Big Oil takes stage for post-austerity beauty contest

Total announced plans to increase dividends by 10 percent, buy back $5 billion of shares by 2020 and abolish its so-called scrip policy introduced in the lean years of offering shares instead of cash dividends. (Reuters)
Updated 12 February 2018

Big Oil takes stage for post-austerity beauty contest

LONDON: With years of austerity in their rear-view mirrors, the world’s biggest oil companies are locked in a beauty contest to lure investors with promises of growth and greater rewards.
Royal Dutch Shell and Total are emerging as frontrunners after a three-year slump thanks to strong growth projections but Exxon Mobil, the biggest publicly traded oil company, has largely disappointed with a weaker outlook.
Major oil companies slashed spending and cut costs after oil prices collapsed in 2014 and can now generate as much cash with crude at $50-$55 a barrel as they did when the price was around $100 earlier in the decade.
Cash flow at oil companies in 2017 rose to its highest since before the slump, helped by the drastic cost-cutting plans and a recovery in oil prices, and executives are once again turning their attention to growth.
With crude expected to hold above $60 a barrel into the end of the decade, major oil companies are confident they can boost already attractive payouts to shareholders.
Total sent the strongest signal, announcing plans to increase dividends by 10 percent, buy back $5 billion of shares by 2020 and abolish its so-called scrip policy introduced in the lean years of offering shares instead of cash dividends.
Analysts at Bernstein hailed the French company, which reported a 28 percent rise in fourth-quarter profit on Thursday, as “the new benchmark in shareholder returns” and upgraded their share recommendation to “outperform.”
“Clearly the US companies disappointed more whereas Total cheered everyone up together with Shell, even if it had a small miss,” said Alasdair McKinnon, portfolio manager at The Scottish Investment Trust.
Norway’s Statoil and US company Chevron have also raised their dividends over the past week, while BP was ahead of the pack by resuming share buybacks in the fourth quarter of 2017.
Shell, whose profits and cash flow beat Exxon’s last year, is now set to buy $25 billion of shares by the end of the decade after abolishing its scrip policy in November.
Analysts say Exxon remains an outlier after a disappointing drop in cash flow and production in the fourth quarter raised concerns among investors about its strategy.
Shares of the Irving, Texas-based company have fallen by more than 10 percent over the past week, wiping $35 billion off its value. Its stock has trailed rivals significantly over the past two years, reflecting its weaker outlook.
“All the majors are cheap at the moment but maybe Exxon is not the best major out there. We prefer Shell,” McKinnon said.
Shell’s shares have outperformed rivals with total shareholder returns of 90 percent over the past two years, said Simon Gergel, chief investment officer for UK equities at Allianz Global Investors.
“We were encouraged by the cost cutting plans of the company and the potential transformation of its future cash flows,” he said.
After three years of finding ways to save money through job cuts, lower exploration budgets and harnessing new technology to become more efficient, executives have moved growth to the fore and are scrambling to outshine each other.
“The priority of the board is to maintain our ambitious growth and continue to add value for shareholders,” Total Chief Executive Officer Patrick Pouyanne told investors on Thursday.
During a meeting with analysts last week, Shell Chief Executive Ben van Beurden and Chief Financial Officer Jessica Uhl said nine times that their goal was to make the Anglo-Dutch company a “world-class investment.”
The ambitious Dutch CEO has publicly said he wants Shell to challenge Exxon’s financial dominance in the sector, even though the US giant is still significantly larger than Shell by market value.
To reach that goal, Shell made by far the boldest move in the downturn, buying rival BG Group for $54 billion in 2016 and transforming the company into the world’s largest liquefied natural gas (LNG) trader and a major oil producer in Brazil.
But Shell was not the only one to take advantage of the slump to secure growth by snapping up rivals reeling from the slide in Brent crude from a 2014 high of $115 a barrel to just $27 in January 2016.
Total bought Maersk Oil for $7.5 billion and Engie’s LNG business for $1.5 billion last year, BP made a number of investments in Africa and Norway while Exxon boosted its US shale position with a $6 billion acquisition.
Biraj Borkhataria, an analyst at RBC Capital Markets, said while Shell still had the strongest potential to return cash to investors, a measure known as shareholder yield, Total was now close behind following its results and dividend announcements.
“Total is the clear winner to us so far, with a growing dividend and buyback combination that is closer to Shell in terms of total return, but with more upstream growth and less reporting volatility,” Borkhataria wrote in a note.


Goldman Sachs hit with record $350m fine for 1MDB failings

Updated 47 sec ago

Goldman Sachs hit with record $350m fine for 1MDB failings

  • Hong Kong watchdog accuses investment bank of ‘serious lapses and deficiencies’ over $2.6bn wealth fund scandal

HONG KONG: Hong Kong’s markets watchdog on Thursday fined Goldman Sachs’s Asian business $350 million for its role in Malaysia’s multibillion-dollar 1MDB scandal, the largest single fine ever levied by the regulator in the Asian financial hub.

The Securities and Futures Commission (SFC) said serious lapses and deficiencies in management controls at Goldman Sachs (Asia) had contributed to the misappropriation of $2.6 billion raised by the Malaysian sovereign wealth fund.

1Malaysia Development Berhad (1MDB) raised the funds in three bond offerings in 2012 and 2013.

A Goldman Sachs spokesman said the Wall Street bank would issue a statement in due course.

The 1MDB scandal has been a costly and long-running sore for the US investment bank.

In July, Goldman agreed to pay $3.9 billion to settle Malaysia’s criminal probe and this week it is expected to agree to pay more than $2 billion to settle US charges over its role in the scandal.

FASTFACT

$4.5 Billion

Malaysian and US authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe.

Malaysian and US authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.

The three bond offerings, which raised a combined $6.5 billion, were arranged and underwritten by UK-based Goldman Sachs International, with work conducted by deal team members in multiple jurisdictions, who shared the revenue generated.

The SFC said Goldman Sachs Asia, the bank’s Hong Kong-based compliance and control hub for the region, had significant involvement in the origination, approval, execution and sales process of the three bond offerings.

The bank’s Asia hub had earned $210 million from the offerings, the largest share among the various Goldman entities.

“This enforcement action is the result of a rigorous, independent investigation conducted by the SFC,” said Ashley Alder, the SFC’s CEO.

The 1MDB bond deals were obtained for Goldman by its banker Tim Leissner, who in August 2018 admitted that he had conspired with Malaysian financier Jho Low and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials to obtain and retain the business from 1MDB for the bank.

US court documents show Low was rejected as a private wealth management client on several occasions as his source of wealth could not be verified, resulting in a potential money laundering risk.

Nonetheless, Goldman’s regional and firm-wide committees that vetted the bond offerings accepted Leissner’s false assertions that Low had no roles in the bond offerings without making further inquiries, the SFC said.

“Apart from the involvement of Low, there were a number of red flags present in the bond transactions which should have called for a closer examination of the corruption and money laundering risks involved,” its statement of disciplinary action said.

These included the fact that the amount raised far exceeded the actual needs of 1MDB, and the sovereign wealth fund’s willingness to pay high fees and repeated emphasis on confidentiality and speed of execution, the SFC said.