International
Markets News: Algerian Government approves Petroceltic sale of stake to Italian oil company Enel
By Finfacts Team
Dec 19, 2011 - 9:04 AM

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The death of Kim Jong Il, the dictator who used fear and isolation to maintain power in North Korea while using the threat of nuclear weapons to threaten his neighbours and the US, unsettled Asian markets on Monday, in particular in Seoul, capital of South Korea.

Kim, who was 69 or 70 years old, according to varying accounts, died from fatigue during a train ride on Saturday, a weeping television announcer said.

Bloomberg reports that Prince Alwaleed bin Talal, the largest individual investor in Citigroup Inc. (C), and his Kingdom Holding Co. invested $300m to buy a “strategic stake” in microblogging service Twitter Inc.

Petroceltic: The Algerian Government has cleared a deal for Irish explorer Petroceltic to sell 18.4% of its Algerian assets to Italian Oil and Gas major, Enel, for a figure which may be as high as $180m.  The final deal will be contingent on the level of reserves in the Ain Tsilla oil field. 

Gerry Hennigan, analyst at Goodbody, comments  -- "The much anticipated and long awaited approval by the Algerian Council of Ministers of the sale of a 18.4% stake in the Isarene permit from Petroceltic to Italian utility Enel, was finally granted over the weekend. Formal completion of the transaction will now take place within five days, post which agreed payment of exploration back-costs ($36.75m) and a 49% share in the costs associated with the recently completed appraisal campaign (c$67m) will be paid to Petroceltic within thirty days.

In total, Petroceltic will receive in excess of $103m with a potential bonus payment (up to $75m), contingent in part on ultimate field reserves, paid after the Decaration of Commerciality, which is currently anticipated to occur in Q312. While the latter is clearly material in its own right (we currently assume a bonus payment of $37.5m), the significance of this morning's announcement is that the pending cash injection of c$103m ensures that Petroceltic is now fully funded beyond 2012.

One obvious application of the cash will be to repay any funds drawn-down from the $30m Macquarie loan facility. That facility was granted in exchange for 15m warrants (2.3bn shares outstanding as of June) at a price of 4.52p with the option of a further 25m warrants should the facility be drawn down. Beyond that, management has publicly stated its desire to add to the portfolio with Egypt and Tunisia the apparent regions of interest. The level of funds available for M&A will in part depend on the terms agreed in the farm down of a further 18.4% interest to an operator, an event likely to occur post submission of the Development Plan in January. That event is the obvious next catalyst for the share price.

Given a successful conclusion to the appraisal campaign, terms in any future farm-down are likely, in our view, to exceed those agreed with Enel, even if those terms take the shape of a 'carry' on development costs, rather than another cash injection. As of today, however, the removal of any lingering uncertainty over the Enel payment should be broadly welcomed by the market this morning and thus help to bridge the gap between the share price and our total risked NAV of 11.9p."

Ireland back in the spotlight as GDP contracts in Q3: Conall Mac Coille, chief economist at Davy, comments  -- "The publication of Ireland's GDP growth figures for the third quarter on Friday attracted the attention of the international financial press. That Irish GDP fell by 1.9% in the third quarter was taken by some as a precursor of the broader impact of the debt crisis on the European economy and that the exceptionally strong Irish recovery in the first half of 2011 had faltered in Q3.

However, to do so reads too much into quarter-on-quarter changes in Irish GDP. Just as the 1.8% and 1.4% rises in GDP in Q1 and Q2 overstated the strength of the Irish economy, the 1.9% fall in Q3 in part reflects volatility in the data. A 20.9% decline in the volatile investment spending component made a negative 2.2 percentage point contribution to GDP growth, more than accounting for the entire 1.9% fall in GDP. The decline in investment spending was offset by a positive contribution from net trade. 

The Central Statistics Office indicated that the fall in investment was due to a very sharp decline in aircraft orders. In previous years, falls in the aircraft orders component have quickly rebounded. So the sharp decline in investment spending in Q3 may be temporary, and a rebound would push up on growth in Q4.

More worrying is the renewed contraction in consumer spending. Consumer spending stabilised in Q2, following sharp falls in the previous two quarters, but fell by 1.3% in Q3. Consumption is down 4.0% on the year. Higher CPI inflation and tax increases have pushed down on real incomes as expected. But a key risk looking ahead to 2012 is that the impact of lower real incomes may have been amplified by households continuing to increase their savings given uncertainty about economic prospects.

Overall, the Q3 figures are broadly consistent with our own forecasts for GDP growth of 1.1% in 2011. Even if economic activity fell by 0.5% in the final quarter, calendar year GDP growth would equal 0.7% in 2011. In addition, any bounce-back in investment spending could push GDP growth in Q4 into positive territory. That said, the Irish GDP data are extremely volatile and subject to revision. So even at this late stage of the year, it is difficult to be confident about the final outcome for calendar year growth in 2011.

The bigger question is how Ireland's economy will fare in 2012. Clearly, weakening euro area demand will push down on Irish exports; how much will depend on the performance of key export sectors such as pharmaceuticals, food and beverages and computer and business services. We expect to reduce our projections for Irish GDP growth in 2012 when we revise our forecasts in the near future. But the key factor driving downward revisions will be the recent events in the euro area rather than the volatile performance of investment spending evident in Q3."

First Half of 2012 Is Going to be Very Difficult: Economist; Thomas Mayer, chief economist at Deutsche Bank, told CNBC, "risk assets are likely to do well at the end of 2012, but I think the first half of next year will be quite difficult because this will be the time when the euro area economy will go into deep recession and it will be the time when we will actually get a better feel of whether the euro is going to survive going forward":

Economic View: Disappointing Q3 GDP takes some gloss off the Irish story; Dermot O’Leary, chief economist at Goodbody, comments - - "After two consecutive quarters of expansion, Friday’s National Accounts data revealed that the Irish economy contracted once again in Q3, with GDP and GNP falling markedly. Irish data can be exceptionally volatile, but the signs of weakness in the numbers are clear to see. On a quarterly basis, both GDP and GNP fell by c.2% (seasonally-adjusted). On an annual basis, GDP fell by 0.1%, while GNP declined by 4.2%. The reason for the large difference here is a familiar one – net exports continue to contribute strongly to growth while domestic demand continues to decline sharply. In Q3, domestic demand fell by 6% yoy, with a particularly large fall in investment in the quarter, although consumption trends also deteriorated (-4% yoy in Q3).

Analysis of nominal GDP is important for Ireland’s debt dynamics. While the volume of GDP will still grow on an annual basis in 2011, nominal GDP will be down. This has important implications for growth in tax revenues for example and for debt/GDP and deficit/GDP ratios. The major reason for a falling nominal GDP this year is down to trade, with import prices rising strongly, mainly on the back of higher energy prices, which may reverse next year.

Going into 2012, the challenges for the Irish economy remain daunting. While Ireland has been described by some as the poster boy of austerity of late, Friday’s disappointing GDP will take the gloss off the Irish story somewhat."

Asia Markets

The MSCI Asia Pacific fell 2.2% Monday.

Japan's Nikkei 225 dropped 1.26%; China's Shanghai Composite dipped 0.30%; Australia's S&P/ASX 200 declined 2.38% and the Bombay Stock Exchange Sensex 30 index in Mumbai slipped 1.71%. South Korea's Kospi slid 3.15%.

Asia benchmarks

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.46% in early trading Monday.

The ISEQ has risen 0.28% in Dublin.

Petroceltic is up 1 cent or 5.49%. CRH has risen 1.38%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3025 and at £0.8411.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday last week, the BDI fell 1 point or 0.05% to 1,888.

Crude oil for December 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $93.12 down 41 cents from Friday's close. In London, Brent for December delivery is trading on the International Commodities Exchange at $102.93. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is over $9 - - The Globe and Mail says that for the past 10 months, Canadian producers - - whose prices are tied to WTI - - have been taking steep discounts for their oil compared with international crude prices that are benchmarked against North Sea Brent, which can be shipped more readily. In the past, WTI tended to trade at a small premium to Brent, because it is easier to refine.

That spread hit a peak of $28.08 (US) on Oct. 14, but has fallen dramatically since then. After plans for more pipeline capacity at Cushing, Oklahoma, the differential narrowed.

Gold spot price

The spot price of an oz of gold is trading in New York is at $1,596.30 down $2.90 from Friday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 6.

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