WSJ : Kurdistan Oil Payment Raises Hopes for Western Energy Companies

Kurdistan Oil Payment Raises Hopes for Western Energy Companies
Kurdistan Regional Government made its second payment this year to Gulf Keystone

LONDON—The Kurdistan Regional Government has made its second payment this year to Gulf Keystone Petroleum Ltd., the company said Thursday, raising hopes for western energy businesses operating in Iraq’s northern region.

The $12 million payment to Gulf Keystone comes amid greater optimism about the semiautonomous Kurdish government’s ability to pay oil companies, which say they are owed over $1 billion for crude exports from the region.

Kurdistan has failed to pay the companies as it wages an expensive fight with Islamic State and is struggling to pay its own government workers. Adding to the woes, oil prices are down by more than half in the past 15 months and Kurdistan is arguing with Baghdad over oil sales.

But the increase of oil exports in recent months and the KRG’s independent sales from the Ceyhan oil terminal in Turkey have raised enough revenue for the government to cover its domestic budget as well as pay the oil companies, said Tony Hayward, the chairman of Genel Energy PLC, the largest international oil producer in the region, and former chief of BP PLC.

“I think we have turned a corner there,” Mr. Hayward said in an interview.
The lack of regular payments for oil produced in Kurdistan and exported via a pipeline through Turkey has crimped revenues and contributed to a drop in the share prices of the three main Kurdistan-focused oil producers—Genel, Gulf Keystone and DNO ASA—this year as some investors have soured on the region. It has also held back any plans the companies may have had for selling all or part of the companies, analysts have said.

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Their stocks rallied on Thursday morning on news of Gulf Keystone’s payment. Gulf Keystone’s shares rose over 6%, Genel was up over 5% and DNO was up nearly 9%.

The three companies are owed over $1 billion, having so far received a total of $165 million in payments this year and one last December. Gulf Keystone is owed $117 million for its crude exports.

Genel received $24.5 million in September from the KRG, which doesn’t cover the full amount owed to the company for oil exports. Genel said its total arrears stood at $378 million as of June 30. DNO said in August it was owed $829 million for exports.

Mr. Hayward said the KRG understands that oil companies won’t continue to invest if they don’t get paid.

In August, the KRG said it would start regular payments from September and would make additional payments to cover the arrears as exports from the region start to rise in early 2016. It said it would fund the payments from its direct crude-oil sales from Turkey’s Mediterranean terminal Ceyhan, where Kurdish and northern Iraqi crude is shipped via pipeline.

The KRG exported an average of around 620,000 barrels a day in September through its pipeline and continued to increase its direct oil sales in Ceyhan, according to the Ministry of Natural Resources. That is up from 470,000 barrels a day in August.

The KRG’s Ministry of Natural Resources didn’t respond to requests for comment.

Situated in northeastern Iraq, the Switzerland-sized region is estimated to hold 45 billion barrels of oil. Crucially that oil is onshore and relatively straightforward to access, making it cheaper to develop than more technologically challenging and costly offshore fields elsewhere. It costs Genel about $2 a barrel to pump oil from its Kurdish fields.

Kurdistan’s oil has helped Iraq reach record levels of production. According the Organization of the Petroleum Exporting Countries, Iraq pumped more than 4 million barrels a day in September.

WSJ - AB InBev, SABMiller Deal Complicates Coke’s Bottling Strategy

Coca-Cola Co. has a tough decision to make in the wake of Anheuser-Busch InBev NV’s planned $104.2 billion takeover of rival brewer SABMiller PLC.

SABMiller is a key Coke bottler in the soda giant’s recent consolidation efforts in Africa. But AB InBev, which would become SABMiller’s parent under the deal the two brewers struck this week, is a key PepsiCo Inc. soda bottler in Latin America.

Not only are Coca-Cola and PepsiCo global rivals, but Coke is frequently cited as one of the eventual takeover targets of the ever-acquisitive AB InBev. Coke Chief Executive Muhtar Kent himself has warned executives in recent years that 3G Capital Partners LP, whose founders are controlling shareholders in AB InBev, could, at some point, try to acquire Coke.

Coke, AB InBev and PepsiCo all declined to comment Wednesday on how the planned beer merger could affect soft drink bottling and distribution pacts.

Atlanta-based Coke has change-of-control clauses that would allow it to buy back SABMiller’s soda bottling and distribution assets or sell them to someone else, according to people familiar with the matter.

Coke has poured a lot of effort into its African bottling assets. Just last November, it struck a deal to combine bottling assets with SABMiller and privately held Gutsche Family Investments to create a joint venture spanning 12 African countries and about 40% of Coke’s soft-drink volumes on the continent.

Meanwhile, Coke agreed in August to combine its German bottling unit with two bottling partners in Europe and is ramping up divestments in the U.S. The efforts are part of an accelerated drive to divest plants, warehouses and trucks and consolidate distribution in response to slowing sales growth and missed profit targets so it doesn’t become a takeover candidate.

“The dilemma for Coke is does it allow AB InBev into the tent?” said Carlos Laboy, a beverage analyst in New York at HSBC who thinks AB InBev could try to buy Coke outright in three or four years.

Coke’s share price has underperformed the broader S&P 500 index in recent years, but with a $181 billion market capitalization, the company still ranks among the most valuable U.S. publicly traded firms.

Coke’s soda bottling deal with SABMiller and Gutsche in Africa already has been delayed because the companies haven’t been able to secure regulatory clearance from the South African government. That could flag additional delay not only for Coke, but for the mega-beer deal as it gets scrutiny from South Africa’s finance ministry, antitrust authorities and labor unions.

Coke could try to sell SABMiller’s African bottling assets to another partner, but it is unclear to whom. The assets could fetch around $3 billion, according to some estimates. SABMiller also bottles Coke in El Salvador and Honduras and handles about 3% of Coke’s global volume, according to Coke.

It wouldn’t be the first time that a brewer bottles and distributes Coke and Pepsi products in different countries. SABMiller is a Pepsi bottler in Panama. Carlsberg A/S and Heineken NV distribute Coke in some markets and Pepsi in others, although not on the scale of SABMiller or AB InBev.

Ian Shackleton, a beverage analyst in London at Nomura, says Coke could rightly view AB InBev as a “Trojan Horse” after InBev struck a U.S. distribution deal with Anheuser-Busch before acquiring the brewer in 2008 to create AB InBev. But he also says Coke would be reluctant to unwind African bottling operations, which could cause a major disruption in a fast-growing region.

“It’s obviously not their ideal situation,” said Mr. Shackleton, who also thinks AB InBev could try to acquire Coke in three or four years.

Mr. Shackleton and other industry analysts also see a scenario in which Coke agrees to come into AB InBev’s fold but only if AB InBev stops distributing Pepsi. They say AB InBev might prefer bottling Coke in Africa over bottling Pepsi in Latin America, where it already has its own growing soft-drink business with brands like Guaraná Antarctica.

AB InBev currently bottles PepsiCo beverages in Brazil, Argentina, Bolivia, Uruguay, Peru and the Dominican Republic. The bottling agreements expire at the end of 2017 but are automatically extended for another 10 years unless AB InBev or PepsiCo gives written notice before the end of 2015 to terminate the partnership.

The two companies also struck a U.S. joint-purchasing agreement in 2009 for everything from technology to travel. Industry observers have speculated for years that AB InBev could try to acquire PepsiCo at some point if the brewer decides to wade deeper into nonalcoholic beverages.

>>> Muddy Waters is Short TeliaSonera - Letter attached

We are short the securities of TeliaSonera (TLSN.ST) because we believe information that is being withheld from investors, along with the current board and management’s (in)actions, will significantly impact the company’s shares and credit profile. While TeliaSonera has provided some transparency into its misdeeds in Uzbekistan, it has not made public the likelihood that the company’s other Eurasian and Nepal operations suffer from similar problems, and on a massive scale. It appears that TeliaSonera made corrupt payments in Uzbekistan exceeding SEK 3.1 billion (US$380 million). Uzbekistan appears to be only the tip of the iceberg. We estimate – perhaps conservatively – that TeliaSonera could have made corrupt payments throughout its Eurasia and Nepal operations that exceed SEK 17 billion (US$2.1 billion). In addition, TeliaSonera is potentially obligated to make additional payment to a problematic partner in Azerbaijan of up to SEK 7.6 billion (US$934.5 million).

Muddy Waters writes an open letter to the board of directors of TeliaSonera AB explaining why we are short.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: DXCM +13.9% (also upgraded to Outperform at Leerink Partners ; upgraded to Buy from Neutral at Sterne Agee CRT), TTM +6.9%, XLNX +5.1%, UN +4.9%, MTG +3.2%, PM +1.8%, UNH +1.2%.

M&A related: CWEI +0.3% (late spike into the close on sale speculation; confirms its Board has initiated a review of strategic alternatives).

European pharma names trading higher: SNY +3.5%, GSK +1.4%, SHPG +1.4%... Other European names higher with strength in overseas trading: SDRL +4.4%, ARMH +3.5%, ASML +2.1%, SAP +1.4%.

Casino names higher: LVS +4.7%, WYNN +4.3%, MGM +3.5%

Other news: TTHI +30.6% (reports analysis of its Phase 2/3 study of ELND005 in Alzheimer's disease), RXII +11.1% (reports positive interim results in its Phase 2a dermatology program with RXI-109), FBP +10.5% (still checking), GSVC +9.6% (elects to be treated as a regulated investment company for the 2014 taxable year), BOFI +8.9% (30% move lower yesterday on reports of former auditor lawsuit), MBI +5.5% (reports of Peurto Rico talks with Treasury), OPK +3.9% (favorable commentary on Wednesday's Mad Money), UTEK +3.2% (receives large multiple system order for fan-out wafer-level packaging application), PBR +2.8% (confirms that its Executive Board authorized the search for a strategic partner for its wholly-owned subsidiary Petrobras Distribuidora), ZFGN +2.2% (following 24% rebound yesterday), CCL +1.9% (still checking), OFG +1.9% (reports of Peurto Rico talks with Treasury), AFMD +1.6% (announces significant investment by an existing shareholder), UTHR +1.6% (announces Board approval for the repurchase of up to an additional $500 mln of common stock; to take effect on Jan. 1, 2016), SNDK +1.5% (following yesterday's strength on sale speculation), MXIM +1.1% (following late surge higher into the close on merger speculation), BHP +1% (prices EUR 2 bln of subordinated fixed rate reset notes in the Euro market across two tranches and GBP 600 mln of subordinated fixed rate reset notes in the Sterling market), AGI +1% (to acquire all issued and outstanding shares of Carlisle Goldfields), TSLA +0.8% (confirmed details for the introduction of Autopilot), CHU +0.8% (to sell their telecommunications towers and related assets to China Tower), HSBC +0.3% (Irish Times discusses that HSBC has requested a 10% pay cut for its staff), CHL +0.3% (to sell their telecommunications towers and related assets to China Tower).

Analyst comments: AZN +1.6% (added to Europe 1 List at BofA/Merrill), NMBL +0.9% (initiated with an Overweight at Barclays), FB +0.9% (upgraded to Buy from Hold at Argus), CSCO +0.6% (initiated with an Overweight at Barclays), AAPL +0.4% (initiated with an Overweight at Barclays; FBR All eyes on Dec. guidance for Cook & Co.--'Prove Me' stock hinges on 6s success)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: IMPR -25.8% (also downgraded to Market Perform from Outperform at William Blair; downgraded to Neutral from Overweight at JP Morgan), QUIK -15.5%, MTW -12.6% (also downgraded to Hold at Stifel, to Neutral at Robert W. Baird), GRMN -10.6% (provides prelim Q3 results below consensus, trims FY15 guidance ; target lowered to $40 at RBC Capital Mkts), HCA -10%, NFLX -4%, GS -1.5%, JAH -0.7%, (sees Q3 EPS and revs in line with estimates; announces common stock offering).

Other news: CXRX -10.9% (finalizes the financing structure for its acquisition of Amdipharm Mercury Limited, and amends/restates its commitment letter with lenders), THC -9.5% (HCA guidance), VRX -7.5% (discloses it recently received a subpoena from the U.S. Attorney's Office), CYH -6% (HCA guidance), YGE -3.6% (following 25% move higher yesterday), LSCC-2.6% (disclosed workforce reduction initiative that will result in a 13% reduction to the overall workforce), TEX -1.5% (MTW guidance), CNC -1% (HCA guidance), WMT -0.9% (after yesterday's 10% move to new multiyear lows on Annual meeting guidance; downgraded to Neutral from Outperform at Credit Suisse; downgraded to Neutral from Buy at BofA/Merrill;), WPP-0.7% (15% stakeholder Starboard enters into voting agreements with SCA Americas to vote in favor of merger with SCA), COST -0.4% (files for offering of debt securities).

Analyst comments: XRX -0.8% (initiated with an Underweight at Barclays), NTAP -0.4% (initiated with an Underweight at Barclays).