Oil prices: Wishful thinking by the US energy agency?

Most probably one of these guesses will be wrong.

My guess is that if demand increases (think China) prices will be around US$100. One reason why I’m holding onto my SembCorp Marine shares: Tempting fate but thanks again Ho Ching

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Tempting fate but thanks again Ho Ching

This reminded me that I forgot (Thank you Ho Ching) to also thank her for another Temasek special (massive rights issue at a huge discount to the existing price) that’s looking good.

Sembcorp Marine announces change in terms of Keppel O&M transaction

https://www.theedgesingapore.com/news/ma/sembcorp-marine-announces-change-terms-keppel-om-transaction

The share price tanked last year (It was already sick because of a previous Temasek special in 2020, followed by a really bad results) when Temasek did another special.

As I wanted good quality TLC penny stock exposure to the offshore marine and energy sectors, I bot a few shares and then applied for lots of rights shares at $0.08. I got filled to the gills.

The shares have been on a wild run: up to $0.138 and then back down to -$0.11 recently. I regretted not selling out at +$0.13. But I was going for $0.16 or more. After the above announcement, they are back to +$0.13. Riding the tornado like Pecos Bill: GameStop in charts: Riding the tornado

Usually when Temasek does a special, shareholders or new investors who participate make $. It’s money for jam. The downside is finding the cash to fund it. Not like Temasek. Need $, make a call to MoF and PMO if dividend income not enough.

Not always, Sembcorp Marine did an earlier rights issue at $0.20 in 2020. Everyone lost $ when it had a really bad set of results. Hence the 2021 rights issue. At that time I didn’t want exposure to the offshore marine and energy sectors, so I missed a bullet. Praise the Supreme Being. And yes, I made a charitable donation.

But I really shouldn’t be counting my chickens, tempting fate or the gods. Not taken profits. And no immediate plans to. I’ll ride the whirlwind on this ($0.19 says a broker) and hope to come out alive or belter still smiling. Why Wall St is a cowboy town.

Minority shareholders (those who participated in 2020 Temasek special) might reject the deal (one reason why the terms were changed).

And pray that I remain lucky. I’ll be getting more SembCorp Marine shares via Keppel distribution. Might sell these.

Investing tip: back Temasek’s corporate moves. More on this soon. Meanwhile think SATS: SATS: Temasek gives away another free lunch?

More on SATS from the archives: SATS — More Dividends or a Rights Issue?

SATS: Temasek gives away another free lunch?

Big opportunity to make serious money by buying into SATS if they have rights issue.

Buy “small” amount of shares cum and apply for excess (lots).

Those who did this for SIA and Semb Marine (last round) still sitting on good profits if they didn’t cash out already.

Temasek usually prices its rights “right” to make easy $, post rights for those buying into its rights issues.

But it got it wrong in earlier Semb Marine rights.

But whoever said share investing is riskless is an idiot.

Sembmarine: Feeling lucky?

“Do I feel lucky?”

If you do,  

In a report last week, UOB Kay Hian raised Sembmarine’s target price to 13 cents, citing new order wins in oil and gas and renewables, and the potential upsizing of the company’s capabilities following a merger with Keppel O&M.

It added that, based on a five-year price-book ratio of 1.1 times, the stock prices should be 14.3 cents; while a 10-year price-book average of 1.5 implies a stock price of 18.9 cents.

https://www.straitstimes.com/business/companies-markets/stronger-global-player-with-merger-of-om-unit-and-sembmarine-keppel

Fyi, I bot a tiny amount before the shares went ex-rights last year and then applied for a lot of excess rights shares at 8 cents.

In case you don’t know, a merger of Keppel O&M and Sembmarine is being worked out.

Finally Temasek has gotten its way on the merging of Keppel’s and Sembcorp’s offshore marine businesses. Since the recession in the 80s, it’s been trying but Keppel wanted to be top dog because its rig business was bigger and better. Sembcorp didn’t want to lose face.

Now Keppel wants to get rid of the business and Sembcorp cut loose Sembmarine last year. Sembcorp shares are flying. Expect Keppel’s to do the same. I also got Keppel shares.

Touch wood.

Time to make an offering to the deities.

Sembcorp Marine

 Shipyards and fabricators that in the past turn out massive oil platforms are now assembling offshore wind kit, Hence SM’s move into renewables, a decade long transition. It says that work is progressing satisfactorily on the renewable projects it has on its books.

After the close of Temasek’s mandatory takeover at 8 cents a week ago, the shares closed at 8.5 cents on Friday. Now trading at 0.86 and 0.87.

Remember that Keppel is talking to SM about merging their offshore marine businesses.

Related post: Last chance to buy Sembcorp Marine?

Last chance to buy Sembcorp Marine?

I bot into some Sembcorp Marine cum rights at 0.083. And I applied for excess shares, lots of them at 0.08. Got filled.

Now sitting back at cost of 0.082 with Temasek’s backstop of a mandatory bid at 0.08. Temasek’s stake was raised to 46.6% from 42.2% due to its rights issue.

But stock’s not moving: down to 0.081. SAD.

Broker speculating on another big TLC merger

Following Temasek’s recent $6 billion divestment of Ascendas/Singbridge to CapitaLand, CGS-CIMB sees benefits in streamlining the yards and conglomerate structures of Sembcorp (SCI), SembMaritime (SMM) and Keppel (KEP).

“If the rig building industry does not recover in the next three years, we think the consolidation of both SMM and KEP O&M could strengthen Singapore in the large-scale FLNG (KEP) and FPSO (SMM) newbuild segment as well as create an O&M design and engineering powerhouse, competing head-on with the Koreans.”

‘A possible structure is one mega yard (SMM + KEP O&M), one renewables/utility group Sembcorp Industries (SCI) and one urbanisation/infrastructure group (KEP).”

It thinks Sembcorp could be the long-term winner as a pure renewable energy/utility group focusing on overseas M&A to grow its capacity, commanding higher valuations. Brokers forever flogging this dog.

Meanwhile, it thinks, Keppel could continue to pursue its urbanisation solutions of property and infrastructure development, backed by asset management capital.

The total book value of SembMaritime and Keppel O&M amount to S$5.3 billion. The hypothetical shareholding structure of the enlarged yard could be in the form of a JV, with Temasek having a majority control stake, the broker says.

CGS-CIMB has Keppel, Sembcorp and SembMarine at “add” with target prices of S$8.41, S$3.49 and S$2.46 respectively.

I’m happy with the present Keppel set-up as there’s no guarantee that it’s O&M managers will run the joint show. SembMarine’s O&M managers are second rate by Keppel’s standards.

 

Noticed? Oil’s spiked to US$85 a barrel

Not if u only read our constructive nation building (OK, OK, I don’t read BT) or TOC and other anti PAP publications.

What this means

A sharp and sustained rise in oil is one of the nastiest taxes on growth you can get.

FT columnist

So expect GDP growth here and elsewhere to slow down if oil doesn’t fall back to below US$80 (Top of trading range for this yr until late Sept).

Buy Keppel, and SembCorp listcos. And take a punt on the penny stocks in O&M sector?

Whatever, shows Trump is “stable genius”. His much criticised tax cuts earlier this yr, will help cushion the US consumer (and hence the world) againsat this oil price oil if it persists.

Go long Keppel and Semb Marine?

Rig drilling Transocean has bid US$2.7bn deal for deepwater rival Ocean Rig.

Remember oil is now close to US$80, so oil drilling and services industry expects it will soon be able to raise the prices

Btw, Shell said last month that deepwater drillingwas making a comeback after the 2014 oil crash as falling costs and higher crude prices was making it competitive again.

Qns for Keppel, SembCorp Marine

FT’s Nick Butler  had 4 questions for the oil majors’ results season:  where they spintheir annual results, declare dividends and reveal strategy updates. These are useful questions for Keppel and SembBorp Marine except the second question should be about their analysis of their clients projects. And for Temasek too. And useful guide when asking questions about the small cap offshore marine stocks: stocks like Ezra amd Swiber. Btw, it’s rumoured that Temasel officials used Nick Butler’s questions when they last met Keppel and SembCorp Marine executives.

First, did you foresee the fall in prices across the energy sector in the past two years? I don’t think anyone can answer that with a yes, which leads inexorably to the supplementary question: if not, why not? This is the question the Queen asked a group of economists after the financial crash and the 2008 downturn. It seems she is still waiting for a clear answer.

Second, what proportion of your producing assets and projects under development requires an oil price above $50 a barrel (or a comparable gas price) to produce a positive rate of return? This is a more complex question but if answered truthfully will expose the extent to which some companies over invested at high prices and will continue to struggle.

Third, what is your strategy if oil, gas and coal prices stay low — say, below $50 a barrel for the next five years? This is the most important question, especially for investors who rely on a secure dividend flow. To the best of my knowledge no energy company has yet explained its strategy, which makes it all the more important that the question should be asked and answered. Any chief executive who says that a long period of low prices is impossible should be retired immediately.

Finally, what do you believe are the most significant advances in technology in the energy sector in the past year and how could they affect your business? What are you doing to make sure you capture the benefits of those advances rather than falling victim to them? The aim here is to extract a clear statement of long-term strategy. Focusing on technology should test whether companies are taking the time to look outside and watching the advances being made on solar and storage; and whether they understand the dramatic scale of the changes that are happening. At the individual level, the question will test whether chief executives are looking ahead at the medium and long-term or simply trying to coast to a well-padded retirement.

HoHoHo: Will Temasek slip on oil patch?

investors and lenders have laid the groundwork for the rebound – buying assets in fire sales and making new loans. But even opportunists are still uneasy. Many investors fear they could be too early if they jump in now – they had already been burned by forecasts that predicted oil would recover last year.

Remember tthis investment?

NYT Dealbook reports

LOW OIL PRICES AND A RECKONING ON DEBT Energy executives and their bankers are preparing for a prolonged downturn that could change the energy industry in a way not seen since the turmoil of the late 1990s gave rise to mega-mergers like Exxon Mobil, Clifford Krauss and Michael Corkery report in DealBook.

Crude prices have plunged more than 70 percent over the last 20 months, but until recently, companies were able to ride out the slump using hedges to sell their oil for more than the market price.

These hedges have expired in recent months, leaving oil companies low on cash and unable to pay their debts. They are also realizing that a recovery in oil prices is at least a year away – too long for many companies to hold out.

If prices hold at such low levels – oil traded near $28 a barrel on Tuesday –as many as 150 oil and gas companies could file for bankruptcy, according to IHS, an energy research firm.

That is a relatively small slice of the industry, but hundreds of other companies that piled on debt to grow into significant players in the shale oil boom are now likely to be acquired or sell their assets. As much as a third of the oil industry could be consolidated as a result of the downturn.

As losses have mounted, investors and lenders have laid the groundwork for the rebound – buying assets in fire sales and making new loans. But even opportunists are still uneasy. Many investors fear they could be too early if they jump in now – they had already been burned by forecasts that predicted oil would recover last year.

Temase should remember that it already has exposures to the oil patch via Keppel and SembCorp Marine: the bad and ugly, the good 

And think about buying SembCorp. If oil prices recover, it’ll benefit from its stake in Marine. If it doesn’t, there’s the other biz.

Buy Keppel, SembCorp Marine & Sapura?

Continuing the theme of buying dogs, commodities and energy …

Forget what the financial equivalent of Goh Meng Seng says (reported here), and buy the two fallen Fab 5 stocks? And M’sian Sapurakencana Petroleum? One of Asia’s leading oilfield services groups, if you don’t know. 

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He’s the journalist equivalent of Goh Meng Seng (three GEs, three different parties, and a declining share of the vote). This FT has in the about same period worked for Bloomberg, MediaCorp, Reuters and now Bloomberg again. Oh and the last time this FT was working for Bloomberg, he and Bloomberg had to pay damages to one of the Lees, can’t remember which.

As Goh Meng Seng is an exemplar of the traditional oppo politican, this FT shows that T can stand for “Trash”.

====================================

There’s deep despair about the oil price as this report from NYT’s Dealbook recounts. But there’s two swallows in the sky:

–Premier Oil has finally agreed to buy all of German utility E.On’s UK North Sea assets in a deal worth $120m (£83m) despite oil trading below US$30,

— Statoil ASA, Norway’s biggest energy company, snapped up a 12% stake in Lundin Petroleum AB to increase its access to the giant Johan Sverdrup field.

The acquisition corresponds to a price per share of about 124 kronor, in line with Lundin’s average price over the past 30 days, according to data compiled by Bloomberg. Lundin shares have dropped about 20 percent since crude started to tumble in mid-2014. Brent oil, the global benchmark, is now trading near $30 a barrel.

“The market situation made it possible for us to secure this position at an attractive price,” Baard Glad Pedersen, a spokesman at Statoil, said by phone. The Stavanger-based company won’t seek representation on Lundin’s board, he said. Bloomberg

At current prices, extracting oil from the North Sea is theoratically the equivalent of burning dollar notes.. Its oil is expensive to extract.

Back to the gloom and doom painted by Dealbook bearing in mind that Monkey is a trickster

NO BOTTOM IN SIGHT FOR OIL PRICES The collapse in commodity prices pushed oil futures even lower on Monday and analysts predicted that the slide was far from over, Jad Mouawad reports in The New York Times.

Oil prices were at a 12-year low on Tuesday, with West Texas Intermediate near $30 a barrel after a decline of more than 5 percent overnight. Brent crude was just under $31 a barrel by the Asian afternoon, as The Wall Street Journal reports.

The drop in commodities prices is being felt throughout the energy sector and beyond. Saudi Arabia said it was considering selling shares in its state-run oil company. Arch Coal, one of the biggest oil producers in the United States, filed for bankruptcy protection to cut its debt. Russia’s main stock indexes plummeted on Monday as oil prices cast a pall over its energy-dependent economy, Andrew E. Kramer reports in The New York Times.

Oil’s decline in the last year was caused in part by Saudi Arabia’s decision not to reduce production. The change, intended to force out high-cost energy producers, backfired on the kingdom and other producers, which now have to consider how to finance their oil-dependent economies.

The slump in oil prices had gained momentum last week on renewed concerns about China’s economy.

Jason Bordoff, director of the Center on Global Energy Policy at Columbia University, said that everything indicated a continued oil glut. “Iran is about to re-enter the market, demand numbers and economic indicators look relatively weak, U.S. supply is holding up in a low-price environment much better than people though and global inventories are growing.”

Many analysts expect more declines. Goldman Sachs and Morgan Stanley have both said that oil could drop to $20 a barrel.

2 of Temasek’s Fab 5 looking sickly?/ Meng Seng’s financial counterpart

In 2013, I recommended investing in Temasek’s Fab 5 for KS types. Last June I pointed out problems at two of them Keppel  and SembCorp Marine because of lower oil prices.

The rot continues as Bloomberg reports

The last time Singapore’s marine services industry was staring at what would eventually turn out to be an 18-year drought in demand for oil rigs, Mr Ronald Reagan was starting his second term as US President.

Jack-up rigs, used to drill for oil in shallow waters, saw orders evaporate between 1985 and 2003. As Macquarie notes, rampant overcapacity means such a prolonged slump could well occur again. That definitely would not be good news for the rig-building industry’s two Singaporean leaders – Keppel Corp and Sembcorp Marine.

After a decade-long boom, there were zero new orders globally for jack-up rigs last year. With oil prices swooning, and rigs’ daily rental rates having crashed to US$92,000 (S$132,000) from US$130,000 in 2014, there’s a risk that 70 per cent of Keppel and SembMarine’s order book might get cancelled, especially if the Petrobras bribery scandal in Brazil deepens, Macquarie analysts Somesh Kumar Agarwal and Justin Chiam wrote this week.

… rig-builders’ shares may have to give back much of the China-induced exuberance of the past decade. That could be quite painful for investors, including Temasek.

… owns a little less than half of SembMarine’s parent, Sembcorp Industries, and 21 per cent of Keppel, Bloomberg data shows. It can’t be feeling very chuffed about the 47 per cent slump in SembMarine over the past year, or Keppel’s 26 per cent slide.  

And there might be more trouble ahead. Since early 2004, the two stocks have returned about 300 per cent, thanks primarily to hefty dividends. Those might now start thinning out. According to analyst estimates compiled by Bloomberg, Keppel’s dividends will shrink by as much as 11 per cent over the next three years, compared with annualised growth of 3 per cent over the past three.

No orders coming in doesn’t augur well for shareholders, who will be far behind debtholders in getting paid, and the latter will have substantial claims. Oil- and gas- linked companies with outstanding Singdollar-denominated bonds have to refinance or repay some $625 million of notes this year, a further $390 million in 2017 and $700 million in 2018, Bloomberg-compiled data shows.

The other big risk comes from the duo’s Brazilian yards. Japanese shipbuilders like Mitsubishi Heavy are cutting their losses and exiting as the Petrobras saga drags on. 

Stock in Ensco, the London-based owner of shallow and deepwater rigs, has been hit after Petrobras said it was scrapping a contract in the US Gulf of Mexico because, it claims, Ensco knew about improper payments between a shipbuilder and a consultant when the drillship was constructed, a charge Ensco denies.

Analysts are being predictably slow in sounding the alert. Their median price estimate predicts a 25 per cent jump over the next year in Keppel shares, and a 15 per cent climb in SembMarine.

So far factual or fair comment. But I think the Indian FT* writing for Bloomberg is talking rubbish when he talks of Temasek selling out. Our rig-builders are market leaders, not has-beens like NOL And the oil sector is a cyclical sector, not a declining sector.

Were that triumph of hope over experience to prove elusive, what might Temasek do? It recently decided to sell shipping company Neptune Orient Lines to CMA CGM at $1.30 a share, after having paid as much as $2.80 in 2004 to acquire a part of its 67 per cent stake.

If the Macquarie analysts are right about Keppel and SembMarine eventually trading below book value, like South Korean yards do, then there may not be much point in Temasek’s hanging on to the rig-builders either.

http://www.bloomberg.com/gadfly/articles/2016-01-07/keppel-and-sembcorp-marine-may-bear-the-brunt-of-vanishing-demand

What strholders of SembCorp Marine should be concerned is that SembCorp privates Marine. About 15 yrs ago Keppel did that to FELS.

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*He’s the analyst equivalent of Goh Meng Seng (three GEs, three different parties, and a declining share of the vote). This FT has in the same period worked for Bloomberg, MediaCorp, Reuters and now Bloomberg again. Oh and the last time this FT was working for Bloomberg, he and Bloomberg had to pay damages to one of the Lees, can’t remember which.

As Goh Meng Seng is an exemplar of the traditional oppo politican, this FT shows that T can stand for “Trash”.

 

Relooking at 2 of Temasek’s Fab 5/ Whither oil prices

I’ve advised since 2013 that investing in Temasek’s Fab 5 is a no-brainer for conservative, KS types. https://atans1.wordpress.com/2013/10/03/temaseks-fab-5-spore-blue-chips/

Here’s looking  at major problems at two of them.

Problems in the Brazilian and Mexican oil industries caused by the fall in oil prices are not good for Keppel and SembCorp Marine. They have received massive orders for rigs from Latin America in recent years.

But new orders will be weak and existing contracts will renegotiated.

Both have also been forced to deny allegations of corruption in winning Brazilian biz. There is a big  political and financial corruption scandal in Brazil, centred around Petrobas, its national oil champion. Petrobas has been a big player in the rig market.

But recorded order books are huge (billions of USD) and both have weathered storms. Both have experienced, internally promoted CEOs

Time to cut and run is when scholar, ex-SAF general is parachuted in as  CEO (like in SMRT, NOL).

On oil prices: views are very mixed

Big Oil is too confident about crude prices. After a 40 percent rally from January’s six-year low, the momentum has been on the upside. But the current prices – $65 a barrel for Brent and $60 for WTI – look more like a ceiling than a floor.

That is not what many insiders seem to think. Some oil service companies expect mid-$70s Brent by the end of this year. Anglo-Dutch Shell assumed oil will rebound to $90 by 2018 in its $70 billion takeover of the UK’s BG Group. Some believe that the steep cut in capex costs will affect supply, including shale, and boost prices again.

http://blogs.reuters.com/breakingviews/2015/06/01/why-the-oil-price-will-fall-again/

Just this week, the head of BP said he doesn’t expect the glut to clear until at least 2016. The Shell view would be a good excuse to hold onto these two Fab5 shares.

Temasek’s Fab 5 S’pore blue chips

Regolar readers will know this blog’s hostile to ST esp in its personal investment coverage.And usually is critical of Temasek.

Here’s an exception: If you owned one or more of these blue chips, you would be really ungrateful not to vote for PM

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=435478142-19236-1456515192

Data from SGX My Gateway and Bloomberg showed aircraft engineering firm SIA Engineering Company topping the list, with a total return of 164 per cent over the five years to Sept 13, the cut-off date for this exercise. This includes price increases and cash dividends paid out, and works out to a compounded 21 per cent a year.

Telecommunications firm StarHub, engineering firm Singapore Technologies Engineering and rig builders Keppel Corporation and Sembcorp Marine round up the rest of the top five.

One key thread of these firms is that they are all part-owned by Temasek, which probably adds to the confidence of investors.

They are all also known for being solid with their dividend payments … Of course the share prices reflect that fact i.e. that there are better yields in the market albeit with greater risk.

Disclosure: got Keppel for yonks, and odd lot of SIAEC.