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Mercuria interview with Reuters
01.02.2012

Brent over $100 unless OPEC boosts output

LONDON, Dec 1 (Reuters) - Brent crude oil is likely to stay above $100 per barrel well into next year unless OPEC decides to increase production, the head of one of the world's biggest energy trading companies said on Thursday.
Marco Dunand, chief executive of Mercuria Energy Trading, said world oil supplies were tight and this would probably keep prompt prices for North Sea Brent above forward barrels with the market in backwardation for the foreseeable future.
"We see $100 as a floor for Brent going into next year unless OPEC decides to change their policy and supply extra barrels to the market," Dunand told Reuters in an interview.
"We anticipate a situation where the market will remain reasonably tight for a while."
Oil ministers of the Organization of the Petroleum Exporting Countries meet in Vienna on Dec. 14 to review output. Industry analysts say a cut in output is unlikely to find support among most Gulf Arab OPEC members while oil prices remain strong.
Brent futures for January traded on Thursday around $109 per barrel, close to their average price so far this year.
Dunand said a major geopolitical shock, such as a war between Iran and the west which could close the Hormuz Strait in the Middle East Gulf, could push prices up very sharply.
"With the situation in the Middle East, there are risks to the upside," Dunand said. "The market has already started pricing in some sort of Iranian tension or conflict, but obviously the market would have a long way to go if there was a serious conflict.
"If there were to be a general conflict and the Strait of Hormuz were to be closed, not something we are expecting, it wouldn't be unrealistic to see the market to go to $130 or $150 per barrel. But I see the chance of that being reasonably low."

DEFICIT

Headquartered in Geneva, Switzerland, Mercuria is one of the top five energy traders with a turnover of around $75 billion, moving almost 120 million tonnes of oil, coal and gas a year.
Dunand and Mercuria co-founder Daniel Jaeggi, both Swiss, are influential figures in the global energy market with stakes in oilfields in Argentina and Canada, coal mines in Kalimantan in Indonesia and oil trading units in Singapore, Houston and across Europe.
Dunand said the United States was better-supplied with oil than many other parts of the world and this should keep the futures price curve for U.S. crude , known as West Texas Intermediate or WTI, close to flat for the next few months.
Recent tightness in WTI nearby futures months, which has kept much of the U.S. crude oil futures curve in backwardation for the last few weeks, was not likely to last, he said.
"There is no justification for strong backwardation in WTI given the level of oil production in North America and the level of stocks right now," he said. "We anticipate the WTI structure to be reasonably close to flat for some months."
But Brent was much stronger.
"Brent is a different animal. North Sea production has been in decline for a while, (Russian) Urals exports into Europe are also in decline, so the market is moving into a deficit from a surplus. In order to attract the barrels into a low stock environment, you have to have backwardation," he said.
"I am expecting the Brent backwardation to soften a bit in the second quarter of next year. I expect backwardation for Brent to stay for the foreseeable future, but maybe not as strong as it has been."
Dunand said Brent should thus stay at a premium to U.S. crude but the spread between the two crude benchmarks was volatile and even quite small changes in the balance between the two markets could move the differential.
A market is said to be in backwardation when nearby prices are at a premium to later, forward contracts.
U.S. crude futures traded at a discount of around $9.10 per barrel below Brent at 1100 GMT on Thursday. The spread hit a record high of more than $28 in October.
"WTI will underperform Brent for a while unless there is a major disruption somewhere. The spread will clearly not stay at the $15 to $20 per barrel (discount for WTI) which we have seen this year," Dunand said.
He said a Brent premium of $5 to $10 was more likely: "I think the spread will eventually settle around that level."

(Reporting by Christopher Johnson ; Editing by Keiron Henderson)

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Mercuria raises $1.1 bln, may sell stake next year

LONDON, Dec 1 (Reuters) - Mercuria, one of the world's top energy traders, has raised almost $1.1 billion through a loan facility and the sale of oil and gas assets, beefing up its balance sheet for future growth, its chief executive said on Thursday.
Marco Dunand told Reuters that Mercuria Energy Trading's Singapore unit was about to close the books on a $745 million revolving credit facility (RCF) with 28 banks, 19 of them Asian, in a financing exercise that had been subscribed 1.5 times.
Mercuria separately agreed to sell interests in oil and gas properties in Bakken, North Dakota to Kodiak Oil & Gas Corp , in a deal that would raise $354 million for Mercuria.
Dunand said Mercuria had had approaches from potential investors, including sovereign wealth funds, and might consider selling up to 20 percent of its equity to one or two investors by the end of 2012, but only if it found the right partner.
"We have had approaches from various potential investors including sovereign wealth funds," Dunand said in an interview.
"I don't think the sale of a stake in Mercuria is on the cards right now, but I could see it being possible by the end of next year that we could have one or two investors on board."
Mercuria, founded seven years ago and now with a turnover of around $75 billion, would strengthen its balance sheet with the capital-raising at a time of tightening global credit, and look for opportunities for acquisitions.
"With so much uncertainty around, there is a thought that maybe it is not a bad idea to have good access to cash," he said. "We believe the money raised can be used to buy other things and next year there may be increased opportunities to acquire other assets, although I am not sure where.
"So we are happy to keep our powder dry and have sufficient cash in case it's needed," Dunand said.

EXCEEDED EXPECTATIONS
Banking sources told Reuters last week Mercuria's two-tranche RCF would attract around 20 banks, with a mix of Asian, Middle Eastern and European institutions.
The RCF is split into two tranches: $535 million for one year and a three-year tranche of $210 million.
Dunand said the total amount raised could eventually exceed $745 million because a 29th bank had come in at the last moment.
"This has exceeded our expectations as we went to market looking to raise an original $500 million," Dunand said. "It is encouraging to see you can raise so much money in this market."
Nineteen of the 28 banks were Asian: "This is a reflection of the world: Europe is shrinking and Asia is growing," he said.
In a statement on Nov. 14, Denver, Colorado-based Kodiak said it would buy properties in the Williston Basin in North Dakota from an undisclosed seller for $590 million in cash and stock to expand its presence in the region.
"The timing and the price was right, and with Kodiak having other properties in the region, we believe they are best placed to reduce production costs considerably there," Dunand said.
Headquartered in Geneva, Switzerland, Mercuria, trades across multiple energy markets, moving almost 120 million tonnes of oil, coal and gas a year. It has stakes in oilfields in Argentina and Canada and coal mines in Kalimantan in Indonesia.
But despite its strong growth, Dunand is mindful of the need to maintain a strong financial position.
"European banks are looking to reduce their exposure to trade financing by as much as 25-30 percent. However, Asian banks, particularly Japanese banks, are moving aggressively into that space and they are willing to take over some of the risk."
"As a company, we can't just wait to see what will happen and so are planning accordingly. Assuming that there will be a material contraction in credit markets, which so far has not affected us, we have been preparing ourselves accordingly."
"There will be some opportunities to acquire distressed assets next year somewhere, maybe for example in the shipping market. So we appreciate having a strong balance sheet right now," Dunand said.

(Reporting by Christopher Johnson; Editing by William Hardy)

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