Energy
John Freeman
SUMMARY
After a nice turkey dinner and having given thanks for a stock market at 13-month highs, U.S. investors (well, some of them, anyway) come back to their offices today and what do they see? Just a global market meltdown of sorts thanks to Dubai's de facto default. On the crude front, oil prices have fallen almost 5% since Wednesday after Dubai World (the state-owned conglomerate) announced that it will need to restructure its ~$59 billion in debt to avoid defaulting on its liabilities. The announcement severely rattled the global markets, as many investors began to sell off both stocks and commodities amidst uncertainty regarding the continued global credit crisis. In other words, look out below today.
Hiland Holdings (HPGP/$3.16/Underperform) enters $5 million loan agreement; terminates credit facility and loan from Mr. Hamm. The partnership has entered into a $5 million loan agreement with Coppermark Bank, which will mature on April 2, 2010. As a result, the partnership has terminated its $3 million credit facility ($3 million outstanding and due by December 31, 2009) and has cancelled the term promissory note issued by Mr. Harold Hamm on November 3 for $1.5 million. We believe the remaining borrowings will be used for attorney and professional fees and various expenses related to the proposed buyout. The special meeting vote will be on December 4; unitholders are encouraged to submit proxy votes.
The Dubai default: What does it mean for oil prices? When Russia defaulted on its debt in 1998, it broke the rule that such a thing can't happen to nuclear powers. This week's shock from Dubai about a $60 billion debt "standstill" means rich Gulf OPEC countries aren't immune either. Strictly speaking, Dubai isn't in OPEC, but the UAE is. Dubai is one of the UAE's seven emirates, though it is Abu Dhabi that has 90% of the country's oil. Will the UAE's federal government, backed by Abu Dhabi, bail out its most spendthrift emirate? Thus far, it seems that the answer is no. If anything, oil prices - just like almost everything else except U.S. T-bills and the Swiss franc - plunged on the Dubai news, as the market sees it as a possible sign of a renewed global credit crisis, especially among emerging markets. And with petroleum inventories already at high levels, it doesn't take much to erase part of the gains in oil prices from the mid-$60s to the $80 level over the past two months, particularly as this move was driven almost entirely by (1) rising global equities and (2) a weak U.S. dollar. In other words, unwise financial decisions by Dubai are going to hit the near-term revenue of all OPEC countries.
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