Lagarde tells EU leaders they must ‘water the green shoots’

Bloomberg / Brussels

European Central Bank president Christine Lagarde urged leaders to keep their fiscal purse strings loose, warning that a premature brake on stimulus measures could derail a nascent recovery.
At a summit of European Union leaders in Brussels yesterday, Lagarde said continued support is needed to avoid the pandemic leaving large scars on the economy, according to an official familiar with her remarks.
The president cited the example of the aftermath of the great financial crisis, when a rebound failed to be sustained because “green shoots were not watered,” according to the official, who asked not to be named as the meeting was private.
European economies are starting a robust recovery on the back of an accelerating vaccination campaign. With coronavirus infections dropping, and booming demand triggering a spike in prices, pressure is building up in some quarters for the ECB to considering exiting emergency stimulus, and for governments to consider how to reduce debt burdens.
ECB officials Isabel Schnabel and Pablo Hernandez de Cos used public events on Thursday and yesterday to emphasise that even if the economy is able to recoup the output lost to the pandemic crises by early next year, it won’t be until at least 2023 that growth trends return to the pre-crisis path.
“The goal has to be to recover — not to levels before the crisis — but those we would have reached without the existence of this crisis,” De Cos, who is governor of the Bank of Spain, said yesterday.
In her comments to leaders, Lagarde reiterated her view that a looming increase in inflation this autumn will be temporary and underlying price pressures remain subdued. She said that more dynamic and sustainable growth is needed, and that monetary policy will continue to play a role in bolstering confidence.
“Upward pressures, most notably the comparison with last year’s data when a sales tax holiday in Germany applied from July to December, will almost certainly send the headline inflation reading soaring above 2% from August,” a Bloomberg Economics statement said.
The ECB predicts that euro-area output will return to pre-pandemic levels by the first quarter of 2022, one quarter earlier than expected in the spring. The risks to the outlook are now balanced.
Lagarde urged leaders to advance the EU’s capital markets and banking union, after years of talks failed to yield substantial progress. No breakthroughs were seen in yesterday’s summit either, as this autumn’s election in Germany has put discussions among euro-area officials on hold.




Soaring Mideast Heat May Roil Oil Market as Demand Surges

(Bloomberg) — Soaring temperatures in one of the world’s top energy-producing regions could drive fuel prices higher as countries there burn more oil and natural gas to keep homes cool.

Saudi Arabia, the United Arab Emirates and Kuwait are all experiencing weather that’s hotter than normal. That has coincided with a tightened crude market, with the Organization of Petroleum Exporting Countries and its allies continuing to hold back millions of barrels of supply.

“Demand this summer will be stronger than last year,” Ahmed Mehdi, a Middle East analyst at the Oxford Institute for Energy Studies, said of the region.

Electricity consumption in OPEC member Kuwait this week surpassed its previous peak as the early onset of scorching heat prompted greater use of air conditioners. Iraq, which suffered crippling blackouts last summer, also relies on burning crude and fuel oil to keep its power plants running.

Temperatures in the oil-producing states around the Persian Gulf can reach 50 degrees Celsius (122 Fahrenheit) during the region’s steamiest months of July and August. Top OPEC producer Saudi Arabia burned as much as 25% more crude in its power plants last year and said at the time that it could use up to 1 million barrels a day to generate electricity.

Energy use rose across the region in 2020 as coronavirus lockdowns kept residents at home through the torrid summer months — when many usually travel — and the enduring restrictions mean many are still staying put.

Oil is currently trading around $70 a barrel as much of the world recovers from the pandemic and the OPEC+ alliance keeps barrels off the market. OPEC’s own analysis indicates that crude consumption is rising faster than supply, forcing buyers to pull barrels out of storage.

Gulf producers are using more natural gas for power as well, and as OPEC+ gradually restores oil output, countries like Saudi Arabia and Iraq are pumping more of the fuel that’s found together with the crude.

The Gulf states have taken steps to prepare for oppressive heat and to make their energy infrastructure more efficient — and more profitable. Kuwait is set to start a liquefied natural gas import facility, while the United Arab Emirates connected its first nuclear power plant to the national grid this year.

For now, OPEC+ isn’t committing to more crude supply. The group decided at a meeting this month to go ahead with an already agreed output increase for July, but stopped short of allowing a further hike. That will leave Saudi Arabia and its neighbors buying more of what they’re producing without necessarily providing the market any extra slack.

“OPEC+ is still sitting on more than 5 million barrels a day of spare capacity, mostly in the Gulf and particularly Saudi Arabia,” said Carole Nakhle, chief executive officer of London-based consulting firm Crystol Energy. “The Saudis can do what they want,” though pumping more crude just to burn it for power isn’t their best option, she said.

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©2021 Bloomberg L.P.




Aramco raises $6bn with debut global sukuk to fund dividend

Saudi Arabian oil giant Aramco locked in another $6bn yesterday to help fund a large dividend as it returned to the international debt markets with its first USdollar-denominated sukuk sale, a document showed.
The debt issuance, which will help fund a $75bn dividend commitment that will mostly go to the government, comprises tranches of three, five and 10 years, adocument from one of the banks arranging the deal and seen by Reuters showed.
Aramco sold $1bn in the three-year tranche at 65 basis points (bps) over US Treasuries (UST), $2bn in the five-year portion at 85 bps over UST and $3bn in 10-year paper at 120 bps over UST.
Initial price guidance was around 105 bps over UST for the three-year bonds, around 125 bps over UST for the five-year notes and around 160 bps over UST forthe 10-year tranche.
The spreads were tightened after the deal attracted combined orders of more than $60bn.
Aramco last year maintained its promised $75bn annual dividend to shareholders despite lower oil prices, and is expected to shoulder significant domesticinvestments in Saudi Arabia’s plans to transform the economy.
Fitch assigned Aramco’s sukuk issuance programme an A1 rating with a negative outlook, in line with the negative outlook on existing Aramco ratings andtracking a change in Saudi Arabia’s sovereign outlook to negative in May last year.
“The company has displayed a strong commitment to pay $75bn in annual dividends, which in Moody’s view is not sustainable should oil prices fall and remainsignificantly below $60/bbl,” Fitch said.
“Interlinkages between Saudi Arabia and the company imply that any change in rating outlook on the government of Saudi Arabia would be mirrored on SaudiAramco’s rating outlook.”
The company chose to issue Islamic bonds over conventional ones due to high demand for the instrument as a result of the low number of dollar sukuk sales inthe Gulf this year, a source told Reuters on Monday.
Aramco has been widely expected to become a regular bond issuer after its debut $12bn issuance in 2019 was followed by an $8bn, five-part transaction inNovember last year, also used to fund its dividend.
A source had told Reuters that Aramco was expected to raise up to $5bn with the deal, which had 29 active and passive bookrunners working on it.
Active bookrunners on the deal included Citi, HSBC, JPMorgan, NCB Capital and Standard Chartered Bank.




G7 finance ministers meet, global corporate tax deal ‘within sight’

Finance ministers from the G7 countries met face-to-face for the first since the pandemic. A key issue on the agenda is possible tax rules for major multinationals.

Finance ministers from Group of Seven nations are meeting in London on Friday kicking off two days of talks, as the Europeans expressed optimism that a US-backed global minimum corporate tax rate was now “within sight.”

The meeting, chaired by British Chancellor of the Exchequer Rishi Sunak, will be the first time since the start of the pandemic that all seven ministers will get together in person.

However, because of COVID-19 restrictions, the delegation has been trimmed down and the seating plan has been reworked with the help of public health officials.

“I believe we can make significant progress in tackling some of the world’s most pressing economic challenges,” Sunak said shortly before the meeting began.

The talks are expected set the ground for the broad summit of G7 leaders, scheduled to take place in Cornwall, southwest England, starting on June 11.

What is the minimum global corporate tax?

The spotlight at the meeting will be on a global minimum corporate tax rate, proposed by the United States.

President Joe Biden has called for minimum corporate tax rate of 15%. If a company pays taxes somewhere with a lower rate, it would probably have to pay top-up taxes.

According to the proposal, the global minimum tax would be levied only on the world’s 100 largest and most profitable companies.

Britain, Germany and France have welcomed this approach in theory but want to ensure companies such as Amazon — which has lower profit margins than other tech firms — do not escape the net.

“All of them, and without exception” must be covered by the new rules, German Finance Minister Olaf Scholz told news agency Reuters.

The finance ministers also hoped an agreement could be reached at the broader G20 meeting which will be held in Venice in July.

Deal ‘within sight,’ European ministers say

There is broad support for the proposal among the European members of G7.

A deal on a minimum corporate tax rate is “within sight,” finance ministers from France, Germany, Italy and non-G7 member Spain said in The Guardian newspaper on Friday.

“For more than four years, France, Germany, Italy and Spain have been working together to create an international tax system fit for the 21st century,” the four ministers said. “It is a saga of many twists and turns. Now it’s time to come to an agreement.”

Japanese Finance Minister Taro Aso said earlier this week that he did not expect agreement on a specific minimum tax rate during this meeting.

US Treasury Secretary Janet Yellen said she expected a fuller agreement when G7 leaders met later this month.

Digital services taxes

Host nation Britain has been on the fence on the corporate tax issue, calling for wider tax reforms.

The UK also insists that companies should pay more tax where they make their sales, not just where they book profits, or locate their headquarters.

“Securing a global agreement on digital taxation has also been a key priority this year,” Sunak said in a statement. “We want companies to pay the right amount of tax in the right place, and I hope we can reach a fair deal with our partners.”

The US wants an end to the digital services taxes which the UK, France and Italy have levied, and which it views as unfairly targeting American tech giants for tax practices that European companies also use.

The issue of digital taxation has become a flashpoint in trade relations among the economic powers.

 




EU deficit rules to remain suspended in 2022

Rules against overspending by EU governments will remain suspended through 2022, leaving more time for stimulus plans to boost the economy to pre-crisis levels, the European Commission said on Wednesday.

“The recovery remains uneven and uncertainty is still high, so economic policy must remain supportive in both 2021 and 2022,” EU Executive Vice President Valdis Dombrovskis said.

The EU executive suspended the public spending rules for national governments in March 2020 as the European Union sank into its deepest recession since World War II, thanks to Covid-19 restrictions.

Based on current forecasts, “the general escape clause will stay activated in 2022 but no longer so as of 2023.”

Trailing the strong recoveries in the US and China, the economy in Europe fell into a second recession early this year and is not expected to regain its pre-crisis form until later in 2022.

The EU has been criticised for doing less to boost its economy than other powers, but has pinned its hopes on a 750 billion euro recovery programme, whose effects should begin to kick in later this year.

“A bleak winter is giving way to a bright spring for the European economy,” EU economic affairs commissioner Paolo Gentiloni said.

Telling the truth

Known as the Stability and Growth Pact, the EU’s spending rules limit deficit spending at three percent of the overall economy and debt at 60 percent.

The rules are often violated but, while countries in theory risk penalties for ignoring them, no government has ever been sanctioned.

The limit on debt is often overshot even in normal times and 13 countries are currently above the limit including Italy, Spain and France where debt is over 100 percent of GDP.

The pact mainly empowers the EU executive and fellow member states to keep a careful eye on how national governments run their budgets.

The commission, with the backing of the member states, also signals what reforms need to be carried out in order to get a thumbs up from the EU.

The fiscal rules are however quite controversial, with several member states complaining that they are ineffective and outdated.

There is also an argument over the actual danger of running a high debt when the financial markets seem to be unbothered by the public debt piles in countries like Italy, France or Belgium.

The EU-27 are committed to reforming the pact, with some hopeful that this will be done before the end of the suspension, which is now most likely on January 1, 2023.

But Gentiloni warned that reforming the rules will be highly controversial, with the so-called “frugal” countries in the north of Europe reluctant to show leniency to their southern, more indebted neighbours.

“We will work very strongly for this goal but when I’m saying that it is not an easy one, I am only telling the truth,” he told reporters.

The Barron’s news department was not involved in the creation of the content above. This story was produced by AFP. For more information go to AFP.com.
© Agence France-Presse



New QFC member set to become global portfolio manager of spot LNG

A Qatar Financial Centre (QFC) newcomer will establish its position as a global portfolio manager of spot LNG, or liquefied natural gas trades that will have immediate local knock-on effects, after Doha expands its LNG production from the present 110mn tonnes per annum.
This outcome is one among the “unsung” economic benefits that will follow North Field Expansion (NFE), which is also set to enhance the prospects of asset management industry in the country, the QFC said in an article.
The NFE project will not only bring up natural gas from underground, but also other valuable hydrocarbons for export and domestic use, it said, pointing out that associated hydrocarbons destined for export include 260,000 barrels per day of condensate and 11,000t/d of liquefied petroleum gas, valued at roughly $3.05bn annually (using posted 2020 average prices).
“The additional income earned through hydrocarbon exports will increasingly make Qatar a destination for asset managers and other financial institutions,” the QFC said. As imports of construction inputs and machinery wane with most infrastructure projects coming close to completion, Qatar’s trade surplus is likely to register bigger in the years ahead.
“Once NFE-related exports commence in late 2025, export earnings are destined to reach still higher. Whereas much of the immediate proceeds are destined to the Ministry of Finance and Qatar Investment Authority, there is a progressively stronger case for specialised asset managers to locate in Doha close to their future investors,” QFC said.
In tandem, it said, financial institutions in the country will increasingly be called upon to provide a variety of sophisticated products to Qatari firms with a growing international footprint.
As Qatar’s economy continues to grow at home in terms of complexity, and abroad with its varied connections, the financial sector is set to grow substantially.
As Qatar looks ahead, it is destined to leverage its natural gas-focused competitive cost advantages, global network, existing industrial base, innovative focus and high-profile investments to become an attractive and rewarding business destination.
The QFC plays a key part of the country’s development journey, which it looks forward to supporting with vigour and indirectly offering firms on its platform noteworthy prospects.
The first certain phase concerns the North Field East that comprises an approximate $28.75bn of investments – half of which has received a final investment decision as of February 2021.
Beyond that, Qatar Petroleum, or QP, is appraising different areas of the North Field to possibly award a subsequent expansion phase within the next three years.
The QP has made this NFE investment at an opportune time, which will allow it to capture more global LNG market share and gain footholds in new markets as many competitors pull back from major projects, according to the QFC article.
Another “unsung” benefit is the North field’s expansion would drive local manufacturing opportunities. Additionally, there will be 4,000t/y of ethane for use as feedstock in Qatar’s growing petrochemicals sector. This hike equates to nearly 50% of existing 2020 export capacity, or 36.4% of current domestic base quantities.
A combination of these NFE ethane volumes and those from Barzan enables Qatar to produce in future a greater variety as well as more complex petrochemicals, such as those that will originate from the joint venture with Chevron Phillips (70% owned by QP) using the Middle East’s largest 1.9mn t/y ethane cracker in Ras Laffan to start production in 2025.
This is critical to the local economy, according to Gulf Petrochemicals and Chemicals Association, which recently outlined that with oil at $65 a barrel, crude producers can earn $15 per barrel by refining their output and an extra $30 a barrel on top of that by converting it into petrochemicals.
“As Qatar continues its drive to diversify economically, local manufacturing will play a key role,” the QFC article said.




Big Oil’s Chemical Profits Show Inflationary Double Whammy

(Bloomberg) — Drive down any highway in the world and you’ll see countless reminders that the price of Big Oil’s primary product is rising. What’s less obvious is how the inflationary pressures from transport fuel are being amplified by another part of this sprawling industry — chemicals.

The cost of the building blocks for everything from plastics to paint has surged over the past year. That’s great for companies like Exxon Mobil Corp. and Royal Dutch Shell Plc, whose petrochemical units just earned their biggest profit in years.

But it’s unwelcome news for consumers as commodities from copper to lumber are already testing record highs. The price of materials like PVC and ethylene, staples of construction and manufacturing, have risen to the highest in at least seven years on a combination of pandemic-driven demand, the broader post-Covid recovery and once-in-a generation supply disruptions.

“The demand is coming from food, packaging, medical goods, protective equipment,” said Oswald Clint, senior research analysts at Sanford C Bernstein Ltd. “Does it add to inflation? Yes.”

Oil has advanced steadily this year, coming within a whisker of $70 a barrel in London this week. Yet even as higher crude prices boosted earnings from the oil majors’ exploration and production units, the performance of their petrochemical businesses really stood out.

In the first three months of this year, Exxon made $1.4 billion from chemicals, more than in any quarter since at least 2014, when oil prices were above $100 a barrel. More than a fifth of Shell’s $3.23 billion of adjusted net income for the period came from the division, the highest in four years.

Global Winners

It’s not just the oil majors seeing sales surge. Chemicals was the fastest growing unit at Indian conglomerate Reliance Industries Ltd. in the first three months of 2021, compared with the prior quarter.

Other winners from the boom include Brazil’s Braskem SA, Indorama Ventures PCL from Thailand, Celanese Corp., Dow Inc. and LyondellBasell Industries NV in the U.S., and Saudi Basic Industries Corp., according to Jason Miner, Bloomberg Intelligence chemicals analyst.

“It’s a story of the strength of the intermediates,” Shell chief financial officer Jessica Uhl told investors on April 29, referring to compounds that are derived from basic petrochemical feedstocks. Demand is growing as the economy recovers, notably in Asia, she said.

For example, the price of styrene monomer — used in medical devices and latex — surpassed $1,000 a ton in the first quarter, Uhl said. The average price of the chemical at the port of Rotterdam in the Netherlands was about $700 a ton in 2020, according to data compiled by Bloomberg.

The global vaccination drive and large stimulus packages are boosting consumer sentiment and demand from health care, packaging, consumer durables, textiles and automobiles, Reliance said in its earnings presentation last week. Demand for polymers and polyesters has been particularly strong in India, it said.

Trouble in Texas

This isn’t just a story about strong demand. The chemicals industry is also just coming back from several major supply disruptions.

Back-to-back hurricanes on the U.S. Gulf Coast last year were followed by unusually cold weather in February, which knocked out much of the electricity grid in Texas and forced giant petrochemical facilities to shut down. Two months later, many are still not back working at full-capacity.

The region has become a dominant player in the world’s plastics trade thanks to natural gas liquids — a cheap petrochemical feedstock — coming out of the Texas shale boom. For example, North America is the world’s biggest producer of high-density polyethylene, used in everything from shampoo bottles to snowboards. It’s also the largest exporter of PVC.

“The big freeze sent a shockwave through global petrochemical markets,” Vienna-based consultant JBC Energy GmbH said in a note. While almost all of the plants that were disabled by the weather have been brought back online, inventories of many chemicals are still low, keeping prices elevated, it said.

The price of ethylene, the chemical building block for everything from plastics to solvents, reached a seven-year high of 59.5 cents a pound in March, according to ICIS, a data and analytics provider. PVC reached a record high of $1,625 a ton that month.

Even recycled plastic is in high demand, with the price of polyethylene terephthalate, or PET, used for drinks bottles and packaged food, reaching a 10-year high of 1,250 euros ($1,519) a metric ton in northwest Europe on Wednesday, according to S&P Global Platts. The price remained at that level Friday.

“If you were able to get back up and running quickly after the storm” you found a marketplace desperate for your product that “would almost pay any price to get it,” said Jeremy Pafford, head of North America at ICIS.

The tight supply and demand balance for many chemicals looks set to continue in the second quarter, Exxon Chief Executive Officer Darren Woods said on a call with analysts last week. Dow and LyondellBasell have said they are currently selling everything they produce and don’t anticipate being able to restock inventories until the third or fourth quarter.

To manufacture enough chemicals to satisfy customer demand and start building up its stockpiles again, the U.S. needs “four dull months” without any further disruption, said Pafford.

But hurricane season is just around the corner, and the global economy does not have time on its side.

The world is expected to see a surge in spending in the coming months as many countries end their lockdowns and cooped-up consumers dip into their savings or stimulus checks. That could happen alongside the continuation of pandemic-driven trends such as high demand for plastic medical goods as new strains of Covid-19 trigger fresh outbreaks around the world.

“Demand for personal protective equipment is unlikely to fade soon,” said Armaan Ashraf, an analyst at consultant FGE. “E-commerce, retail, durable goods demand is also likely to remain strong through the rest of this year as well.”

(Updates PET price in 17th paragraph)

 

©2021 Bloomberg L.P.




US fossilfuel companies took billions in taxbreaks and then laid off thousands

Fossil-fuel companies have received billions of dollars in tax benefits from the US government as part of coronavirus relief measures, only to lay off tens of thousands of their workers during the pandemic, new figures reveal.

A group of 77 firms involved in the extraction of oil, gas and coal received $8.2bn under tax-code changes that formed part of a major pandemic stimulus bill passed by Congress last year. Five of these companies also got benefits from the paycheck protection program, totaling more than $30m.

Despite this, almost every one of the fossil-fuel companies laid off workers, with a more than 58,000 people losing their jobs since the onset of the pandemic, or around 16% of the combined workforces.

The largest beneficiary of government assistance has been Marathon Petroleum, which has got $2.1bn in tax benefits.

However, in the year to December 2020, the Ohio-based refining company laid off 1,920 workers, or around 9% of its workforce. As a comparative ratio, Marathon has received around $1m for each worker it made redundant, according to BailoutWatch, a nonprofit advocacy group that analyzed Securities and Exchange Commission filings to compile all the data.

Phillips 66, Vistra Corp, National Oilwell Varco and Valero were the next largest beneficiaries of the tax-code changes, with all of them shedding jobs in the past year. In the case of National Oilwell Varco, a Houston-headquartered drilling supply company, 22% of the workforce was fired, despite federal government tax assistance amounting to $591m.

Other major oil and gas companies including Devon Energy and Occidental Petroleum also took in major pandemic tax benefits in the last year while also shedding thousands of workers.

“I’m not surprised that these companies took advantage of these tax benefits, but I’m horrified by the layoffs after they got this money,” said Chris Kuveke, a researcher at BailoutWatch.

“Last year’s stimulus was about keeping the economy going, but these companies didn’t use these resources to retain their workers. These are companies that are polluting the environment, increasing the deadliness of the pandemic and letting go of their workers.”

The tax benefits stems from a change in the Cares Act from March last year that allowed companies that had made a loss since 2013 to use this to offset their taxes, receiving this refund as a payment.

The extended carry-back benefit was embraced by the oil and gas industry, with many companies suffering losses even before Covid-19 hit. Pandemic shutdowns then severely curtailed travel by people for business or pleasure, dealing a major blow to fossil-fuel companies through the plummeting use of oil, with the price of a barrel of oil even entering negative territory at one point last year.

A spokesman for Marathon, the one company to answer questions on the layoffs, said the business made “the very difficult decision” to reduce its workforce, providing severance and extended healthcare benefits to those affected.

“These difficult decisions were part of a broader, comprehensive effort, which also included implementing strict capital discipline and overall expense management to lower our cost structure, to improve the company’s resiliency, and re-position it for long-term success,” the spokesman said. “We look forward to better days ahead for everyone as the nation emerges from the pandemic.”

This expense management didn’t extend to the pay of Marathon’s chief executive, Michael Hennigan, who made $15.5m in 2020. According to BailoutWatch, Marathon’s chief executive is paid 99 times the average company worker’s salary.

“They had no problem paying their executives for good performance when they didn’t perform well,” said Kuveke. “There is no problem with working Americans retaining their jobs but I don’t believe we should subsidize an industry that has been supported by the government for the past 100 years. It’s time to stop subsidizing them and start facing the climate crisis.”

Faced by growing political and societal pressure in their role in the climate crisis and the deaths of millions of people each year through air pollution, the oil and gas industry has sought to paint itself as the protector of thousands of American workers who face joblessness due to Joe Biden’s climate policies.

“Targeting specific industries with new taxes would only undermine the nation’s economic recovery and jeopardize good-paying jobs, including union jobs,” said Frank Macchiarola, senior vice-president for policy, economic and regulatory affairs at lobby group American Petroleum Institute, following Biden’s announcement of a new climate-focused infrastructure plan on Wednesday.

“It’s important to note that our industry receives no special tax treatment, and we will continue to advocate for a tax code that supports a level playing field for all economic sectors along with policies that sustain and grow the billions of dollars in government revenue that we help generate.”




Rosneft Returns to Profit, Signaling 2020 Dividend Payments

Russian oil giant Rosneft PJSC returned to profit in the fourth quarter of 2020 after signing a multibillion dollar deal to sell a share of its Vostok Oil mega-project in the Arctic to trader Trafigura Group.

The results signal that the producer will be able to pay a dividend for 2020 even after historic crude-price declines and production cuts. The company reported a record quarterly net income of 324 billion rubles ($4.36 billion) in the three months through December, above analyst estimates. That offset earlier losses, resulting in a full-year profit of 147 billion rubles.

“Despite all the difficulties of 2020, the company has achieved a net income, which will be the basis for the distribution of dividends,” Chief Executive Officer Igor Sechin said in a statement on Friday. Rosneft’s management will recommend the board to make 2020 payouts to shareholders fully in line with the company’s dividend policy, First Vice-President Didier Casimiro said on a call with investors.

Big Oil has mostly reported disappointing fourth-quarter earnings, signaling the industry’s recovery from the pandemic will be long. While most international producers, such as Royal Dutch Shell Plc or Exxon Mobil Corp., remain committed to making or even raising dividend payouts, investors question just how soon the sector will be able to improve its cash flow.

Russian oil companies have been under even more pressure due to output constraints that are part of the country’s deal with the Organization of Petroleum of Exporting Countries. Accounting for 40% of the nation’s total crude production, Rosneft bears the biggest burden.

Based on its full-year results, the producer, which distributes a half of its net income to shareholders, is set to pay some 7 rubles per share in 2020, according to estimates from BCS Global Markets and Sova Capital. That would be Rosneft’s smallest shareholder payout since 2016. The company scrapped its interim dividend for 2020 after losing money in the first half of the year.

Rosneft shares advanced as much as 1.1% to 506.50 rubles, the highest level in more than three weeks.

Arctic Foray

Rosneft expects Vostok Oil, an ambitious Arctic development valued at $85 billion, to drive future dividend yields and shareholder value, Sechin said.

Rosneft received 7 billion euros from Trafigura for 10% of Vostok Oil in December, according to the financial statement. The deal allowed “for the practical start of the execution of the project,” Sechin said.

The Vostok project envisions production of some 25 million tons of oil per year, or around 500,000 barrels a day, in 2024, and twice as much in 2027. At its peak, the remote development is set to produce as much as 100 million tons per year. That compares with Russia’s total crude oil and condensate production of 513 million tons for 2020.

Rosneft is in discussions with other potential partners in Vostok Oil, Casimiro said, adding that international trading houses, global oil majors and crude-importing nations like India are interested. Russia will keep a controlling stake in the development, he said.




Europe open: Shares lower as rally runs out of steam

(Sharecast News) – European shares were slightly lower on Tuesday as the rally of recent days ran out of steam.

The benchmark pan-European Stoxx 600 index fell 0.10%, after gains driven by vaccine roll-outs and hopes the US Covid-19 relief package would make swift progress through Congress. Germany’s DAX index was down 0.13%, despite official data showing German exports rose in December.

In equity news, shares in Danish hearing aid maker Demant topped the gainers. The company said it expected to return to strong growth in 2021 as Covid-19 lockdowns were lifted and reported earnings for the second half of 2020 above expectations.

Shares in German leasing firm Grenke rebounded after Monday’s slump, gaining 7% after chief operating officer Mark Kindermann, resigned. He told the firm’s supervisory board that it would be necessary to revise “preliminary assessments” of the firm’s financial performance once audits had been completed.

UK online supermarket and logistics provider Ocado slumped despite reporting a 68.8% rise in full-year core earnings.

Spreadex analyst Connor Campbell said “it appears investors have potentially been put off by Ocado’s planned £700m in capital expenditure, and a subdued outlook for UK retail growth in the coming 12 months”.

TUI ticked higher even as the travel company slumped to a €699m first-quarter loss as Covid-19 lockdowns continued to hammer demand.

Total SE rose 1.1% after the company said earnings recovered in the fourth quarter as oil prices recovered, although a hit from writedowns on assets due to the Covid-19 pandemic saw it plunge to a $7.2bn net loss for fiscal 2020.