Gazprom Falls Short on Earnings; BP and Husky to Jointly Develop Canadian Oil Sands; China Construction Bank To Sell $541 Million in Securities; Leighton Holdings Lands $650 Million Contract to Build in UAE
- OAO Gazprom (OGZPY) reported Wednesday that profits for the third quarter of 2007 were lower than analysts had predicted. The Russian natural gas monopoly said that profits fell 25% to $4.21 billion (102.87 billion rubles) even though revenues were up 5.3%. The company said the shortfall was the result of higher operating costs and higher than expected oil and gas prices. Warm weather throughout Europe caused revenues a dramatic drop in revenues from the region. Gazprom provides roughly 40% of Europe's natural gas supply and hopes to supply 50% by 2013. Increased borrowings caused financial costs to rise by 50% from 2006. Gazprom also announced that it will be raising prices in Russia going forward and will no longer sell to former members of The USSR at lower prices than those it charges in the rest of Europe. The increase in prices paid by the former soviets will increase as much as 40% while prices in Russia will rise 25% for the rest of the year and into 2008.
- BP Plc and Husky Energy Incorporated (TSE:HSE) have agreed to a Canadian oil sands joint venture that will invest $5.5 billion over the next seven years. The two companies will exchange stakes in Husky's Sunrise oil sands operations and a BP refinery based in Toledo, Ohio. The partnership will be owned and operated on a 50-50 basis. The oil sands are located in Alberta, Canada, which is the second largest oil resource in the world. Canada currently supplies 20% of U.S. oil supplies making it the largest exporter to the United States. Even though Alberta's sources are largely heavy, sludge known as bitumen which is expensive to process, but recent oil prices near $100 a barrel have made oil sands projects extremely profitable. The deal is similar to the deal reached by Conoco Phillips (COP) and EnCana (ECA) in 2006. The partnership will be effective in on January 1, 2008 and should meet regulatory guidelines in the United States and Canada by the end of the first quarter. Announcing the proposed transaction, BP Chief Executive Office Tony Hayward said "BP's move into the oil sands is an opportunity to build a strategic material position and the huge potential of Sunrise is the ideal entry point for BP into Canadian oil sands," the Associated Press reported.
- China Construction Bank Corp.- one of China's four major commercial banks- said on Wednesday that it would raise $541 million (4 billion yuan) by selling residential mortgage-based securities. The securities will be divided into three portions and carry domestic ratings of BBB to AAA and will be sold via auction on the interbank money market between Dec. 11 and Dec. 14. Banks have only been allowed to sell mortgage-backed securities in China since 2005 and China Construction is one of only two Chinese banks approved to offer them so far. It will be the banks second such sale. The first sold sold 2.9 billion yuan ($397.25 million) of the securities in December of 2005. However, the combination of high interest rates in China and the fallout from the U.S. sub-prime market throws a shroud of doubt on China Construction Bank's securities sale. "These securities are considered risky assets by most banks, so investors will be very selective and cautious in loading too much on their books," Dong Dezhi, a bond analyst at the bank Of Shanghai told Bloomberg.
- Al Habtoor, a 45% subsidiary of Australia's largest builder Leighton Holdings Ltd., has been awarded a $650 million contract to build a Dubai convention center and hotels in the Abu Dhabi. The convention center will include a seven-story hotel, 33-floor office complex and a food court. The Abu Dhabi project includes a 200-room hotel and a 400-room hotel. Construction will begin right away and the projects are expected to wrap by September 2009. Also, state-controlled Abu Dhabi Investment Authority, has purchased nearly 1% of Leighton Holdings and is expected to buy more in the future, the Australian reported.