‘INA’ grumpy mood: MOL & Croatia’s government

The Oilholic finds himself in a jovial mood in sunny Zagreb. However, Hungarian oil company MOL and the Croatian Government are being rather grumpy with each other these days. The reason behind it all is the management of INA or Industrija Nafte, Croatia's national oil company in which the government holds around a 45% stake and MOL a slightly higher 47% stake.

INA has its origins in state-ownership, followed by privatisation; a trend which is not uncommon in this part of the world. It has an E&P arm with ongoing activity closer to home in the Adriatic Sea and Pannonian Basin, and abroad in Egypt and Angola. It also had gas exploration projects in Syria, brought to an abrupt halt in wake of the country's civil war.

INA's R&M operations include both of the Croatia's strategic refining assets – namely Rijeka Refinery (capacity 90,000 bpd) and Sisak Refinery (60,000 bpd) and retail forecourts. According to local analysts and whatever one can gather from media outlets, tension between MOL and Zagreb has been simmering since 2011.

Strain is evident and both parties are so at each other that it is out in the open. A scribe tells yours truly that MOL feels the Croatian Ministry of Economics is riddled with red tape and has conjured up a bad regulatory framework for the sector in general, which is hurting INA by default.

However, Minister Ivan Vrdoljak says it is MOL that has "failed" to deliver on its promise of incremental strategic investment. Another bone of contention is INA's loss-incurring gas trading arm which the government was supposed to have taken over but hasn't so far.

As if that was not enough, a Croatian court found former Prime Minister Ivo Sanader guilty of allegedly taking a bribe from MOL in 2008 for permitting it to gain market dominance. Both Sanader and MOL deny the charge. The country's Supreme Court is currently considering Sanader's appeal against his 10-year sentence, passed by the lower court while he remains behind bars on a multitude of charges.

Meanwhile, an informed source says trust between MOL and the Croatian government "is right out of the window". Sounds much better when locals say so in Croatian, but sadly the Oilholic cant replicate the sound-bite not being able speak any. Those in the outside world might be forgiven for wondering what the fuss is about and its all to do with upstream operations rather than the country's two refineries. INA operates these out of necessity to meet domestic distillate demand above than anything else.

For it, the Pannonian basin holds very good potential. According to the US Geological Survey, the area could have something in the region of 350 million barrels of oil equivalent (boe) by conservative estimates. The figure could rise to lower four digits if overtly optimistic regional projections are followed, so yours truly won't follow them.

Everyone from the Romanians to the Austrians want in, and Croats and Hungarians – should they stop their squabbling – could jointly work on their share too in this hydrocarbon hungry world. Additionally, the north Adriatic Sea offshore prospection is currently yielding INA (and its Italian partner Eni) 15.8 million boe per day.

The latest round of talks aimed at resolving the dispute have been going on since last September, with very little to show for. The next round of talks is scheduled for the end of the month. Here's hoping 'crude' sense prevails or their partnership mementos from 2003 might just end up in the City's Museum of Broken Relationships (see left). In the interim, please take any quips, claims and figures touted by either party with a pinch of salt!

Away from it all, one footnote to boot before yours truly enjoys some cultural pursuits and beverages here – ICE's latest commitment of traders report for the week ending April 29 noted that bets on a rising Brent price have risen to their highest in eight months as money managers, including hedge funds, increased their net long position in Brent crude by 0.3% to 204,488, marking a fourth successive week of increases.

Traders in the category decreased their long positions by 2,464, but the number of short positions also fell, by 3,039 to 47,800, the lowest level since the end of August. That's all from Zagreb folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2014. Photo 1: St. Mark’s Church as seen from Lotrščak Tower, Zagreb, Croatia. Photo 2: The Museum of Broken Relationships, Zagreb, Croatia © Gaurav Sharma, May 2014.

Talking Refinery Infrastructure on CNBC

This week marked the culmination of almost a month and a half of my research work for Infrastructure Journal on the subject of oil refinery infrastructure and how it is fairing. Putting things into context, like many others in the media I too share an obsession with the price of crude oil and upstream investment. I wanted to redress the balance and analyse investment in the one crucial piece of infrastructure that makes (or cracks) crude into gasoline, i.e. refineries. After all, the consumer gets his/her gasoline at the gas station – not the oil well. The depth of Infrastructure Journal's industry data (wherein a project’s details from inception to financial close are meticulously recorded) and the resources the publication made available to me made this study possible. It was published on Wednesday, following which I went over to discuss my findings with the team of CNBC’s Squawk Box Europe.

I told CNBC (click to watch) that my findings suggest activity in private or public sector finance for oil refinery projects, hitherto a very cyclical and capital-intensive industry currently facing poor margins, is likely to remain muted, a scenario which is not going to materially alter before 2012.

The evidence is clear, integrated oil companies have and will continue to divest in downstream assets particularly refineries because upstream investment culture of high risk, high rewards trumps it.

Growth in finance activity is likely to come from Asia in general and surprise, surprise India and China in particular. It is not that margins are any better in these two countries but given their respective consumers’ need for gasoline and diesel – margins become a lesser concern.

However, in the west, while refiners’ margins remain tight, new and large refinery infrastructure projects would see postponements, if not cancellations. In order to mitigate overcapacity, a number of mainly North American and European refiners or integrated companies will shutdown existing facilities, albeit quite a few of the shutdowns will be temporary.

Geoff Cutmore and Maithreyi Seetharaman probed me over what had materially changed, after all margins have always been tight? Tight yes, but my conjecture is that over the last five years they have taken a plastering. On a 2010 pricing basis, BP Statistical Review of World Energy notes that the 2009 refining average of US$4.00 per barrel fell below the 2008 figure of $6.50 per barrel; a fall of 38.5%. In fact, moving away from the average, on an annualised basis, margins fell in all regions except the US Midwest last year while margins in Singapore were barely positive.

Negative demand has in effect exasperated overcapacity both in Europe and North America. BP notes that global crude runs fell by 1.5 million bpd in 2009 with the only growth coming from India and China where several new refining capacities, either private or publicly financed, were commissioned. Its research further reveals that most of the 2 million bpd increase in global refining capacity in 2009 was also in China and India. Furthermore, global refinery utilisation fell to 81.1% last year; the lowest level since 1994.

In fact does it surprise anyone that non-OECD refinery capacity exceeded that of the OECD for the first time in 2009? It doesn’t surprise me one jot. I see this trend continuing in 2010 and what happens thereafter would depend on how many OECD existing refineries facing temporary shutdown are brought back onstream and/or if an uptick in demand is duly noted by the OECD nations. A hope for positive vibes on both fronts in the short to medium term is well...wishful thinking.

Refineries were once trophy assets for integrated oil companies but in the energy business people tend to have short memories. Alas, as I wrote for Infrastructure Journal (my current employers) and told CNBC Europe (my former employers), now they are the unloved assets of the energy business.

© Gaurav Sharma 2010. Photo 1: Gaurav Sharma on Squawk Box Europe © CNBC, Nov 10, 2010, Photo 2: Oil Refinery Billings, Montana © Gordon Wiltsie / National Geographic Society

Third Time Lucky for OMV?

OMV’s takeover of Turkey’s Petrol Ofisi A.S. should be applauded for the Austrian company’s sheer persistence in its attempts to acquire strategic assets, if nothing else. It has a mixed record at best when it comes to takeover attempts, as I was joking with my old colleague CNBC’s Steve Sedgwick at the OPEC summit in Vienna ten days ago.

OMV was successful in acquiring Romania’s Petrom in 2004 but failed spectacularly in its takeover attempt of Hungary’s MOL which was swiftly and successful rejected by the Hungarians in June 2007. As I had just arrived in Vienna from Budapest, Steve said, as only Steve can, that I’d been "MOL"-ing over OMV’s fortunes in the wrong city. The failed bid for MOL aside, OMV also tried and failed to acquire utility Verbund.

In a statement on Friday, OMV said the Turkish acquisition, slated at €1 billion ($1.4 billion) is a further step in its growth strategy and aims at "positioning Turkey as a third hub, besides Austria and Romania."

OMV would now own 95.75% of the Turkish company after buying out Dogan Holding's stake of 54.17% stake in it; formalities are set to be completed within the next three months. The companies have also agreed to pay a dividend to Petrol Ofisi shareholders prior to that.

Ahead of the announcement, ratings agency Standard & Poor’s noted that Petrol Ofisi's credit profile would benefit were OMV to become its majority owner. It placed the Turkish company’s 'B+' long-term corporate credit ratings on CreditWatch with positive implications.

Per Karlsson, credit analyst at Standard & Poor's, said, "The positive implications of the CreditWatch placement reflect our view that should such a transaction materialize we are likely to raise the ratings on Petrol Ofisi by one notch or more."

As for takeover attempts – looks like OMV has been third time lucky!

© Gaurav Sharma 2010. Photo: Photo: OMV Petrol Station, Austria © OMV

Vienna’s Most Oilholic of all Welcomes

As OPEC ministers and the world’s press descend on Vienna for the 157th OPEC meeting on Thursday, I cannot but help remarking that the city itself gives the most oliholic of all welcomes to its visitors whether you arrive by plane, train or automobile – or in my case – all three – but more on that later.

Landing on a night flight at Vienna airport one can get a direct view of an ocean of spotlights and night lamps of the OMV Schwechat refinery. Once you pull out of the airport, and your taxi or bus takes two right turns and hits the motorway, there’s the refinery again and well if you arrive by train say to Wien Meidling or Wien Westbahnhof stations – the oil tankers and carriages along the way simply cannot be missed.

Perhaps its not unusual to find oil and gas infrastructure in proximity of a major oil and gas town, something which quaint old Vienna is not, in my honest opinion. Still its OMV's hub, which is fast becoming a behemoth, or already is one if you asked a Hungarian analyst given its audacious but ultimately unsuccessful bid to acquire MOL in 2007.

Coming on to the subject of me having used planes, trains and automobiles – well I arrived in Vienna from London by plane earlier in the week, dashed off to Budapest for a meeting by train and have passed in front of the Schwechat refinery in automobiles of various descriptions – budget permitting - for the last six years.

It’s good to be back at OPEC, which is fast becoming an annual pilgrimage for me. Nothing about pricing in this blog post, but cant help observing though that OPEC would not change production quotas on Thursday.

© Gaurav Sharma 2010. Photo: Raffinerie Schwechat © OMV Refining & Marketing GmbH