Petroleras, Petróleo,Egipto,Algodones y demás...
Egypt unrest sent Brent $2/bbl and WTI $3.70/bbl higher on concerns relating to the Suez canal transport route. Latest reports are that the Suez continues to operate normally. The Suez Canal handled c1.0mbpd in northbound crude oil and products traffic during 2009, according to the DoE website. The Suez-Mediterranean Pipeline (SUMED) connects the Red sea with the Mediterranean as an alternative route. SUMED shipments declined from 2.3mbpd in 2007 to average 1.1 mmbpd in 2009 (DoE). The main Egypt exposures are detailed below, although at this stage there are no reports of any disruptions to operations and we do not expect facilities to be impacted. Most of BG and BP's production is located offshore, albeit the gas produced typically feeds the two onshore LNG plants in Alexandria and Damietta.
Eni and Apache have a bigger onshore presence although production is located in the Western Desert. Moreover, any closure of the Suez Canal would probably have much wider political, economic and market implications such that concerns over exposure to Egyptian production would be of secondary concern.
BG (Buy, pt £16) - 150k boepd, c25% of production - offshore Nile Delta in the Rosetta and West Delta Deep Marine (WDDM) concessions. BG has 2.4mtpa net liquefaction capacity at Egyptian LNG in Alexandria. BG accounts for c40% of all gas produced in Egypt.
ENI (Hold, pt €18.2) - 220k boepd, c13% of production (mostly onshore). Also has indirect stake in Damietta LNG (5.1mtpa) via Union Fenosa Gas. BP (Hold, pt 525p) - 148k boepd, c4% of production (48% liquids) - single largest foreign investor in Egypt, close to $15bn to date.
Repsol (Buy, pt €27) - 50% stake in Union Fenosa via Gas Natural. Union Fenosa Gas owns 80% of Damietta LNG. Apache (Buy, pt $150)- 153k boepd, 26% of production. 309m boe reserves, 13% of total - mostly in Western Desert. 11m gross acres (largest acreage position) in 21 concessions. 2010 investment c$1bn.
Update Source: Citi Oil Strategy Team
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*Resumen de todo lo acontecido en Egipto (excelente para tener una visión global):
-Tunisian President Ben Ali ousted on 14th Jan after riots-Tuesdays planned protests in Egypt on Public holiday gained momentum far more quickly than we had anticipated, leading to Friday's rapid escalation of violence on the streets of the major cities-Mubarak is still clinging to power after he sacked government and appointed trusted allies, Omar Suleiman (Security Chief) as vice-president and Ahmed Shafiq (former Air Force minister) as Prime Minister.
These are not popular appointments amongst the protesters but may be able to consolidate control for long enough to put some plan of succession into place.
-Escaped prisoners, looting and violence capture the headlines as well as vigilante groups coming to the streets to protect neighbourhoods and museums etc.Markets-EGX30 down -21% since Tunisian government toppled with Intl's outflows of c$100m-In terms of economic impact, risk premium obv goes up, but not too worried about implications for relatively modest CA deficit.
FI investors unlikely to roll T-Bills, but that probably suits with finance ministry happy to see foreign ownership drop. Limited evidence of re-dollarization pressures of capital flight by wealthy Egyptians. Central Bank and Egypt's allies will likely continue encourage economic stability by supporting the currency, which at EGP 5.8575 is down less than 1% ytd. (expect muted currency moves across the most of the region using pegs)-Egypt 5YR CDS pricing 100 wider @ 425-475 on Friday (vs. 240 at year end)
-MENA market weakness today: DFM took the hardest hit, -4.3%on 2.4xADV; KSE -2% on 2.4xADV, QE -3% on 2.3xADV-Saudi down -6% on Saturday as investors in the region lost appetite and took risk off with fear of contagion. However the solid bounce today +2.5% helps allay some fears and mkts across the region firmed up a little after Saudi opened up today.-Egypt flows: a noticeable pick-up in fast-money short action on Thursday. Felt like it was prompted by Wed's huge drop, increased press coverage etc., rather than more fundamental analysis.
Several clients finding the levels very attractive but looking to wait for developments over the weekend before getting involved.Israel
-Clearly Mubarak was good ally for Israel and the unknown of if he stays in power creates a big instability regarding the peace and if holds, If Muslim brotherhood takes control in Egypt it will be very negative for Israel.
-Tel Aviv closed on the lows with high volumes dominated by local flow. Main thing to notice is the leg down @ 14:00 Israel time which is the time all fund managers find out the amount of redemptions in mutual funds
.-Gas drillers outperformed the market as natural gas deal with Egypt now at risk.
-ESLT outperformed as well as locals think they can benefit from higher expenses budget by gov't on defence.
-FX has weaken another 60bps in the futures todayWhat next?
-Likely that Suleiman and Shafiq begin to take steps to soften the blow of Mubarak's departure. They will need to restore order to give themselves a platform from which to negotiate with opposition representatives over political changes. Mohamed ElBaradei, the former UN diplomat is shaping up to be powerful player in the negotiations as the opposition parties (Muslim Brotherhood, with the Wafd Party, the Tomorrow Party, the Center Party) lack credible leadership figures. Suleiman and Shafiq will probably look for orderly departure by Mubarak to push for a representative democracy, aimed at limiting the influence of Islamists.
-Key will be to avoid a power vacuum and not to follow Tunisia where seemingly little progress to restore order since Ben Ali was toppled.
- A less likely outcome is that Mubarak manages to ride out the storm and with the help of Suleiman and the army manages to quell the unrest and battle on with a more rigid security stateContagion-Oil rich GCC countries such as Saudi be said to have enough money to effectively pay off the dissenting public before any tensions escalated-Kuwait for example already pro-actively taking steps to prevent any disquiet by giving out grants and making some basic foodstuffs available for free for the next year.-Dubai, as the trade hub of the region, has historically benefited from regional disruption and the large ex-pat population has a different dynamic to Egypt.-
To rank the kingdoms in order of contagion risk you would say Bahrain, Jordan (but worth noting the relatively low foreign ownership in these 'most at risk markets) then a gap to Saudi and Oman then further down the chain to AD, Kuwait and Qatar-Bahrain, for example, has deep seated sectarian tensions with a Shia majority population and Sunni minority leadership-Jordan has a history of public demonstration with occasional violence. Government has already taken several measures aimed at meeting protestor demands including public sector pay rises, but with the latter calling for more, any new measures will likely have a -ve impact on fiscal performance and economic growth in Jordan.
Action points/To watch-Egyptian market was closed today and remains closed Monday.-GDR's will be open as usual. 8:15 - 15.40 London time. 4 main ones to watch are Orascom Tel (OTLD LI), Orascom Construction (ORSD LI), Commercial Intl Bank (CBKD LI), EFG Hermes (EFGD LI)-Regional markets to remain volatile but with a distinct possibility that the intensity of protests die down over next day or two (you cannot sprint for 1000m), which will reduce headline risk and alleviate some of the panic and distress priced in ,but medium term the elevated discounts and risk premiums should remain baked in valuations.-As always, our we will be happy to offer MSCI country index p-notes\swaps or structured basket notes as well as the usual local cash and GDR trading
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Y lo que piensa Bank of America...
What happens next
The market will continue assigning a higher risk premium to Egyptian assets.
Even with a transition, a parliamentary election appears inevitable. We cannot rule out a significant change to a future parliament, including a more prominent role for the Muslim Brotherhood.
The government’s borrowing requirement may increase with additional spending, widening the budget deficit.
Business/consumer sentiment and economic growth will all come under pressure should tensions between the government and the opposition not abate.
Capital outflows will put the EGP under pressure. During the financial crisis of 2008, foreign investors sold their holdings in Egyptian T-bills from $25bn to $3bn. Today we estimate that foreigners own $25bn in T-Bills and would expect a similar selloff.
Equities - we published a piece this morning highlighting opportunities in wider MENA names. Contagion risk is obviously a worry, growth in Egypt will slow, estimates will be cut, panic selling will mean that stocks will overcorrect on the downside, and Egypt will no longer enjoy its premium valuation in the medium term. However, despite the heavy uncertainties, we think this will throw up several investment opportunities across the MENA region which we believe shouldn’t be suffering from contagion
