word on when sanctions will be lifted, expecting Tehran to price its oil competitively as it tries to rebuild market share in an oversupplied market.

World powers and Iran finally struck a deal on Tuesday after more than 20 months of talks, setting in motion the eventual lifting of sanctions on Iranian oil exports in exchange for curbs on the Islamic nation’s nuclear program.

Iran has said its priority destination for selling its crude is Asia, not surprising since China, India, Japan and South Korea are its largest customers. The four have sometimes been the country’s only crude customers since toughened sanctions were put in place in early 2012.
Tuesday’s nuclear deal sparked a flurry of checks among Asian governments and refiners to clarify when they will be allowed to import more oil from Tehran.

“If the nuclear deal permits, we will increase our purchases,” an official from India’s oil ministry said. “There are refiners like HMEL [HPCL-Mittal Energy] who want to buy Iranian oil.”
B. K. Namdeo, who heads refineries at Hindustan Petroleum, said: “We will look at buying Iranian oil if, after the deal, insurance is available for my refineries and Iran continues to offer discounts on crude sales and shipping.”

For Iran to increase oil exports though, it needs relief from measures that block its access to global funds transfers and embargoes that prevent ships carrying Iranian oil and refineries processing it from being insured.

“An increase in Iranian oil exports can only occur once sanction relief occurs, tentatively in early 2016,” Goldman Sachs analysts said in a note. Exports would also increase as floating storage of between 20 million and 40 million barrels is drawn down, the bank said.

Iran oil not cheap 

Asia imported 1.2 million barrels per day of crude from Iran in May, the highest this year, with top buyer China already importing more than pre-sanctions levels.

Still, Iran will have to compete in an oversupplied market where there are cheaper and better grades available, Asian refiners said, although there are indications that Tehran could attract new customers seeking to diversify their supply sources.

A trader with a North Asian refiner which stopped imports from the Gulf producer since June said the company is still verifying with its government whether it can increase imports in the fourth quarter.

Iranian crude has become more expensive than oil from other Middle East producers, who are also competing to maintain their market share in Asia, traders said. Asia is also buying better quality crude from Africa and Latin America at depressed prices due to lower demand from the United States.

A trader with a Chinese independent refiner said: “We are interested, but it is not cheap so we’ll wait and see.”

In South Korea, a source at one of the two refiners that import Iranian crude said his company is waiting for details of the agreement, but that more crude supply could help “improve margins in the long run.”

South Korea’s top refiner SK Energy has said it will import Iranian fuel oil once sanctions are lifted.

Term talks coming up

Discussions for next year’s term supply will commence in the fourth quarter when refineries finalize processing schedules for 2016, trade sources said.

The trader with the North Asian refiner said his company could gradually return Iranian crude imports back to pre-sanctions levels although any further increase would be subject to its processing needs.

Japan, however, is unlikely to raise its annual imports of Iranian crude because the prices asked are relatively expensive for the quality of the grades and domestic demand is falling, refinery sources said.


Tuesday, July 14, 2015

OPEC Sees More Balanced Oil Market in 2016

London. The global oil market should be more balanced next year as China and the developing world increase oil consumption while supply of shale oil from North America and other regions grows more slowly, OPEC said on Monday.

In its monthly report, the Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.

This would outpace the growth of oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing demand for OPEC crude oil, it said.

“This would imply an improvement towards a more balanced market,” OPEC’s in-house economists said in the report.

OPEC said it expected demand for its own crude oil to rise by 860,000 bpd in 2016 to 30.07 million bpd. But it cut its estimate of demand for its crude this year by 100,000 bpd to 29.21 million bpd.

Supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

US oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by “fracking”, is expected to log much more modest supply growth in 2016.

“Total US liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year,” it said.

World oil supply has grown much faster than demand this year, led by OPEC as its core members in the Middle East 

Gulf attempt to build market share, leading to higher inventories.

Saudi Arabia, in particular, has pushed up its oil production to record highs, industry sources say.

OPEC estimated, based on figures from secondary sources, that its own group crude oil output rose 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria.

It said Saudi Arabia had told it that it pumped 10.56 million bpd last month, up 231,000 bpd from May.


Sunday, July 5, 2015

Asia Oil Refining Margins Hit 2015 Low, Mideast Supply to Drag

Singapore. Rallying oil refining margins have ground to a halt in Asia. Currently at a 2015 low, they could drop another 20-30 percent this quarter, led by declining profits in diesel as supply from the Middle East adds to a global glut.

While softer Asian demand for diesel will be a drag, margins will likely draw some support and stay above last year’s low as the region’s gasoline uptake remains healthy.

Asian refining margins enjoyed a stellar run in the first half of this year on weak oil prices and hit a two-year top above $10 per barrel in June. But they have almost halved this week to $5.60 with supply of refined products from traditional importers in the Middle East building up.

“We see refining margins weakening on worsening diesel fundamentals, particularly east of Suez, though gasoline should be supportive,” said Robert Campbell, head of oil products research at Energy Aspects.

Energy Aspects estimates a near 20 percent drop in third-quarter Asian crude refining margins versus April-to-June levels, while consultancy FGE sees a 30 percent drop.

This could force refiners to cut production to avoid eroding their margins further in an already well-supplied market. Middle Eastern producers have added at least 1.2 million barrels-per-day (bpd) of capacity over the past two years.

New refineries are typically configured to produce about 30 to 50 percent of middle distillates, comprising diesel and jet fuel, which has led to a glut of these products.

In fact, global diesel inventories rose by more than 25 million barrels in April from a year ago and are expected to continue growing this year, Standard Chartered said in a report.

This comes at a time when demand at one of Asia’s largest diesel consumers, China, is slowing down.

As a result, “a lot of diesel will be trapped in the Far East and this will lead to run cuts in places like Japan and South Korea as the arbitrage to the west will be closed by growing Middle Eastern supplies”, said Campbell.

Gasoline: A bright spot

Demand for gasoline, and crude prices that are more than 40 percent below last year’s high, should help keep a floor under Asian margins.

Gasoline demand is expected to see a double-digit growth in Thailand, the Philippines, Vietnam, Pakistan and India, according to Energy Aspects. This should help keep third-quarter refining margins above a low of $2.47 plumbed in August 2014.
Naphtha margins are also expected to stay firm as the product is blended into gasoline.

But Campbell cautioned that while gasoline demand will continue to be firm, it would be “hard for gasoline to go much higher without some significant refinery outages”.

Chinese refiners have been maximizing gasoline output to meet strong demand. Refineries returning from maintenance in China and South Korea will further add to the surplus.

“Run cuts will be needed to balance things, particularly if there is a warm start to the winter,” said Campbell.