Oil and Freight Rates Put Maersk Under Pressure

In an announcement Tuesday, Saad Sherida Al-Kaabi, president and CEO of Qatar Petroleum said that Maersk Oil, the operator of the nation's offshore Al-Shaheen field for over two decades, had lost a bid to renew its lease for oil and gas production. The field will be handed over to a new joint venture formed by Qatar Petroleum and Total (with a 70/30 equity split). 

Analysts Clarksons Platou estimate that the loss of the contract could reduce 2016 earnings for Maersk Group by $150-200 million, about equal to group earnings for the first quarter of this year. 

Al-Kaabi said that Qatar had received multiple, well-qualified offers despite the downturn in the oil markets, and that the Total/QP bid was the best match. He thanked Maersk Oil for its "significant efforts and valuable contribution in managing Al-Shaheen field during the past quarter of a century."

The field is among the world's largest; its output makes up about 40 percent of Qatar's as a whole, and while it is mature, it has potential to continue producing much more than it already has, says QP. 

Handover will occur sometime next year; Maersk Oil's 25-year lease expires in July 2017. Some of the Maersk staff in Qatar will likely be hired on by the new operator, and the firm is already planning to redeploy others to its other global operations. 

Maersk Oil says that it will now concentrate on building on its operations in the North Sea and in Kenya. "Going forward it gives us clarity and gives us a good opportunity to focus on building on our material business in the North Sea, and in Kenya and other areas," the head of Maersk Oil Jakob Thomasen told Reuters in a telephone interview.

The news comes just days after Maersk said it was considering a break-up due to worsening market conditions: it faces pressure from low freight rates in its liner business, low oil prices in its oil business and a slow offshore market for its Maersk Drilling subsidiary (although the latter has performed well in recent quarters despite the industry downturn). Maersk Group replaced its CEO last week, putting Maersk Line leader Soren Skou in the top position and ousting longtime chief executive Nils Smedegaard Andersen, who will leave the firm. 

"Replacing a CEO via an intra-day announcement and announcing a strategic review – you are not doing it for nothing. It is not because the numbers look that good," said ABN AMRO analyst Thijs Berkelder. 

Separately, Berlingske Business reported in detail on Maersk ports group APM Terminals, which is also under pressure, with profits down for six quarters running. APM chief Kim Fejfer said that the business had suffered most in nations dependent on oil revenue. "Countries such as Russia and Nigeria have been particularly hard hit. In Angola imports have been halved, and when we operate the leading import-export port in the country, that hits our performance significantly," he said. Fejfer expects 2016 earnings to be less than last year's. The unit will be reviewing its plans, especially in Latin America, where it has expanded in recent years but now intends to proceed carefully. "We must be aware that the market is not growing at the same pace anymore, so you have to be careful about adding new capacity. Our strategy now is to look at our terminals and ensure that they provide a good service," said APM's head of Latin American ports investments, Julian Fernandez.