Shell; Corruption; O2: Business news in brief, Tuesday 6 September 2016

Oil companies to expand production into 2020; Government to assess new corporate corruption laws; Telefonica could float British mobile network

Ben Chapman@b_c_chapman
Tuesday 06 September 2016 16:12
Shell arctic oil rig, Polar Pioneer - The company is expecting strong expansion of 8 per cent per year despite environmental concerns
Shell arctic oil rig, Polar Pioneer - The company is expecting strong expansion of 8 per cent per year despite environmental concerns

Despite cuts, oil giants look to expand production

Never mind the drop in crude prices, huge spending cuts and thousands of job losses, the world's top oil and gas companies are set to produce more than ever for some time.

While top oil companies struggle with slumping revenues following a price rout after years of spectacular growth, their production has grown as projects sanctioned earlier in the decade come on line. Overall production at the world's seven biggest oil and gas companies is set to rise by around 9 per cent between 2015 and 2018, according to analysts' estimates.

With an expected recovery in prices, the increased production should boost cash flow and secure generous dividend payouts, which had forced companies to double borrowing throughout the downturn.

“There are a lot of projects coming on stream over the next three years that will support cash flow and ultimately dividend,” Barclays analyst Lydia Rainforth said.

And despite a drop in new project approvals, companies have throughout the downturn cleared a number of mammoth undertakings such as Statoil's Johan Sverdrop oilfield off Norway and Eni's Zohr gas development off the Egyptian coast.

Others opted to acquire new production, such as Royal Dutch Shell, which bought smaller rival BG Group for £40.51bn this year, and Exxon Mobil through investments in Papua New Guinea and Mozambique.

Shell is expected to see the strongest growth among its peers over the next two years at 8 per cent, according to BMO Capital Markets.

Production is unlikely to drop after 2020, and could post modest growth as companies continue to bring projects onstream, albeit at a slower pace, BMO analyst Brendan Warn said.


Government to assess new criminal laws for companies

Prime Minister Theresa May's Government is to look at bribery and corruption laws  

The Government will press ahead with discussions to make it easier to prosecute companies for a wider range of corruption, according to Attorney General Jeremy Wright, in an indication the new Prime Minister is behind the much-debated legislation.

Speaking at the Cambridge International Symposium on Economic Crime on Monday, Mr Wright said Theresa May’s priority of expanding economic opportunities means businesses “of all sizes” should be better held accountable for their failures.

Prosecutors, academics and corruption lobbyists have petitioned the government for years to widen UK bribery laws to allow corporate prosecution for failing to prevent economic crimes such as fraud and money laundering.

Companies can already be pursued for failing to prevent bribery on their watch. After discussions in which it appeared the country was pressing ahead, the Government abandoned the change last September, claiming there was “little evidence of corporate economic wrongdoing going unpunished.”

That decision was reversed earlier this year when David Cameron told an anti-corruption summit in London the consultation had been re-opened. Mr Wright’s comments are the first indication that view has been carried forward by Ms May, who took office in July.

“The Government will soon consult on plans to extend the scope of the criminal offence of a corporation ‘failing to prevent’ offending beyond bribery to other economic crimes, such as money laundering, false accounting and fraud,” Mr Wright said.

Mr Wright added that the scandal over the manipulation of the London interbank offered rate, or Libor, was an example of other countries being better equipped to chase crimes at UK companies. The US obtained a number of guilty pleas from banks over the rigging of the rate, while the UK only took regulatory action.


Telefonica considering flotation of O2 this year

o2 owner Telefonica is considering an initial public offering for the British mobile operator

Telefonica could hold an initial public offering of O2 this year if market conditions are favourable, as the Spanish carrier seeks funds to pay off debt, chairman Jose Maria Alvarez-Pallete said.

“We have been working to list it, we could do it by year’s end,” Mr Pallete told reporters in Spain. Selling a stake in the O2 unit to a strategic investor is also still an option, he said.

Telefonica was counting on proceeds from the sale of O2 to Hong Kong’s CK Hutchison to reduce debt, before the European Union in May blocked the deal on competition concerns. The O2 sale, an IPO of Telefonica’s infrastructure unit Telxius and increasing free cash flow generation will allow Telefonica to meet its target of lowered debt, Mr Pallete said.

The company expects free cash flow and operating income before depreciation and amortisation, or Oibda, to be higher in 2017 than in 2016, Mr Pallete said, without forecasting how much either metric would be.

Shares of Telefonica advanced 1 per cent to €9.27 (£7.76) at 9.39 in Madrid but have declined about 9 per cent this year.

Despite debt concerns, the company’s annual dividend of 75 cents a share is sustainable, Mr Pallete said. Telefonica could maintain the payout at that level in 2017 by giving shareholders stock if needed — a so-called scrip dividend — allowing the company to keep more cash available.


French ex-minister in court over tax fraud

Former French budget minister Jerome Cahuzac arrives in court on tax evasion charges

A former French budget minister went on trial on Monday for hiding his wealth in tax havens around the world including the Isle of Man, while at the same time leading the government's fight against tax evasion.

Jerome Cahuzac appeared in a Paris court on charges of tax fraud and money laundering that saw him resign in 2013 in one of the biggest political scandals under President Francois Hollande.

The 64-year-old former cosmetic surgeon is accused of concealing at least €687,000 (£840,000) in income from tax authorities in 2009-2012. He is also accused of laundering money in 2003-2013 through foreign bank accounts in Switzerland and Singapore, as well as dummy companies in Panama and the Seychelles.

Cahuzac, who acknowledged evading taxes for two decades, faces up to seven years in prison and a €1m fine if convicted.

The fraud helped him finance a lavish lifestyle, such as expensive holidays, court documents show. Investigators discovered that Cahuzac paid bills to one luxury hotel for a total of €127,000 for several stays with his ex-wife and their three children.

With the French presidential election eight months away, the trial is likely to revive voters' memories of the scandal that tarnished Mr Hollande's mandate just a few months after the socialist president was elected in 2012, promising higher taxes on the rich. Mr Hollande is widely expected to seek a second term next spring.

On trial alongside Cahuzac are his former wife Patricia Menard, a banker, a legal adviser and Reyl, a respectable but little-known Swiss bank, all accused of money laundering.


Chinese President Xi tells May he is open to trade deal

Theresa May, with Chinese President Xi Jinping at the G20 summit

Chinese President Xi Jinping told Theresa May he was open to a bilateral trade agreement between the two countries, a British official told reporters at the G20.

“Xi said that they wanted to look at how we could strengthen our trading and economic relationship and that China was open to a bilateral trade arrangement with the UK,” the official, who spoke on condition of anonymity, said.

The official also said Mr Xi had told Ms May that China would remain patient while her government gets to grips with decisions taken by her predecessor.

Since taking office, Ms May has delayed a decision on whether to back the Chinese-funded Hinkley Point nuclear plant.

“He recognised the new government would need to take some time before reaching decisions on some agreements pushed by the last government.”


Sainsbury’s accelerates Argos roll out

Sainsbury’s says it is prepared to walk away from the HRG deal

British supermarket group Sainsbury's said on Monday it planned to introduce Argos digital concessions to more than 20 additional stores by Christmas, as it seeks to benefit quickly from its purchase of Home Retail.

Sainsbury's completed the acquisition of Argos and Habitat owner Home Retail on Friday, five months after a £1.4bn deal was sealed.

The purchase will accelerate the food retailer's growth by creating Britain's largest general merchandise retail business and will also expand Sainsbury's online presence.

The additional Argos concessions, ranging in size from 1,000 sq ft to more than 5,000 sq ft, will take the total to more than 30.

There were already 10 Argos concessions in Sainsbury's stores under Home Retail's ownership.

Customers will be able to buy Argos products instantly in-store via tablets, or reserve online for same-day collection.


Transferwise volumes rise to £800m per month

Transferwise said customers were now transferring £800m in more than 600,000 transactions each month as the London-based money transfer website gave monthly transaction volumes and values for the first time publicly on Monday.

An annual report for the site showed it had tripled revenue to £28m in the year to March, but the firm also said that figure was now around £5m a month, having doubled in the past 12 months.

It said transaction volumes were also up 50 per cent in the past six months, while the amount transferred for customers between different currencies each month had risen from around £500m a year ago.

The company's existing investors include US venture capital firm Andreessen Horowitz, Peter Thiel's Valar Ventures and Sir Richard Branson.


JPMorgan’s Tim Throsby to Run Investment Bank

Barclays named JPMorgan’s Tim Throsby to run the corporate and international division, including oversight of the investment bank, as Jes Staley, chief executive, filled the final vacancy on his top management team.

Mr Throsby, 50, will take on the role in January, subject to regulatory approvals, Barclays said in a statement on Monday. Mr Throsby joined JPMorgan in 2010 and was named global head of equities two years later, running the business from London.

Before joining Barclays in December, Mr Staley spent more than three decades at JPMorgan and has recruited extensively from the US firm as he reshaped his senior management team.


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