Rosneft Jousting With Gazprom for Bonds in 2013

By Anna ShiryaevskayaDec 17, 2012 BLOOMBERG

OAO Rosneft (ROSN), negotiating with banks over $30 billion of loans, will vie with Russian gas producer OAO Gazprom for bond investors next year as it seeks to fund a takeover making it the biggest publicly traded oil company.

State-run Rosneft sold $3 billion of bonds last month to help finance a $55 billion takeover of TNK-BP. The yield on the debt due in March 2022 has dropped 18 basis points to 4.02 percent since the sale, compared with 4.08 percent for similar- maturity Gazprom notes, according to data compiled by Bloomberg. Yields for Petroleos Mexicanos, the world’s fourth-largest oil producer, are 3.25 percent for equivalent debt.

Russia’s largest oil company has $7 billion of a bond program left to sell as it seeks to boost oil output through the TNK-BP purchase to more than 4 million barrels a day, surpassing that of Beijing-based PetroChina Co. Investors will be receptive to the company’s bonds after Rosneft raised less than expected in its debut sale, according to Union Investment Privatfonds.

“Rosneft will in 2013 outpace Gazprom (GAZP) as the key Russian borrower since the recent Eurobond deal was well managed,” Sergey Dergachev, a portfolio manager at Privatfonds in Frankfurt, said by e-mail on Dec. 13. “They have issued less than originally planned, conserving some ammunition for 2013.”

Energy Companies

Unlike Rosneft, Gazprom won’t make any “huge” bond deals and will borrow to refinance bonds maturing in 2013 and 2014, Dergachev said.

Gazprom sold $3.8 billion in bonds this year, leading energy companies such as fellow gas producer OAO Novatek to seize on near-record low borrowing costs. Oil and gas accounts for about 50 percent of government budget revenue, while companies in the sector account for about half the weighting of the Micex stock index.

Rosneft said last month it has commitments for $30 billion of loans from international banks. It plans to replace some of the loans with bonds, according to two people with knowledge of the deal. Dow Jones newswires reported Dec. 13 that the company is in talks with overseas energy companies to raise as much as $10 billion in financing for the TNK-BP purchase.

Small Premium

Should Rosneft sell Eurobonds next year, it will probably seek to raise $1 billion to $2 billion, according to Tatiana Dneprovskaya, a fixed income analyst with UralSib Capital in Moscow. The company’s ratio of debt to earnings before interest taxes, depreciation and amortization is approaching 2 and is unlikely to fall significantly in 2013, while Gazprom’s stands at about 1, she said by phone Dec. 13.

Rosneft “is able to service its debt, but in fair pricing it can be reflected in a small premium to Gazprom,” Dneprovskaya said.

Rosneft and Gazprom are both rated Baa1 by Moody’s Investors Service, its third-lowest investment-grade level and the same status as the sovereign.

Gazprom’s press service declined to comment on borrowing before the board approves its investment program later this week. Rosneft may raise funds by various means, Vladimir Tyulin, spokesman for Chief Executive Officer Igor Sechin, said in an e- mailed statement.

“Offers are being received from various organizations now,” Tyulin said. “We will pick the ones that are most acceptable and beneficial for the company and its shareholders.”

The ruble was little changed against the dollar at 30.7275 per dollar by 10:11 a.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble declining to 31.1425 per dollar in three months.

Yield Gap

A gain in Russia’s dollar bonds due in April 2020 cut the yield by seven basis points, or 0.07 percentage point, to 2.42 percent on Dec. 14. The yield on OFZ bonds due in June 2017 fell four basis points to 6.5 percent, taking the weekly decline to 15 basis points. The yield on Russia’s international ruble bond due in March 2018 slipped three basis points to 5.73 percent.

The extra yield investors demand to hold Russian government dollar bonds rather than U.S. Treasuries fell two basis points to 174, according to JPMorgan Chase & Co. indexes. The difference compares with 160 basis points for debt of Mexico and 142 basis points for Brazil.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell one basis point to 135, according to data compiled by Bloomberg. The default swaps cost nine basis points more than Turkey, which is rated one level lower at BBB- by Fitch. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Large Volumes

Rosneft’s decision to tap the markets with a relatively smaller than expected inaugural bond was part of a strategy to lock in low funding costs and match Gazprom’s curve, Apostolos Bantis, a credit analyst at Commerzbank AG, said by phone on Dec. 13.

“There is a great chance that Rosneft will revisit the capital markets early next year given the large volumes of loans it will have to refinance over the course of the next two years,” he said. “Rosneft is likely to take advantage of any windows of opportunity that arise in 2013.”





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Click to access 1212r_resourcesfutures.pdf

Winter wheat’s poor start bad sign for US exports

By Agrimoney.com


The dismal start for US winter wheat seedlings has worsened the country’s export prospects by threatening a rise in domestic prices and handing competitiveness to rival shippers, US farm officials said.

The US Department of Agriculture, expanding on a decision on Tuesday to downgrade hopes for American wheat exports in 2012-13, said that prospects for shipments «continue to decline».

«Even though it has been expected that US wheat exports will be back-loaded, with more exports occurring in the later part of the [marketing] year when the main competitors exhaust their supplies, the current US pace of exports is extremely poor,» the USDA said.

«Already, five months into the international marketing year, it is getting increasingly difficult to achieve projected exports, especially with larger wheat supplies and stronger competition from Australia and Canada.»

‘Increasingly uncertain’

From July to the end of November, exports appeared to be tracking 10% lower than a year before, when comparing the sum of shipment data and unfulfilled sales.

And the poor start to the 2013 US winter wheat crop, which has entered dormancy in its worst condition on record, has exacerbated the threats to export hopes.

«The outlook for next year’s US wheat crop has grown increasingly uncertain, given unfavourable November crop conditions,» the USDA said.

If a «pessimistic outlook» for the crop was realised, «wheat prices could rise more than would be expected seasonally», with an impact on export competitiveness.

Historical pattern

The USDA on Tuesday, in its benchmark Wasde crop report, cut by 50m bushels (1.4m tonnes) to 1.05bn bushels (28.6m tonnes) its estimate for US wheat exports, a revision blamed for a drop in wheat prices to a succession of five-month lows.

At Texas A&M University, farm economist Mark Welch said that while wheat exports were now on a «straight-line trajectory» to meet the USDA’s 2012-13 projections, meaning the weekly pace was on target, normally shipments were quicker earlier in the season.

«Usually we have reached 70% of the marketing-year export projection by the end of November compared to 58% this season,» Dr Welch said.

Chicago wheat futures for March stood up 0.3% at $8.10 Ύ a bushel at 10:40 UK time (04:40 Chicago time), on track for their first gain in six sessions.


Brzezinski: Time to `Crack the Whip’


By Roger Runningen, Dec. 5, 2012 BLOOMBERG


Zbigniew Brzezinski, former President Jimmy Carter’s hawkish national security adviser, says that, to the rest of the world, the U.S. looks “leaderless” in the so-called fiscal cliff debate.

“We look a little bit disorderly, indecisive, leaderless and that’s a real problem, and that’s a problem that concerns me, particularly in foreign affairs,” Brzezinski said today in an appearance on MSNBC.

Domestic squabbles have implications for U.S. foreign policy, he said, and “the presidency, not just President Obama, has lost some of the terrain that is used to dominate in the making of foreign policy.”

Obama needs to “make a serious effort to regain it, because he lost some of it himself,” said the former presidential adviser. He is now a counselor at the Washington-based Center for Strategic and international Studies.

He was generous in his advice. He said Obama should move to limit congressional intervention on foreign policy; that he ought to have closer ties to the Senate Foreign Relations Committee and should “engage them personally; he has to be willing to crack the whip in some places.”

And what about a replacement for Secretary of State Hillary Clinton?

Obama ought to appoint “someone with real influence up on the Hill” such as Sen. John Kerry of Massachusetts, and he “might even consider appointing a Republican” such as former Sen. Chuck Hagel of Nebraska or soon-departing Sen. Richard Lugar of Indiana (who lost his seat in a party primary election, and has said he is not interested in State).

Kerry would be suitable, but “there might be reasons why the president doesn’t move that way,” Brzezinski said, without elaborating.

“Any one of those names” would be helpful to Obama “because he needs help” in foreign policy, he said.

A new secretary of state must “neutralize” the interventionist tendencies of some congressional committees and  lobbies. U.S. foreign policy, he said, has become “very fragmented,” whether it involves China or Russia, Syria or the Israeli-Palestinian peace process.

“It’s very difficult for America to assert itself,” he said, describing the situation as one of “impotence.” A recent example was the United Nations vote on Palestine, elevated to “observer state” status on a 138-9 vote, with the U.S. in the minority.

“That tells you something.”


Oil at $60 or $120 Doesn’t Prevent U.S. Supplanting Saudis

By Asjylyn Loder, Anthony DiPaola & Grant SmithDec 13, 2012 BLOOMBERG

Whether crude costs $60 a barrel or twice that amount, the U.S. is almost free of depending on imported energy and positioned to supplant Saudi Arabia as the world’s No. 1 producer of oil.

Even if U.S. benchmark West Texas Intermediate oil drops 30 percent from the current $86 a barrel, oil companies will boost production as new technologies allow them to extract crude from shale formations, said Ed Morse, the global head of commodities research at Citigroup Inc. The nation, which was last self- sufficient when Harry S. Truman was president in 1952, met 83 percent of its energy needs in the first eight months of this year, according to the Energy Department in Washington.

Saudi Arabia can’t afford a decline of that magnitude after the government pledged an unprecedented $630 billion on social welfare and building projects. The kingdom, which uses Brent crude to help set export rates, couldn’t meet those commitments if prices fell 25 percent from the current $109 a barrel, according to Samuel Ciszuk, an oil consultant at KBC Energy Economics in Walton-on-Thames, England.

“U.S. shale oil producers can’t lose,” Leo Drollas, the chief economist at the London-based Centre for Global Energy Studies, which was founded by Saudi Arabia’s former oil minister, said in a Dec. 10 telephone interview. “The Saudis really need to balance their budget at about $95. For the U.S. producers, that is more than ample.”

New Deposits

U.S. average daily output will climb 14 percent this year, the most in six decades, according to the Energy Department, as Anadarko Petroleum Corp. and Chesapeake Energy Corp. exploit new deposits from North Dakota to Texas. Even though America’s 6.8 million barrels a day in November was 30 percent less than Saudi Arabia’s 9.7 million, the International Energy Agency says the U.S. will be bigger by 2020.

West Texas Intermediate, or WTI, will rise about 15 percent through 2015, to $100 a barrel, according to the median of 13 analyst estimates compiled by Bloomberg. Brent, the benchmark for Arab Light and Arab Medium grades, may gain less than 1 percent, to $110, the forecasts show.

WTI slipped as much as 30 cents, or less than 1 percent, to $86.38 a barrel in electronic trading on the New York Mercantile Exchange, and was at $86.48 at 8:35 a.m. London time. Brent for January settlement on the London-based ICE Futures Europe exchange fell 18 cents to $109.32 a barrel. The Organization of the Petroleum Exporting Countries yesterday kept its official production ceiling at 30 million barrels a day.

Abdullah’s Pledge

While Morse says U.S. producers break even with prices of about $72 to $75 a barrel, and will keep drilling new shale wells at $60 because they’ve already hedged future output, Saudi Arabia faces different challenges.

Last year, as popular uprisings toppled leaders in Tunisia, Libya and Egypt and sparked a civil war in Syria, Saudi King Abdullah promised to spend $130 billion on extra subsidies for housing and benefits as well as $500 billion for previously announced infrastructure projects.

The kingdom’s population of 28.4 million is growing 2.9 percent a year, according to the Central Department of Statistics and Information. At current rates, it will need all its own oil by 2032, leaving nothing to export, Citigroup said in a Sept. 4 report. The country uses about 25 percent of its fuel production domestically, more per capita than any other industrialized nation, the report said.

Fuel Misuse

Waste and misuse of fossil fuels threaten to double consumption by 2030, Saudi Oil Minister Ali al-Naimi said in a Nov. 24 speech in Riyadh. The kingdom consumes an average of 2.5 barrels of oil and oil equivalents to produce $1,000 of national income, twice the global average, he said.

“The Saudis are trying to do two things: they want to keep prices from going too high to hurt economic activity and at the same time not let oil go below $100 a barrel,” Ciszuk, the KBC Energy consultant said in a telephone interview Dec. 5. “I would struggle to see the Saudis willing or able to take oil prices low enough to cut off U.S. shale developments since even they need oil in the $80s to balance the government budget through 2013 and 2014.”

For all the growth in U.S. production, Al-Naimi told reporters at yesterday’s OPEC meeting he isn’t concerned by the burgeoning output from shale deposits, while United Arab Emirates Oil Minister Mohammed Al-Hamli said producers are “very concerned” and will protect their interests.

Global Sway

Saudi Arabia, OPEC’s biggest member, can still sway global markets more than other nations. It has spare capacity to pump as much as 12.5 million barrels a day, or 29 percent more than last month’s levels, which were the lowest in 13 months, according to an OPEC report this week. The country supplies more than 10 percent of the world’s oil.

“The U.S. will never be the new Saudi Arabia,” said Mike Wittner, Societe Generale’s New York-based head of oil market research for the Americas. “The Saudis are able to increase production when they want to and are willing to cut when they need to, and the U.S. will never do either of those things.”

U.S. stockpiles have grown 13 percent in 2012 as production climbed to nearly a 19-year high, according to the Energy Department. The rise in reserves is one reason why the average regular unleaded gasoline price has tumbled from this year’s high of $3.936 a gallon, according to data compiled by AAA. The current price of $3.315 is 1.1 percent higher than the start of the year.

Shrinking Spread

Analysts estimate WTI will rise more than Brent in coming years partly because of the way oil pipelines flow in the U.S., bringing crude to the nation’s storage hub and delivery point for Nymex futures contracts in Cushing, Oklahoma. The American grade has traded at an average discount of about $17 a barrel this year, compared with a premium of about 95 cents in the 10 years through 2010.

Brent has also been buoyed by U.S. and European sanctions on Iran, which choked off about 1 million barrels a day, or 1.1 percent of the global total, according to data compiled by Bloomberg. The Buzzard field in the North Sea, which pumps 200,000 barrels a day, was shut for two months for maintenance.

The price gap will narrow to as little as $4.50 next year, as the glut in Cushing eases, according to Goldman Sachs Group Inc. The Seaway pipeline, operated by Enbridge Inc. and Enterprise Products Partners LP, will be able to send 400,000 barrels a day from Cushing to the Houston area starting Jan. 1, compared with 150,000 a day now, Enterprise Chief Executive Officer Mike Creel said on Nov. 13.

Big Short

The last time the U.S. rivaled Saudi Arabia proved a disaster for America’s oil industry and for the kingdom. U.S. production expanded 10 percent from 1976 to 1985, reaching the highest level since the Arab embargo in 1973.

By late 1985, the Saudis were pumping more crude to defend their market dominance. WTI plunged to $10 a barrel in March 1986. U.S. output declined for 21 of the next 22 years and didn’t start growing again until 2009.

Now, the U.S. may be producing too much oil and WTI may drop as low as $50 a barrel within the next two years unless policy makers scrap a law limiting exports, Francisco Blanch, the head of commodities research for Bank of America Merrill Lynch in New York, said in an interview.

“WTI is our big short for next year,” Blanch said. Should futures fall to between $50 and $65 a barrel, production gains will slow, he said.

If the U.S. natural gas market is any guide, declining prices don’t guarantee reduced supply. Gas dropped to a 10-year- low of $1.902 per million British thermal units in April. New production technology helped drive inventories to a record last month even though the number of gas rigs operating in the country fell to a 13-year low on Nov. 9, according to Houston- based Baker Hughes Inc.

“What’s going on with U.S. oil is the biggest development over the last 40 years,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said in a telephone interview. “U.S. shale, rather than anything, is the game changer. OPEC nations are concerned, all of them.”