Oil Rigs Revisit Lehman Crisis as Credit Squeezed for Orders, Acquisitions

By Marianne Stigset - Aug 24, 2011 6:01 AM GMT+0700

The biggest market rout in two years is squeezing credit for oil rig owners in a replay of the crunch that followed Lehman Brothers Holdings Inc.’s collapse, said the operator of the second-largest fleet of deepwater platforms.

“It’s exactly the same as what happened during the financial crisis after Lehman Brothers’ bankruptcy,” Seadrill Ltd. (SDRL) Chief Executive Officer Alf Thorkildsen said. “The financial uncertainty has resulted in fewer new build orders. The eye of the needle has narrowed” for acquisitions, he said.

A four-week slump in global equities wiped out more than $8 trillion in stock values amid renewed signs of weakness in the world economy, Europe’s inability to stem its sovereign debt crisis and a downgrade of U.S. debt. Crude oil prices dropped about 14 percent in the period, while banks have curbed lending, adding to concern producers may cut exploration budgets.

“Seadrill can look at the best opportunities in the market,” Thorkildsen said in a phone interview from Stavanger yesterday. “If there is a good deal to be made, it’s always possible to get financing, but there is a tighter market for financing overall and that affects us all.”

Seadrill purchased 33.75 percent of Asia Offshore Drilling Ltd. last month after billionaire Chairman John Fredriksen said in May he would buy rig companies. The acquisition followed the takeover of Scorpion Offshore Ltd. in 2010, while Seadrill lost a bid against Ensco Plc (ESV) for Pride International Inc. this year.

“Consolidation will come especially with regards to smaller companies that start experiencing financing pressures,” Thorkildsen said. “The underlying market fundamentals for drilling with regards to supply and demand look good.”

Deep, Harsh

Exploration in deep water and harsh environments off the shores of Brazil, West Africa and the Arctic has buoyed demand for rigs able to handle such conditions. Stricter rules after the Deepwater Horizon explosion in the Gulf of Mexico have also spurred interest in newer platforms, boosting prices.

Transocean Ltd. (RIG) last week agreed to buy Aker Drilling ASA for $1.46 billion, almost twice its market value, to expand its so-called ultra-deepwater rig fleet. Ensco’s bid in February for Pride was valued at $8.47 billion including debt, a 24 percent premium. Hamilton, Bermuda-based Seadrill sought to buy both.

“Share prices today are depressed globally, so that is a factor in why we’re seeing higher prices than what’s reflected in the market,” Thorkildsen said. “These were shares that perhaps were somewhat undervalued by the market.”

The MSCI World (MXWO) Index of stocks fell 19 percent from May 2 to Aug. 10, the biggest such decline in more than two years.

Costs Rising

Oil and gas discoveries in offshore Brazil, West Africa and Norway are raising rig demand, supporting the day rates Seadrill gets for leasing drilling platforms, Thorkildsen said. Ultra- deepwater rates were “not too far” from $500,000 a day.

Fees for such operations are averaging $450,000 a day and likely to stabilize around $450,000 to $550,000 going forward, Maersk Drilling CEO Claus Hemmingsen said last week.

The cost of construction has grown 10 percent to 12 percent in the past six months, according to Maersk, which has halted orders while it awaits delivery of six of the facilities. Rates are firm for jack-up rigs, with extending legs, Hemmingsen said.

“The Norway jack-up market has remained fairly high, solidly above $300,000 a day for the big jack-ups,” he said. “Expectations for the new rigs coming in are a lot higher.”

Seadrill will take delivery of 17 rigs, Thorkildsen said.

Second-quarter net income will rise to $329 million, from $316 million a year earlier, when the company reports tomorrow, according to the average estimate of 16 analysts surveyed by Bloomberg. Sales will climb to $1 billion, from $933 million.

Extra Dividend

The company announced in May it would seek to raise long- term dividends to 70 cents a share and pay out an additional 5 cents for the following four quarters.

“Seadrill will look to avoid cutting dividends as the drilling market outlook is solid and Seadrill likely is eager to continue to grow their fleet through acquisitions,” Kjetil Garstad, an Arctic Securities ASA analyst, wrote in a note yesterday in which he upgraded the share to a “buy.”

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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Japanese Stocks Decline Amid Weaker U.S. Data Before Jackson Hole Meet

By Yoshiaki Nohara and Satoshi Kawano - Aug 24, 2011 1:20 PM GMT+0700

Japanese stocks fell as weaker-than- estimated U.S. economic data eroded investor confidence ahead of a meeting this week where Federal Reserve Chairman Ben S. Bernanke may signal new stimulus.

Toyota Motor Corp. (7203), the world’s biggest carmaker, dropped 1.6 percent. Mitsubishi UFJ Financial Group Inc. (8306) fell after Moody’s Investors Service downgraded Japan’s biggest banks. Gamemaker Nintendo Co. dropped after yesterday gaining the most in a week.

The Nikkei 225 Stock Average dropped 1.1 percent to 8,639.61 at the 3 p.m. close of trading in Tokyo, extending earlier declines after measures announced by Finance Minister Yoshihiko Noda to protect Japanese exporters failed to weaken the yen. The Topix index dropped 1.1 percent to 742.24.

“Stocks have risen on expectations of Fed action, but it’s not as though there’s been an improvement in the fundamentals,” said Toshiaki Iwasaki, an analyst at Mito Securities Co. “People are covering shorts but beyond that there’s not much buying because there’s so much uncertainty about the global economic outlook.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Central Banks Seen Retaining Gold to Help Manage Debt as Bullion Advances

By Glenys Sim - Aug 24, 2011 1:23 PM GMT+0700

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Photographer: Guenter Schiffmann/Bloomberg

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

“Once they’ve sold, that’s it, and buying back would be extremely expensive,” said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who’s studied metals markets for 20 years. “They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt.”

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico and Russia have added to reserves this year. The precious metal is the “currency of the world” amid the debt crisis, economist Dennis Gartman wrote Aug. 19.

“Under conditions of austerity we’re going to see a further deterioration of debt,” Richardson said in an interview yesterday. “Rising risk argues in favor of holding on to their gold reserves rather than selling them because they’ve only got one shot at selling.”

Immediate-delivery gold, which has rallied 29.5 percent this year, touched an all-time high of $1,913.50 per ounce yesterday and was at $1,840.05 at 2:15 p.m. in Singapore. The metal may reach $2,000 by the yearend, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20.

Currency Credibility

“The European central banks won’t sell their gold because while it may be a means to raise cash, it definitely won’t be enough to settle their debts,” said Duan Shihua, head of corporate services at Haitong Futures Co., China’s largest brokerage by registered capital. “Besides, none of the central banks believe in the currencies of other countries.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in purchases by countries including Bolivia and Mauritius, according to World Gold Council data. In the second quarter of 2011, central-bank and government-institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, the council said last week. Central banks will remain net buyers this year, it said.

Central banks have been “active buyers” of gold in recent months, Edel Tully, an analyst at UBS AG, wrote in a note to clients on Aug. 8. Central banks should also buy platinum as they boost gold holdings amid concern about the global economy, Citigroup Inc. said in a report the same day.

Credit-Rating Downgrades

The debt crisis in Europe that started in Greece has hobbled economic growth and prompted downgrades of the credit ratings of Greece, Portugal and Ireland. Still, the euro has strengthened against the currencies of 14 of 16 trading partners this year as the European Central Bank bought government bonds.

German Chancellor Angela Merkel yesterday rejected a call by Labor Minister Ursula von der Leyen for states to put up gold as collateral for emergency loans. That disagreement may underscore risks over a second Greek aid package.

In August 2009, central banks in Europe agreed to a third five-year cap on gold sales. The European Central Bank and 18 others agreed to sell no more than a combined 400 tons a year through September 2014. Germany, Italy, France, the Netherlands, the European Central Bank, Portugal, Spain and Austria are among the top 20 holders, according to council data.

IMF Sales

“Notwithstanding the worst sovereign-debt crisis, particularly in Europe, where there are very large, concentrated holdings of gold, the central-bank agreement has been striking by the fact the only people who have been selling has been the IMF,” said Richardson, referring to the Washington-based International Monetary Fund.

The IMF sold 403.3 tons between October 2009 and December 2010 as part of a plan to shore up its finances and lend at reduced rates to low-income countries. More than half of that was acquired by central banks, according to the fund.

The Bank of Korea, which purchased 25 tons over a one-month period from June to July, said “holding gold helps reduce investment risks in terms of reserve management,” according to a statement earlier this month after the move was disclosed.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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PRECIOUS-Gold rebounds after worst day in 18 months

Wed Aug 24, 2011 12:44am GMT

SINGAPORE, Aug 24 (Reuters) - Spot gold rebounded on Wednesday from its worst day in 18 months, while bullion's safe-haven appeal seemed to be waning for now with investors returning to riskier assets on hopes of more stimulus for the U.S. economy. FUNDAMENTALS * Spot gold gained 0.7 percent to $1,842.45 an ounce by 0011 GMT, rebounding from a 3.6-percent tumble in the previous session, its sharpest one-day drop since February 2010. * U.S. gold GCcv1 dropped 0.8 percent to $1,845.90. * The speculation that the U.S. Federal Reserve may signal more stimulus at Friday's Jackson Hole meeting boosted risk appetite, sending Wall Street up 3 percent and snapping a six-session winning streak in gold. * Some gold bulls said it is time to take money off the table after the safe-haven rally extended too far too fast in recent weeks. Ifo business climate Aug 2011 0800 Germany Ifo current conditions Aug 2011 0800 Germany Ifo expectations Aug 2011 1230 U.S. Durable Goods orders Jul 2011 India M3 Money Supply 40762 PRICES Precious metals prices 0011 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1842.45 12.80 +0.70 29.80 Spot Silver 42.19 0.37 +0.88 36.71 Spot Platinum 1869.24 12.44 +0.67 5.76 Spot Palladium 757.50 0.55 +0.07 -5.25 TOCOM Gold 4552.00 -142.00 -3.03 22.07 69016 TOCOM Platinum 4652.00 -92.00 -1.94 -0.94 4256 TOCOM Silver 103.70 -3.10 -2.90 28.02 365 TOCOM Palladium 1884.00 -2.00 -0.11 -10.16 100 COMEX GOLD DEC1 1845.90 -15.40 -0.83 29.86 6968 COMEX SILVER SEP1 42.26 -0.03 -0.07 36.59 846 Euro/Dollar 1.4432 Dollar/Yen 76.69 TOCOM prices in yen per gram. Spot prices in $ per ounce. COMEX gold and silver contracts show the most active months (Reporting by Rujun Shen; Editing by Himani Sarkar)* Holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , dropped nearly 2 percent on the day to 1,259.569 tonnes. While iShares Silver Trust reported a 1.4-percent jump in its holdings. * The sharp drop from a record above $1,911 could trigger buying interest in Asian investors, who have been avid buyers along the rapid rally which pushed gold prices up about $400 since the beginning of July. * Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming large budget deficits and a buildup of debt since the 2009 global recession. * For the top stories on metals and other news, click , or MARKET NEWS * U.S. stocks shot 3 percent higher on Tuesday on speculation Federal Reserve Chairman Ben Bernanke this week would signal new help for the economy, giving investors hope a four-week rout was nearing an end. * The yen came under a bit of pressure on Wednesday after Moody's cut its rating for Japan's government debt, but commodity currencies held firm having gained after manufacturing data in China and Europe were less grim than feared.

 DATA/EVENTS	

0400  U.S.      Build permits R chg mm    Jul    

0800  Germany   Ifo business climate      Aug 2011

0800  Germany   Ifo current conditions    Aug 2011 

0800  Germany   Ifo expectations          Aug 2011 

1230  U.S.      Durable Goods orders      Jul 2011     

     India     M3 Money Supply           40762    

	

  PRICES	

 	

Precious metals prices 0011 GMT

Metal             Last    Change  Pct chg  YTD pct chg    Volume

Spot Gold        1842.45   12.80   +0.70     29.80

Spot Silver        42.19    0.37   +0.88     36.71

Spot Platinum    1869.24   12.44   +0.67      5.76

Spot Palladium    757.50    0.55   +0.07     -5.25

TOCOM Gold       4552.00 -142.00   -3.03     22.07        69016

TOCOM Platinum   4652.00  -92.00   -1.94     -0.94         4256

TOCOM Silver      103.70   -3.10   -2.90     28.02          365

TOCOM Palladium  1884.00   -2.00   -0.11    -10.16          100

COMEX GOLD DEC1  1845.90  -15.40   -0.83     29.86         6968

COMEX SILVER SEP1  42.26   -0.03   -0.07     36.59          846

Euro/Dollar       1.4432

Dollar/Yen         76.69

TOCOM prices in yen per gram. Spot prices in $ per ounce.

COMEX gold and silver contracts show the most active months

	

(Reporting by Rujun Shen; Editing by Himani Sarkar)

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