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2016

Essentially standing still, the U.S. economy (Gross Domestic Product, a measure of overall output) only grew 0.7% between October and December.  New government data released on Friday indicates that perhaps the global whirlwinds and slowdowns are beginning to impact America.

 

It’s hard to consolidate all expert’s opinions on the matter, but the general consensus is the lack of growth seems to be raising concerns about the U.S.’s ability to fight through major global downturns without significant bumps and bruises.

 

With the data published by the Commerce Department comes some good and bad…

 

Corporations are being hit on multiple fronts.  Not only are global consumers spending less, but also the strength of the dollar is impacting U.S. corporations as they solicit their goods abroad.  This strength is good in the fact that it represents investors viewing the U.S. economy as healthy and attractive compared to other advanced economies.   However, it’s bad in the fact that as the dollar continues to appreciate compared to the Euro, Japanese Yen, and other world currencies, U.S. manufacturers end up on the short end of the stick only earning 85 cents compared to every dollar they were earning abroad this time last year.  And foreign pressures aren’t easing in this regard any time soon, as shown by the fact that Japan pushed their interest rates negative on Friday in an effort to weaken their currency and stimulate growth.

 

Nevertheless, there is a silver lining to all of the recently released data.  U.S. Consumers are spending more money eating out, buying household appliances, and purchasing new cars.  (Fourth quarter personal spending grew 2.2%)  This increased spend is fueled by a robust labor market that continues to add over 200,000 jobs per month and cheap oil contributing to discounted prices at the gas pump.

 

So while most agree there are interesting times ahead, and the probability of a recession is higher than we’d like, as long as consumer spending stays on track, and the Federal Reserve prudently manages rates, (We’ll see what they do in March), the hope is America can navigate the turbulent road ahead.

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Shell Wins Investor Approval to Buy BG, Sealing Biggest Deal

 

  • More than 83 percent of Shell investors back $52 billion deal
  • BG shareholders set to vote on the transaction on Thursday

 

Royal Dutch Shell Plc won shareholder approval to buy BG Group Plc, sealing its biggest acquisition amid the worst oil-industry slump since the global financial crisis.

More than 83 percent of Shell shareholders voted in favor of the transaction, the company said in a statement. Most votes were cast by proxy while other investors met in The Hague on Wednesday.

The approval vindicates Shell’s belief that it can better ride out the market rout by combining with U.K. oil and gas producer BG. Crude’s tumble since the deal was announced in April prompted some shareholders to question whether it’s paying too much, yet Chief Executive Officer Ben Van Beurden has said the acquisition will boost cash flow and enhance Shell’s ability to pay dividends, while BG’s growing production will help bolster its declining output.

Shareholders have shown confidence in the “strategic logic of the combination,” Van Beurden said in the statement. He now faces a vote by BG investors on Thursday and final court approval before the transaction can close in mid-February.

The planned acquisition, which will also make Shell the biggest liquefied natural gas trader and increase its access to Brazil’s deepwater oil reserves, is valued at about $52 billion, compared with $70 billion when Shell agreed to the cash-and-shares purchase.

Boosting Resilience

“The enlarged group has stronger growth potential, will benefit from further synergies and cost reductions, is more resilient in a lower price environment and can maintain the dividend,” Tudor, Pickering, Holt & Co., the Houston-based oil investment bank, said in a note following the vote.

Benchmark Brent crude has lost almost half its value since the purchase was announced and now trades near $32 a barrel. That slump, which Shell has said may be prolonged, means the company may need longer to make a profit on the acquisition. It said last month it will break even when Brent reaches the low $60s, and add to operating cash flow per share at $50 this year.

Shell is doing “exactly what you would want a good management team and board to be doing” in an oil-market downturn, Chris Cernich, head of special situations research at Institutional Shareholder Services, said before the vote. ISS advises many of Shell’s largest holders and told them to back the deal earlier this month.

Solving Problems

By acquiring BG, Shell is “substantially lowering” oil production costs, replenishing reserves and gaining “very good natural-gas assets” in Australia, Cernich said. “You solve an awful lot of problems at a point in time where it’s actually relatively cheap to do it,” he said.

Shell Chief Financial Officer Simon Henry said the purchase would boost cash flow at any oil price, although the slump to $30 a barrel from $50 will reduce flows from the combined company by $8 billion a year. Some of the economics of the deal "may indeed be stretched" should low prices persist over the next two years, he told shareholders in The Hague.

Shell bid 0.4454 of its B shares and 383 pence for each BG share in April, offering a 50 percent premium. As Shell’s stock dropped with the oil price, the deal’s value has shrunk.

Share Reaction

BG shares erased declines when the result was announced and ended the day up 3.5 percent at 1,029.5 pence in London. Shell’s B shares advanced 2.9 percent to 1,462 pence.

Almost 17 percent of shareholders voted against the deal, with some citing concerns that cash flow will suffer if crude’s crash persists.

“We feel that the downside risks have not been fully reflected,” Paul Koster, chairman of Dutch investor group VEB, said at the meeting. “We are concerned, we can’t find enough data on what will happen if oil prices stay low for five years, as low as they are now.”

In the run-up to the vote, Standard Life Investments was the only Shell shareholder that publicly said it would vote against the combination, believing the acquisition to be “value destructive.”

Since April, Van Beurden has insisted that the deal is an acquisition for the long term and that rising oil and gas demand will eventually drive a rebound in energy prices. The company confirmed on Wednesday that it will maintain its dividend this year.

Check out more on Bloomberg:

Shell Wins Investor Approval to Buy BG, Sealing Biggest Deal - Bloomberg Business

Nice article from the Center for Creative Leadership:

http://insights.ccl.org/articles/

West_Texas_Pumpjack.JPGLike any other commodity, oil is volatile, so it is no surprise that we are in this situation again. To break down the economics of it all into a simple explanation – the world demand for oil is currently much lower than the world supply of oil, therefore the price has fallen. While consumers are happy and benefiting from the lower price… Unfortunately the oil industry is suffering severely.

 

So how did we get here?

There are many factors that contributed to this big difference between oil’s supply and demand. One major factor is that new drilling technology resulted in a major increase in U.S. oil production which in turn caused global supplies of oil to increase. And all the while, consumers have been developing conservation habits to save money on energy.

 

We have seen this happen in many different industries, when innovation and new information dramatically decrease the profitability of an existing industry. In some cases, the industry becomes redundant and is completely wiped out. Will this happen to the oil industry?  Highly unlikely, but it looks as though it will be many more years before the price will return to the heights of $100 a barrel.  Just to put our current situation in perspective:  For the oil price to move above $60 a barrel, the whole world will need to reduce their current production levels by 4%.  And this is looking even more unlikely with the sanctions lifted on Iran, and the expectation for them to add another million barrels a day over the next 2 years.

 

Well how do we fix this?

The solution to this problem involves multiple players.  Essentially what needs to happen is the countries that are producing oil need to produce less, at least until the supply falls below the demand again, but this is easier said than done. Exporters of oil in the Middle East and other regions have refused to reduce their own output.  And as previously mentioned Iran only has plans to increase production.  There is however a possible silver lining.  In the same way that the rise to $100 a barrel attracted new investments and increased production, the fall to $30 a barrel may discouraged new investment and cause decreased production due to lack of profitability.  If this happens the supply of oil will naturally fall to equal or less than the demand and the price will increase again.

 

So as for the question of what’s next, a number of different factors will play into the picture.  I guess we’ll just have to wait and see how the economics of it all plays out.

San Antonio Business Journal, Sergio Chapa

 

President Barack Obama delivered his last State of the Union Address on Tuesday evening officially marking the last year of his final term in the White House.

Obama spoke on a wide range of issues but spoke with pride about changes to the energy sector during his first seven years in office.

 

Touting a boom in the renewables sector as one of his accomplishments, Obama stated that the solar power industry now employs more people than the coal industry.

 

Obama mentioned Texas when it came to wind power, which he said is now cheaper than fossil fuel-based power sources.

The president said imports of foreign oil fell by 60 percent under his administration and that the United States cut its carbon pollution more than any other nation.

 

"Gas under two bucks a gallon ain’t bad, either," Obama added.

But not everyone agrees with the administration's policies on reducing pollution. Last year, natural gas producers called the Obama administration's cuts to methane emissions in the oil and gas sector "unnecessary" and "counterproductive." Texas Railroad Commission Chairman David Porter memorably called the cuts a "war on fossil fuels."

 

In total, Obama mentioned "energy" seven times during the State of the Union Address while "oil" and "climate change" each got four mentions. Below is a compilation of quotes using the words energy, oil and climate change.

 


 

ENERGY:

"In fact, it’s that spirit that made the progress of these past seven years possible. It’s how we recovered from the worst economic crisis in generations. It’s how we reformed our health care system, and reinvented our energy sector; how we delivered more care and benefits to our troops and veterans, and how we secured the freedom in every state to marry the person we love."

 

"Medical research is critical. We need the same level of commitment when it comes to developing clean energy sources."

 

"But even if the planet wasn’t at stake; even if 2014 wasn’t the warmest year on record — until 2015 turned out even hotter — why would we want to pass up the chance for American businesses to produce and sell the energy of the future?"

 

"Seven years ago, we made the single biggest investment in clean energy in our history. Here are the results. In fields from Iowa to Texas, wind power is now cheaper than dirtier, conventional power. On rooftops from Arizona to New York, solar is saving Americans tens of millions of dollars a year on their energybills, and employs more Americans than coal — in jobs that pay better than average. We’re taking steps to give homeowners the freedom to generate and store their own energy— something environmentalists and Tea Partiers have teamed up to support."

 

"Now we’ve got to accelerate the transition away from dirty energy. Rather than subsidize the past, we should invest in the future — especially in communities that rely on fossil fuels. That’s why I’m going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet. That way, we put money back into those communities and put tens of thousands of Americans to work building a 21st century transportation system."

 


 

OIL:

"I believe a thriving private sector is the lifeblood of our economy. I think there are outdated regulations that need to be changed, and there’s red tape that needs to be cut. But after years of record corporate profits, working families won’t get more opportunity or bigger paychecks by letting big banks or big oil or hedge funds make their own rules at the expense of everyone else; or by allowing attacks on collective bargaining to go unanswered."

 

"Meanwhile, we’ve cut our imports of foreign oil by nearly sixty percent, and cut carbon pollution more than any other country on Earth."

 

"That’s why I’m going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet."

 

"That’s exactly what we are doing. For more than a year, America has led a coalition of more than 60 countries to cut off ISIL’s financing, disrupt their plots, stop the flow of terrorist fighters, and stamp out their vicious ideology. With nearly 10,000 air strikes, we are taking out their leadership, their oil, their training camps, and their weapons. We are training, arming, and supporting forces who are steadily reclaiming territory in Iraq and Syria."

 


 

CLIMATE CHANGE:

"Second, how do we make technology work for us, and not against us — especially when it comes to solving urgent challenges like climate change?"

"Look, if anybody still wants to dispute the science around climate change, have at it. You’ll be pretty lonely, because you’ll be debating our military, most of America’s business leaders, the majority of the American people, almost the entire scientific community, and 200 nations around the world who agree it’s a problem and intend to solve it."

 

"Climate change is just one of many issues where our security is linked to the rest of the world. And that’s why the third big question we have to answer is how to keep America safe and strong without either isolating ourselves or trying to nation-build everywhere there’s a problem."

 

"American leadership in the 21st century is not a choice between ignoring the rest of the world — except when we kill terrorists; or occupying and rebuilding whatever society is unraveling. Leadership means a wise application of military power, and rallying the world behind causes that are right. It means seeing our foreign assistance as part of our national security, not charity. When we lead nearly 200 nations to the most ambitious agreement in history to fight climate change— that helps vulnerable countries, but it also protects our children. When we help Ukraine defend its democracy, or Colombia resolve a decades-long war, that strengthens the international order we depend upon. When we help African countries feed their people and care for the sick, that prevents the next pandemic from reaching our shores. Right now, we are on track to end the scourge of HIV/AIDS, and we have the capacity to accomplish the same thing with malaria — something I’ll be pushing this Congress to fund this year."

 

Sergio Chapa covers the energy industry for the newspaper.

Picture:  President Barack Obama addressing Congress during his final State of the Union Address (Source: WHITE HOUSE)

Suncor Reaches Friendly C$4.24 Billion Deal for Canadian Oil Sands

Suncor raised its takeover offer to 0.28 of a share

Judy McKinnon, Wall Street Journal

 

The Syncrude Canada Ltd. oil sands mine near Fort McMurray in Canada’s Alberta province is shown in June. Canadian Oil Sands Ltd., the largest owner of the Syncrude consortium, is to be acquired by Suncor Energy Inc. PHOTO: BEN NELMS/BLOOMBERG NEWS

Suncor Energy Inc.http://quotes.wsj.com/SU and Canadian Oil Sands Ltd.http://quotes.wsj.com/COSWF confirmed Monday that they had reached a friendly deal after Suncor agreed to raise its takeover offer for its rival to about 4.24 billion Canadian dollars ($2.92 billion).

 

The two Canadian energy companies had been working on a revised bid since Friday, a person familiar with the matter told The Wall Street Journal, and a new bid had been expected as early as Monday.

 

The new all-stock offer, which boosts the overall bid value from about C$3.78 billion, consists of 0.28 of a Suncor share for each Canadian Oil Sands share, up from 0.25 of a share previously.

 

The companies value the new bid at about C$6.6 billion, including estimated debt of about C$2.4 billion.

 

Canadian Oil Sands, the largest owner of the giant Syncrude oil-sands mining consortium in Alberta, had called Suncor’s previous all-stock offer too low. Suncor, which also owns a stake in Syncrude, had said its offer was fair, particularly since crude prices have been tumbling amid concerns about excess supply and slowing global demand. Nonetheless, Suncor had been under pressure to sweeten its bid after it earlier this month extended the deadline for acceptance of its bid.

 

The boards of both companies support the revised bid, they said in a joint release.

“We believe this transaction delivers excellent value to COS shareholders while maintaining Suncor’s commitment to capital discipline,” Suncor Chief Executive Steve Williams said. He noted that Canadian Oil Sands shareholders, including Canadian billionaire Seymour Schulich, who previously opposed the deal, support the revised offer.

“I will be tendering my shares,” Mr. Schulich said in the release. He owns about a 5.2% stake in Canadian Oil Sands and opposed the previous offer.

Canadian Oil Sands had called the former offer inadequate and had been asking its shareholders to allow it to remain an independent company.

“Our shareholders clearly signaled they expected more for their COS shares, and the board has worked to secure that under very challenging circumstances,” said Don Lowry, chairman of Canadian Oil Sands.

The revised offer, which will remain open until Feb. 5, is subject to at least 51% of Canadian Oil Sands’ shares being tendered and includes a C$130 million breakup fee payable by Canadian Oil Sands under certain circumstances if the deal isn’t completed.

—Ben Dummett contributed to this article.

Write to Judy McKinnon at judy.mckinnon@wsj.com

 

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Iran nuclear deal: 'New chapter' for Tehran as sanctions end - BBC News

Iran "has opened a new chapter" in its ties with the world, President Hassan Rouhani said, hours after international nuclear sanctions were lifted.

The move came after the international nuclear watchdog, the IAEA, said Iran had complied with a deal designed to prevent it developing nuclear weapons.

UN, US and EU sanctions have hit Iran hard for years.

Sanctions on Iran

Nuclear sanctions have been in place since 2006, on top of other sanctions stretching back decades:

  • The economic sanctions being lifted now were imposed progressively by the US, EU and UN in response to Iran's nuclear programme
  • The EU is lifting in full restrictions on trade, shipping and insurance
  • The US is suspending, not terminating, its nuclear-related sanctions; crucially, Iran can now reconnect to the global banking system
  • The UN is lifting sanctions related to defence and nuclear technology sales, as well as an asset freeze on key individuals and companies
  • Non-nuclear US economic sanctions remain in place, notably the ban on US citizens and companies trading with Iran, and US and EU sanctions on Iranians accused of sponsoring terrorism remain in place

Iran plane.jpgA flurry of Iranian economic activity is anticipated:

  • Nearly $100bn (£70bn) of Iranian assets are being unlocked
  • Iran is expected to increase its daily export of 1.1m barrels of crude oil by 500,000 shortly, and a further 500,000 thereafter
  • Iran is reportedly poised to buy 114 new passenger planes from the Airbus consortium

 

Copyright © 2016 BBC.

Well it's about time...  Is the pain of low oil prices becoming unbearable for OPEC?

After watching the price of crude oil collapse by more than 65% to a 12-year low, there are signs that OPEC may have had enough.

Nigeria's top oil official and OPEC President Emmanuel Kachikwu said the cartel is considering an emergency meeting, perhaps as soon as next month. At issue is whether OPEC would agree to cut production, a move that could help stop the crude price freefall.

"I expect to see one. ... There's a lot of energy currently around that," he told CNN.

"I think a ... majority in terms of [OPEC] membership are beginning to feel that the time has come to ... have a meeting and dialogue again once more without the sort of tension that we had in Vienna on this."

When OPEC last met in the Austrian capital in December, it was bitterly divided and refused to cut output. The next ordinary meeting is scheduled for June 2.

Led by Saudi Arabia, OPEC decided in 2014 to wage a price war with low cost producers in the U.S. and elsewhere in a bid to defend market share.

Since then, oil companies have sacked hundreds of thousands of workers, and slashed investment budgets.

But the global supply glut continues, thanks in part to China's slowing economy, and prices have continued to tumble. A strong dollar, which makes oil more expensive around the world, has fueled the slump.

Oil prices fell toward $30 a barrel early on Tuesday, having plunged by 16% in 2016 alone, but steadied later to trade little changed on the day.

Many OPEC countries are still making money at these prices but others are losing -- Nigeria's production costs are estimated at about $31 a barrel, for example.

And all, including Saudi Arabia, are suffering a huge squeeze on government revenues.

Kachikwu said most OPEC members were watching their economies "being shattered," and something had to give.

"We need to... see how we can balance the need to protect our market share with the need for the survival of the business itself, and survival of the countries."

Related: Saudi Arabia faces 'economic bomb'

An emergency meeting is no guarantee that OPEC will act to restrain supply, however.

Iran is eager to boost production this year as soon as Western sanctions are lifted -- expected imminently -- and it's hard to see Saudi Arabia working with its big Mideast rival to support oil prices.

Related: Saudi Arabia may sell part of its giant oil company

Saudi Arabia broke off diplomatic relations with Iran last week after its embassy in Tehran was attacked. That attack followed Saudi Arabia's execution of a prominent Shiite cleric.

Still, the OPEC president believes an agreement of some form is possible.

"I think ultimately for the interest of everybody some policy change will happen," Kachikwu said. "Now will the amount of barrels that you can take out because of that policy change necessarily make that much of a dramatic difference? Probably not, but the symbolism of the action is even more important than the volumes that are taken out of the market."

Source: CNN Money.