Developing new investment strategies to take account of economic slowdown
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«International Herald Tribune», Wednesday, October 27, 2010 - With the current economic slowdown felt around the world, investments have come under pressure, and the upstream oil and gas sector provides no exception.
This has led to a restructuring of the pat tern of investments—a trend Kazakhstan, on which the recent financial turmoil has had a profound impact, is bound to feel now and for a long time to come.
More investment will be required to keep output growth steady, which calls for an overall rationalization of investment management and policy, engaging all sides involved. This was the overall bottom line in a number of presentations given by a panel at the recent KAZENERGY Eurasian Forum in Astana under the title ‘‘New Opportunities: Investment Climate of the Caspian Region.’’
Speakers at the panel included Simen Munter, at the helm of HSBC bank’s Kazakh operations; Mark Rollins, senior vice president of the BG Group for Central Asia and president of BG Kazakhstan; and Tim Miller, general director of Tengizchevroil, the consortium in charge of the exploitation of Kazakhstan’s largest operative oil field, Tengiz, in which Chevron holds a 50 percent stake.
Speaking about the impact of sustainable investments, Miller pointed out that, as of August this year, the members of the consortium had spent $42.2 billion in Kazakhstan since starting operations back in 1993 —including taxes, fees and royalties to the state, salaries to staff and bills for supplies and services delivered locally. In the first eight months of 2010 alone, expenditures amounted to $6.3 billion —compared with $5.6 billion for the full year 2009.
BG is a partner and fellow operator alongside Italy’s Eni in the northern field of Karachaganak, which has major oil and gas reserves and one of the world’s richest gas condensate deposits. The group’s cooperation with Kazakhstan goes even further back.
In December 2008, BG signed an agreement for global project-sharing with KazMunaiGas Exploration Production (KMG-EP), the upstream subsidiary of the national oil and gas company.
‘‘The agreement sets out the principles of a joint study of the hydrocarbon reserves potential of specific areas in Kazakhstan and other countries,’’ says BG on its Web site. ‘‘The companies are working in partnership to identify opportunities across a range of potential oil and gas exploration and production projects. A joint team examines specifically targeted regions and recommends prospective acreage to the partners for their consideration. A second, downstream, cooperation agreement has been signed with KMG to examine ways to increase gas utilization in Kazakhstan.
‘‘Work is under way on a compressed natural-gas pilot project in Almaty aimed at increasing gas usage and improving the environment by reducing vehicle emissions. Further work has commenced on gas-industry regulation.’’
Touching upon the core theme of upstream financial resources, HSBC’s Munter said that there are major shifts going on in terms of overall investment patterns in the upstream oil and gas business around the world.
‘‘Emerging markets are not as dependent on developed economies as they used to be,’’ he noted in his presentation. ‘‘Who depends on whom is unclear today. Trade between emerging economies is growing twice as fast as global world trade. Growth is heading south; debt is heading north.’’
Munter sees three major equity and three debt instruments for financing upstream operations: equity capital markets, sovereign wealth funds and financial investors; and banks, bonds and export credit agencies. The last one’s role is growing fast, while that of bonds is retreating in terms of importance.
According to Munter, a more complex model of investment strategy is emerging, which he dubs structured trade finance.
‘‘Structured trade finance facilities involve monetization of commercial long-term agreements, thereby shifting focus from the strength of the borrower to the underlying cash flow and structures to enhance safety of financing,’’ the executive explained at the conference.
According to Daniel Stein, a senior adviser in the office of the U.S. State Department’s special envoy for Eurasian energy, Kazakhstan serves as a model for adapting investment strategy to new trends and attracting partners from abroad.
‘‘Kazakhstan has been in the past a good example of the success that can be achieved through international cooperation in developing its energy resources,’’ Stein noted. ‘‘It has a well-founded reputation for presenting an attractive investment climate to international oil companies. This has resulted in very large and productive investments by those companies, investments that not only bring significant revenue to Kazakhstan’s government, but also broader economic benefit through technology transfer and training of large numbers of Kazakh citizens. Indeed, most of the personnel now working for the international oil companies in Kazakhstan are Kazakhs.’’
CHARLES van der LEEUW
«International Herald Tribune», Wednesday, October 27, 2010