Veteran oilman Pickens predicts $125 a barrel

The Guardian: Oil price record triggers £1.6bn private equity buyout of UK specialist

· Veteran oilman Pickens predicts $125 a barrel
· Expro sold in crunch-defying takeover scramble

Larry Elliott and Terry Macalister
Friday April 18 2008

Oil prices could hit $125 a barrel over the coming weeks amid fears of supply shortages and a continued fall in the value of the dollar, one leading investor said last night. The soaring price of crude, which reached another new record of $115 yesterday, has triggered a buyout scramble in the sector with oil services specialist, Expro International, announcing a £1.6bn takeover by Candover and other private equity groups.

T Boone Pickens, a veteran oilman who now heads the BP Capital hedge fund, said the cost of crude was moving to a substantially higher level after it touched $115.54 at one point in London trading.

Profit-taking later saw oil prices fall by a dollar to $114.53, but Pickens said the trend was for crude to go higher. “It will go up,” he said.

The price of Brent crude rose for the third day as traders responded to reports from the US suggesting that low stocks of gasoline could affect the “summer driving season”. Hedge funds have also been heavy buyers of oil and other commodities in response to the dollar’s continued weakness on the foreign exchanges.

Crude prices are more than five times higher than they were even in 2002, with some analysts arguing that peak oil – the maximum rate of production – is close at hand. Reports this week have suggested that two big producers, Russia and Nigeria, may have reached their peak oil point although Brazil lightened the gloom by announcing that companies there had made a large oil discovery.

Both the oil cartel, Opec, and many traditional oil analysts say there is enough oil around to meet all eventualities. They blame hedge funds and other speculators for driving the price up to heights that no one expected.

The soaring value of oil services firms in the current high crude price environment was underlined by the Expro deal. Shares in the Reading-based company raced ahead 10% to 1,462 pence – a 55% premium to the closing price on February 28 when the company announced the approach. However, the City still anticipated that other parties may come in with a higher offer.

Candover said it had formed a new company, Umbrellastream, with Goldman Sachs Capital Partners and AlpInvest Partners to buy Expro, which provides well testing and other oil and gas production services to leading companies.

“Umbrellastream’s cash offer provides Expro shareholders with certain value today and fairly reflects both the value that has been created during this period and the future potential of the group,” said Chris Fay, the former Shell executive who is now chairman at Expro.

Earlier expressions of interest are reported to have been made by US buyout specialist Kohlberg Kravis Roberts (KKR) and a French oil services rival, Technip, which declined to comment but could yet come in with an attempt to break up the Candover deal.

Candover has previously bought and sold stakes in oil and gas services firms Vetco International, Wellstream and other companies.

Referring to the Expro share price, Craig Howie, analyst at Blue Oar Securities, said: “People are factoring in a competing offer being made.” Keith Morris, at Evolution Securities, said that if Candover or KKR did succeed in buying Expro, the move could be expected to trigger more private equity firms switching into the buoyant oil and gas services sector at a time of a slump in other sectors due to the credit crunch and consumer downturns.

“It’s a good place to be,” he said.

This article appeared in the Guardian on Friday April 18 2008 on p29 of the Financial section.

http://www.guardian.co.uk/business/2008/apr/18/commodities.oil

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