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Titans of oil world meet in Houston after two year price war


´╗┐The biggest names in the oil world come together this week for the largest industry gathering since the end of a two-year price war that pitted Middle East exporters against the firms that drove the shale energy revolution in the United States. When OPEC in November joined with several non-OPEC producers to agree to a historic cut in output, the group called time on a fight for market share that drove oil prices to a 12-year low and many shale producers to the wall. Oil prices are about 70 percent higher than they were the last time oil ministers and the chief executives of Big Oil met in Houston a year ago at CERAWeek, the largest annual industry meet in the Americas. The ebullience as both sides enjoy higher revenues will be a welcome relief from the gloom of a year ago, near the depths of the price war."The oil market has been rebalancing and the powerful forces of supply and demand have been working," said Dan Yergin, vice chairman of conference organizer IHS Markit and a Pulitzer Prize-winning oil historian."The mood will be different this year."The capital of the U.S. oil industry Houston is emerging from the price war sporting new downtown skyscrapers and the lingering glow from hosting last month's Super Bowl. OPEC's November deal, the prospects for its continuation and rosier investment prospects for the industry will dominate the discussions, with state-run producers and Big Oil both positioning themselves for an upturn in the notoriously cyclical business.

Twice as many OPEC ministers as a year ago - plus Russia and India's top energy officials - will be in the capital of the U.S. energy industry. Saudi Arabia's energy minister Khalid al-Falih, who assumed his role last spring and whose country has contributed the largest share of OPEC output curbs, addresses the meeting on Tuesday. Russian Oil Minister Alexander Novak, who was key to bringing non-OPEC countries on board to cut in tandem with OPEC, will speak on MondayChief executives from five hard-hit international oil producers - BP, Chevron Corp, Exxon Mobil Corp, Royal Dutch Shell and Total - will be listening closely to the ministers' comments to see if those production curbs will be extended past their June expiration. The meeting won't be without simmering tension between U.S. oil producers and OPEC. One of the biggest questions in the oil market is how quickly and how much shale producers will boost output. A sharp rise from the U.S. shale patch could undo the Saudi-led deal to reduce the global oil glut.

Shale activity is humming in the hottest U.S. oilfield, the Permian Basin, a 75,000 square mile expanse in West Texas. The U.S. land drilling rig count is up 55 percent in the past 12 months, and many of them are in the Permian."It's exciting now to see the rig count rising and business activity picking up again," said Peter Boylan, chief executive of Cypress Energy Partners LP, an oilfield service provider with operations in Texas and North Dakota. MORE SPENDING

Oil's resurgence isn't confined to America. Already this year, Total and BP have launched multi-billion dollar deals to expand in Brazil and Mauritania, respectively. Better prices could stir a new round of merger activity, according to some analysts. Exxon, which is expected later this year be eclipsed by Saudi Aramco as the world's largest publicly traded oil producer, recently pledged to boost this year's spending by 16 percent to expand operations, especially in shale production. That newfound investment vigor and projections for stronger shale production have kept a lid on the recovery. Oil prices may struggle to breach $60 per barrel, regardless of how much OPEC cuts, if the U.S. keeps increasing production, according to a Reuters poll. U.S. crude futures closed on Friday at $53.33 per barrel. BHP Billiton has boosted investment in its shale operations since last fall, forecasting the sector to become the single largest generator of cash flow for its petroleum business within five years. "We expect a balanced oil market in 2017 for the first time in nearly three years," said Steve Pastor, president of BHP's petroleum business.

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Trlpc loan bankers seek ways to generate deals as lbos dry up


´╗┐European leveraged loan bankers are pitching dividend recapitalisation deals and other leveraged financing options to sponsors as the supply of buyout loans dries up. Faced with very little dealflow and time on their hands, leveraged loan bankers are inviting sponsors to reprice deals on better terms to reduce borrowing costs, remove covenants on deals that are not covenant-lite and raise extra debt to enable borrowers to extract value through dividend payments."People are nervous about the lack of deal flow. Bankers are pitching anything and everything right now as the high yield and leveraged loan markets are open," a banker said. Despite a strong start to the year where banks were busy working on a variety of LBOs, including Austrian packaging group Constantia Flexibles, Altice's Portugal Telecom and Swiss packaging group SIG Combibloc, the pipeline has now dried up. The outlook for new deals is being hindered further as owners have become increasingly attracted to exiting a company via the capital markets rather than a sale, in a bid to obtain maximum returns.

European drinks bottler Refresco Gerber is seeking a stock market listing in Amsterdam, disappointing leveraged loan bankers that had been working on debt packages of up to 1.4 billion euros ($1.52 billion) to back a potential sale. Advent is preparing an exit from German perfume chain Douglas and has asked JP Morgan and Goldman Sachs to organise a sale or listing, while Cinven mandated Rothschild in January to explore options including a sale or listing of its German truck and trailer parts maker Jost. Meanwhile, Hellman & Friedman are expected to push ahead with an IPO of energy analysis group Wood Mackenzie. Any M&A that does happen will take some months to reach the leveraged loan market leading bankers to try to generate business by changing existing deals.

"We would all like more LBO deals for sure. A month ago it did not look likely there would be that much refinancing this year but actually its looks as though there will be now. Dividend recapitalisations and repricings are what will be happening at least in the short term, it is what keeps things ticking over," a second banker said.

WINNERS AND LOSERS Sponsors are viewing the approach as positive, eager get better terms on deals. Conversely, cash-rich investors are preparing for looser terms on more aggressive deals. Investors are unlikely to put up too much of a fight though for fear of repayment, given the lack of deal flow."Every deal we have ever looked at we are talking to sponsors about doing a dividend recapitalisation on. Any banker who has ever done a deal will look at what they can do as possible investors have cash bursting out of their ears," a third banker said. Despite keeping bankers busy, the workflow is unlikely to be that rewarding or cash generative as most of the deals will be pitched on a best efforts basis, which typically generate fees of 50bp-100bp."If a big team is not bringing in income then they have the head count to chase the sponsors and pitch for this work, but there is no money in it though," a fourth banker said. ($1 = 0.9196 euros)