$1bn loss for BP as cost of oil spill keeps rising

BP, the UK oil giant, chalked up a loss of more than US$1 billion (Dh3.7bn) in just three months.

The loss came after it took a $5 billion writedown and faced up to the ballooning cost of cleaning up its huge oil spill in the Gulf of Mexico.

Europe's second-largest oil company posted a net loss after exceptional items of $1.4bn for the second quarter compared with a profit of $5bn in the same period a year earlier.

"We recognise this was a weak earnings quarter driven by a combination of factors affecting both the sector and BP specifically," said Bob Dudley, the company's chief executive. The company also revealed the cost of cleaning up after the oil spill in 2010 had increased to more than $38bn. BP has sold off assets worth $24bn since the Macondo blowout and plans to raise that to $38bn through sales by the end of next year.

Impairment charges totalled $4.8bn pre-tax, as it had to writedown the value of a US refinery and shale gas assets, and take into account the decision not to pursue the development of a 40,000 barrel per day (bpd) offshore field.

Gas prices in the US have plummeted as new extraction techniques have swamped the market with natural gas and refining margins in Organisation for Economic Co-operation and Development countries have long been in decline.

The writedowns are bad news for a company seeking to rebalance its portfolio by shedding its low margin assets.

"This leads us to be concerned about BP's strategic progress," said Peter Hutton, an energy analyst at RBC Capital Markets, who called the results a "significant miss."

"We are making progress against the critical strategic and operational targets we have set ourselves and are confident that this will deliver long-term, sustainable value," Mr Dudley said.

Results were further undermined by a decline in production due to maintenance work that will affect third-quarter production.

Excluding its Russian TNK-BP joint venture, BP pumped an average of 2.275 million bpd, compared with 2.457 million bpd last year. Russian earnings were $700m lower as oil prices fell and export taxes were not adjusted to the drop.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

The White Lotus: Season three

Creator: Mike White

Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell

Rating: 4.5/5

Nepotism is the name of the game

Salman Khan’s father, Salim Khan, is one of Bollywood’s most legendary screenwriters. Through his partnership with co-writer Javed Akhtar, Salim is credited with having paved the path for the Indian film industry’s blockbuster format in the 1970s. Something his son now rules the roost of. More importantly, the Salim-Javed duo also created the persona of the “angry young man” for Bollywood megastar Amitabh Bachchan in the 1970s, reflecting the angst of the average Indian. In choosing to be the ordinary man’s “hero” as opposed to a thespian in new Bollywood, Salman Khan remains tightly linked to his father’s oeuvre. Thanks dad.

NO OTHER LAND

Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal

Stars: Basel Adra, Yuval Abraham

Rating: 3.5/5

How to wear a kandura

Dos

Wear the right fabric for the right season and occasion
Always ask for the dress code if you don’t know
Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
Wear 100 per cent cotton under the kandura as most fabrics are polyester

Don’ts

Wear hamdania for work, always wear a ghutra and agal
Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying