Business Blog Posts

Brent crude oil futures rose by more than $2 to as high as $108.18 per barrel, before giving up some of the gain, on continued fears that violence in Libya could lead to wider supply disruptions from the OPEC country.

Japan's Nikkei 225 index .N225 was down 1.96 percent and the MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS was off about 1.8 percent.

Moody's Investors Service changed the outlook on Japan's Aa2 sovereign rating to negative from stable, warning that government policies may not be enough to rein in public debt.

"The market is not reacting much to the decision," said

Takeshi Shibasaki, chief financial analyst at Mizuho Securities. "Standard and Poor's has already cut Japan's rating, and separately there already were expectations among participants that Moody's would do something."

European stocks lost more than 1 percent on Monday on a combination of fears over Libya, where Muammar Gaddafi faced a mounting revolt against his 41-year rule, signs of imminent interest rate rises and more evidence of a poor earnings season.

U.S. markets were closed Monday for a holiday.

The U.S. dollar edged up against a basket of major currencies, although the Australian dollar eased and could suffer further declines as mounting tension in the Middle East drives investors to cut risk.

Dealers said thin trading due to the U.S. holiday kept markets subdued overnight, although this was punctured in early Asian trade by a flurry of activity as the dollar surged some 30 pips against the yen to 83.50, followed by a hasty retreat back to 83.16.

Traders said there was some confusion about what triggered the move, with some saying it was a miscommunication on the execution of the trade and others saying it was an attempt to break the 114.00 barrier for euro/yen.

The euro traded at $1.3676, continuing to struggle after failing to hold above $1.3700. The single currency also lacked the vigor to break above key resistance after Germany's main ruling party suffered a crushing defeat at a regional election in the city-state of Hamburg on Sunday.

Brent crude for April delivery stood at $106.86 per barrel. On Monday, it had hit a two-and-a-half year high for any nearby month of $108.70. The unrest in Libya shut down 6 percent of oil output in Africa's No.3 producer and prompted a number of energy firms to pull out international staff, sending Brent oil prices above $105 a barrel.

Libyan forces loyal to Gaddafi, the world's second-longest-serving ruler after the Sultan of Brunei, have fought an increasingly bloody battle to keep him in power with residents reporting gunfire in parts of the capital Tripoli and one political activist saying warplanes had bombed the city.

Security forces had killed dozens of protesters across the country, human rights groups and witnesses said, prompting widespread condemnation from world leaders.

Under Chief Executive Mike Duke and new U.S. chief Bill Simon, the world's largest retailer is stocking more goods and has a renewed focus on consistently low pricing.

Tuesday's quarterly results will show whether the fresh management team at the U.S. discount chain was able to make a difference in the key fourth quarter.

While Wal-Mart has expanded into more than a dozen countries and is ripe for further international growth, the U.S. stores still represent the lion's share of its business.

Nearly 64 percent of its $405 billion in fiscal 2010 sales came from the U.S. discount stores, and they are key to pleasing Wall Street.

"The U.S. business has to remain healthy or the stock price isn't going to be healthy, and that's the trick at this point in time," said Patty Edwards, chief investment officer of Trutina Financial.

Shares of Wal-Mart have risen 2.7 percent since the beginning of the year, trailing gains of about 7 percent in the Standard & Poor's 500 index and the Dow Jones industrial average.

Four analysts have downgraded Wal-Mart's stock since the beginning of 2011. Many said they were concerned about sales at stores open at least a year at its U.S. discount chain.

The company made a bold suggestion in November, when it said fourth-quarter same-store sales at its namesake U.S. stores should rise, even though its official forecast suggested a decline of 1 percent to a rise of 2 percent.

After some tough winter storms and higher food and gasoline prices, Wal-Mart must now show whether such sales grew, or if it chalked up its seventh consecutive quarterly decline.

BIGGEST QUARTER OF THE YEAR

The fourth quarter is Wal-Mart's largest in terms of revenue and profit. Analysts, on average, expect Wal-Mart to post a fourth-quarter profit of $1.31 per share on $117.68 billion in revenue, according to Thomson Reuters I/B/E/S.

Several other U.S. retailers will issue results this week, including Home Depot Inc and Macy's Inc on Tuesday.

Wal-Mart trades at 12.4 times expected earnings, just ahead of smaller rival Target Corp's 12.2 times expected profit. Target is due to report results on Thursday.

Wal-Mart is reasonably valued at that level, which is below its five-year average of 14.1 times expected earnings, according to JP Morgan analyst Charles Grom, who downgraded the stock to "neutral" earlier this month.

This marks the second major deal under BP's new chief executive Bob Dudley, who last month agreed a share swap with Russia's state-controlled Rosneft to jointly explore the Arctic for offshore oil and gas.

BP said on Monday it would pay Reliance Industries $7.2 billion and performance payments of up to $1.8 billion if the tie-up leads to the development of commercial discoveries.

"BP is the best finder of hydrocarbons in deepwater in the world," Mukesh Ambani, Chairman and Managing Director of Reliance Industries, said at a press conference.

BP wants to put last year's Gulf of Mexico oil spill disaster behind it, and said earlier this month it would look for long term growth through a fresh focus on discovering oil and gas via exploration partnerships.

The oil spill prompted a $30 billion asset disposal program to help cover BP's costs. But Dudley said BP still had plenty of cash to fund the investment in Reliance assets at a price equivalent to $7.50 per barrel.

"We've been divesting assets at around $12 per barrel so for us this is a sensible transaction," Dudley said.

BP will take a 30 percent stake in 23 oil and gas blocks and form a 50:50 joint venture for sourcing and marketing gas.

"It's kind of similar to the Russian deal - it's getting access to longer term positions which could be material," Oswald Clint from Sanford Bernstein said. "But we've got a key risk here. The gas price is regulated, it's not rising as quickly as people expected,"

Dudley shrugged off concerns about the gas price and said the deal would help BP gain from rising energy demand in India.

"The whole world's looking for gas, particularly in Asia... we believe it is going to be a very, very valuable fuel," he said, adding that the blocks involved had indicated resources of around 15 trillion cubic feet.

The companies said the future performance payments and the combined investment could amount to $20 billion in total.

CONFIDENCE BOOST

The market welcomed the deal as a sign of confidence in India and the country's oil potential.

BP's shares closed 0.3 percent lower at 495.2 pence.

In BHP's first big purchase since failing on three mega-deals in the last three years, the global miner said it was buying Chesapeake's holdings in Arkansas' Fayetteville shale natural gas field, getting a huge foot in the door of the world's largest gas market.

"BHP have had (three) multi-billion deals which have tipped over so the market should be pleased that this is one that is going to go through and it is a change of direction in terms of looking at their petroleum division," said Ric Ronge, portfolio manager at Pengana Capital.

The deal pits BHP head-to-head against China in a race for global energy assets, following state-owned PetroChina's (0857.HK) C$5.4 billion ($5.5 billion) agreement to buy shale gas stakes from Canada's largest gas producer, Encana Corp (ECA.TO).

BHP shares jumped more than 3 percent in early Sydney trade on news of the deal, which the company will fund from its substantial cash reserves. Australia's broader market was down 0.4 percent .AXJO.

Chesapeake announced it was putting the Fayetteville assets up for sale two weeks ago, looking to raise $5 billion to help trim a heavy debt load.

That sparked talk that it was responding to pressure from billionaire Carl Icahn, a 6 percent stakeholder.

Energy firms have invested billions of dollars to develop shale gas in the United States in recent years, flooding the U.S. natural gas market with gas supplies and weighing down prices despite a bounce in other commodity prices in the past year.

BHP's acquisitions strategy has shifted focus to its petroleum division after regulatory and political obstacles dashed its $39 billion takeover bid for fertilizer maker Potash Corp (POT.TO) (POT.N), a full takeover of Rio Tinto (RIO.AX) (RIO.L) and an iron ore joint venture with Rio Tinto.

"It is probably the only division BHP has where they are not going to run into regulatory or anti-trust issues with an acquisition of size," said Ronge, whose resources fund owns BHP shares.

Chesapeake's Fayetteville shale assets include about 487,000 acres of leasehold and producing natural gas properties in Arkansas in the U.S., one of the world's 30 largest gas fields.

"We're delighted to inform you today of a very, very substantive piece of business that we feel is a huge and very, very positive addition to our petroleum company within BHP Billiton Corporation," BHP Petroleum chief Michael Yeager told reporters, adding the deal would be cash and earnings accretive from day one.

Yeager was bullish that U.S. gas prices would eventually improve as demand for cleaner energy grows, and said even at current levels, the company would make health earnings margins on shale gas.

Chesapeake said the deal with BHP Billiton Petroleum included existing net production of about 415 million cubic feet of natural gas equivalent per day and about 420 miles of pipeline.

BHP aims to triple daily production from the new asset as the field is developed, and plans to spend $800 million to $1 billion a year over 10 years to develop the field, Yeager said.