-Saudi Efficiency Review Finds Cost Savings
The body set up by Saudi Arabia to cut the costs of government projects has identified up to 17 billion riyals ($4.53 billion) in further efficiency savings, the kingdom's finance minister told Reuters.
Government sources had told Reuters earlier that Riyadh was ordering ministries and agencies to review billions of dollars' worth of unfinished infrastructure and economic development projects with a view to shelving or restructuring them.
The action forms part of a reform plan by the world's top oil exporter aimed at shifting its economy away from reliance on hydrocarbon revenues and paring back support for a generous welfare state to cope with the reduction in crude prices.
Mohammed al-Jadaan said this was the second major effort by the Bureau of Capital and Operational Spending Rationalization since its establishment, after previous efforts highlighted 80 billion riyals of savings in 2016.
"They just were making sure that they (the projects) are done in the most efficient manner. They are about to conclude their work and they have identified about 15 billion riyals or 17 billion riyals of savings so far," Jadaan said, without elaborating on the nature of the savings.
Lower oil prices have left Saudi battling huge budget deficits. The deficit is expected to hit 198 billion riyals or 7.7 percent of GDP this year, after peaking at 367 billion riyals or 15 percent of GDP in 2015.
The introduction of a 5 percent value-added tax should also bolster the Saudi government's coffers. Jadaan said Saudi is "ready and willing to implement" the tax on schedule on Jan. 1, 2018 and it could happen without other Persian Gulf countries.
The six Arab monarchies of the [Persian] Gulf Cooperation Council are all aiming for an identical start date for the tax, but economists and officials in some countries have said privately that simultaneous introduction may not be feasible.
This is due to the complexity of creating the administrative infrastructure to collect the tax and the difficulty of training companies to comply with it in a region where taxation is minimal
. Korean Buyers Seek to Replace Mideast Oil
Oil buyers in South Korea are expected to take advantage of relatively cheap Brent against Dubai and step up purchases of low-sulfur crude in early third quarter, reducing demand for the Middle East oil, four refining sources said.
Refiners in the world's fifth largest crude oil importer are seeking crude from the North Sea and Africa, they said, which could help reduce surplus oil in Europe that was accumulated during the peak refinery maintenance season.
"We are actively looking at Brent-related crude grades," said Kim Woo-kyung, a spokeswoman at SK Innovation, owner of South Korea's top refiner SK Energy.
SK Energy bought its first Russian Urals crude in a decade earlier this year.
An official from another South Korean refiner said they are also considering buying Brent-linked crude such as those from Africa as prices of Brent oil have weakened. He declined to be named due to the sensitivity of the matter.
A slowdown in China's oil demand also created more opportunities for South Korean buyers to purchase arbitrage supplies, a third buyer said.
The premium for June Brent to Middle East crude benchmark Dubai dropped below $1 a barrel this month, the narrowest since August 2015, prompting some buyers to switch to sweet crude which is easier to process.
Brent's market structure is also in a wider contango than that for Dubai, making long-haul shipments feasible. In a contango market, oil becomes more expensive in later months.
Six million barrels of North Sea crude were loaded in April for Asia, with another 2 million barrels planned to be loaded next week onboard supertanker Sara for South Korea, trade flow data on Thomson Reuters Eikon showed.
Another 1 million barrels each of Urals crude and Libyan El Sharara crude will arrive at Yeosu, South Korea, in May, the data showed.
"There are still some arbitrage cargoes to Asia arriving in July," the third buyer said, referring to oil from Europe and the United States.
Hyundai Oilbank bought the country's first import of U.S. Southern Green Canyon (SGC) crude this year.
South Korean refiners also receive freight rebates from the government for shipping non-Middle East crude on supertankers as an incentive to diversify imports away from the Persian Gulf.
South Korea imports more than 80 percent of its oil from the Middle East
- Italy's Saipem Turns to Wind
Italy's Saipem is working to expand new lines of business including wind farms to help it cope with a slump in order books among oil services groups.
Oil contractors around the world have come under pressure as weak oil prices force oil majors to cut billions of dollars in costs and delay final investment decisions on projects.
"We're looking to grow in areas like wind farm projects, especially in the North Sea, and dismantling oil and gas platforms," Saipem's chief executive Stefano Cao said following the company's first quarter results.
Production cuts by OPEC have helped crude prices, but recovery for oil contractors is expected to be uneven, with those finding it tougher to cut capacity and costs lagging others with more flexible business models.
Saipem, which has both onshore and offshore drilling assets, is a market leader in subsea engineering and construction (E&C) including the world's most expensive oil field, Kazakhstan's Kashagan.
"Pressure continues this year, especially in offshore E&C and few initiatives are being sanctioned... but we are on the right path" Cao said.
Saipem, jointly controlled by oil major Eni and state-lender fund FSI, said earlier it was sticking to forecasts for the year after operating profits in the first quarter fell 21 percent.
A slowdown in the group's core offshore E&C business as well as in drilling led to a 20.3 percent fall in revenues to 2.3 billion euros ($2.5 billion) in the period.
"Saipem's order intake was truly disappointing. Although we were prepared for a weak quarter, we believe that group's order intake is the lowest since 2001," broker Mediobanca said, but added margins had improved.
At 0816 GMT Saipem shares were up 1.9 percent, while the European oil and gas sector was down 0.5 percent.
Some analysts have said Saipem will need to streamline its business and sell off assets to help fund development.
But Cao denied a break up was being considered. "No way whatsoever. I'm not here to break up the company," he said, adding the group could consider joining forces with others to help improve its onshore drilling performance.
Canada's Oil Sands Acquisition Pool Dwindles
As international energy companies retreat from the Canadian oil sands sector due to depressed oil prices, a fast-shrinking universe of potential buyers may leave some stranded in the high-cost, capital-intensive sector.
Global producers are bailing on their oil sands investments due to higher development costs, limited export pipeline capacity to get crude to market and concerns about high carbon emissions in the sector.
International companies once drawn by the long-life assets that can produce for up to 50 years during the oil sector boom are discovering the economics do not work as well in a low-price environment.
But to get out, they have to overcome a simple equation: there are more sellers than buyers for the oil sands.
The three biggest domestic producers - Suncor Energy, Canadian Natural Resources Ltd and Cenovus Energy - are digesting multi-billion dollar deals, and have little room for more acquisitions, industry participants say. Global companies like ConocoPhillips and Marathon Oil Corp prefer to pile into cheaper U.S. shale plays such as the Permian basin instead.
"The market is pretty thin for oil sands buyers," said Janan Paskaran, an M&A lawyer at Torys LLP who advises domestic and international energy companies.
"There are three or four buyers out there that have said they are interested in increasing exposure to oil sands, but they've already done their shopping," he added. "I don't see any new entrants."
BP Plc has joined Chevron Corp in weighing the sale of its oil sands stakes, Reuters has reported. This follows decisions by Royal Dutch Shell, ConocoPhillips and Marathon to dump about $22.5 billion worth of largely oil sands assets this year.
Companies that planned further divestitures from oil sands will either have to patiently sit on their assets or, as in the case of Statoil ASA and Marathon, accept a loss on their investments.
"There's not enough financial wherewithal in Canada to snap up all of the foreign investment that might be exiting right now," said Rafi Tahmazian, portfolio manager at Canoe Financial, referring to the domestic Canadian energy industry.
"You end up having to decide as a foreign company, am I willing to get rid of this cheap or do I hang on to it?"
Statoil booked an impairment charge of $500-$550 million, when it sold its oil sands assets to Athabasca Oil Corp. Similarly, Marathon sold its stake in the Athasbasca Oil Sands Project for $2.5 billion, having paid $6.2 billion to get into the region in 2007.
While some Canadian companies have stepped forward to take their place, their resources are limited.
Cenovus' share price tumbled after it loaded up on debt to buy ConocoPhillips assets. Suncor and Canadian Natural are in better shape financially but may have limited appetite for further deals after major acquisitions in the last 15 months.
Sources said Husky Energy, BP's joint venture partner in the Sunrise project, is not keen to increase its exposure to the oil sands but may consider buying BP's stake if the price is attractive.
"The prices will adjust to the supply of buyers and likely move downward," said John Stephenson, president of Stephenson & Co Capital Management, which owns shares in Cenovus and Canadian Natural.
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