Sunday newspaper round-up: Enquest, Britain's economy, Bank of England

EnQuest is cutting spending, jobs and pay in an effort to avoid breaking the terms of its bank loans, the Sunday Times reported. The biggest independent UK North Sea oil producer's shares have fallen 80% since last summer as the price of crude oil collapsed. Investors took fright because of the company’s high costs and debts. Chief Executive Amjad Beisu will announce aggressive cost reductions in January to stop the company from breaking loan covenants. Wood Group and Petrofac, two of EnQuest’s biggest suppliers, have helped by cutting contractor pay and making rates 20% lower.

Britain’s economy will expand at its fastest rate for a decade this year because of the fall in the price of oil, the EY Item Club has predicted. The forecasting group, which uses the Treasury’s economic model, expects growth of 2.9% in 2015, up from an earlier prediction of 2.4% three months ago, the Sunday Times reported. Household real incomes are likely to rise 3.7%. The halving of the oil price since the summer of 2014 is providing a big stimulus, Item said.

The Bank of England will delay increasing interest rates until 2016, the EY Item Club has said. The Sunday Telegraph said the forecaster predicted that the falling cost of oil would mean inflation averaging 0% in 2015 with consumer prices turning negative in the middle of the year. As a result, the Bank of England’s Monetary Policy Committee is likely to keep interest rates on hold until the first quarter of 2016, Item said.

Hutchison Whampoa is in early talks to buy O2 in the latest sign of upheaval in the European telecoms industry, the Sunday Times reported. The takeover, for as much as £9bn, would bring together Britain’s second-biggest mobile operator with smaller rival Three. O2’s owner, Telefonica, needs to cut its debts and has hired UBS to assess options for the UK business. Since BT agreed to buy EE, UK telecoms operators have been seeking to form alliances. “Everyone is talking to everyone,” an industry insider told the paper.

John Laing is expected to announce on January 19th that it plans to float on the stock market in a transaction valuing it at up to £1bn, according to the Sunday Times and Sunday Telegraph. Henderson, the fund manager, bought John Laing in 2006 and has decided to float the business instead of selling it to Macquarie, the Australian bank. About £70m of shares will be offered to small investors. Jeremy Beeton, the former Director General of the Government Olympic Executive, will join the board along with former fund managers David Rough and Anne Wade.

Mining companies may have to repay money from copper processors after the slump in the metal’s price, the Sunday Times said. Producers of copper concentrate usually get 90% of their payment on delivery and the rest three months later. If the copper price falls more than 10% from the first payment the producer repays some of the money. The drop in copper’s price means some miners will have to take an impairment charge for the first quarter. Companies such as First Quantum that hedge exposures will be less affected. Shares of Kaz Minerals lost almost a quarter over seven days.

Big shareholders of Aviva have supported the insurer’s £5.6bn takeover of Friends Life before a vote on the deal, the Sunday Telegraph reported. Richard Buxton of Old Mutual, Aviva’s eighth-biggest shareholder, and Alastair Gunn of Jupiter have given the deal their backing. Aviva and Friends Life are preparing to send out circulars to shareholders explaining the deal and giving the investors 21 days to vote. Gunn said the transaction would give the combined group long-term growth prospects under an impressive management team.

Britain’s big energy suppliers are preparing to slash prices by the end of January and gas bills are likely to fall by up to 7% as falling wholesale energy prices reach consumers, the Mail on Sunday reported. The large suppliers, including SSE and Centrica’s British Gas, are all expected to follow the example of E.On, which cut standard gas prices by 3.5%. SSE is in a more difficult spot than rivals after freezing tariffs last March until 2016. It bought wholesale gas in advance, giving it less room for manoeuvre. The company said it had stated it would cut prices when possible.

BP faces many more years of financial damage from the Gulf of Mexico oil spill even after its legal battle with the US Government ends, according to the Sunday Telegraph. The final phase of the legal dispute starts this week and could lead to a $13.7bn fine for BP. But the UK company faces further large penalties for natural resources damages in the US and countless other claims that will keep its lawyers occupied for decades. BP’s shares are about 40% lower than they were before the explosion at the Deepwater Horizon rig killed 11 workers in 2010.

Low commodity prices will not kill hopes for fracking in the UK and Cuadrilla stands to gain from the falling oil price, its Chief Executive told the Sunday Telegraph. The costs of equipment and contractors for Cuadrilla’s plans are falling “very significantly”, Francis Egan told the paper. “As prices in the market come down, the cost of people and services come down - so the break-even price comes down,” Egan said. Lancashire County Council’s planning officer is expected to pass judgment this week on Cuadrilla’s proposal to frack at two sites.

The European Central Bank (ECB) and Germany are locked in a fraught dispute over plans for a giant monetary stimulus programme for the Eurozone, the Sunday Times said. ECB President Mario Draghi is expected to launch quantitative easing on 22 January but the central bank and Germany are arguing over the details of the plan. ECB officials have denied that a deal was sealed so that national central banks would buy back their own governments’ bonds but would not bear losses on bonds bought by other central banks. The ECB still believes spreading risk across the Eurozone is necessary.

Terry Smith is likely to share a £10.6m windfall with seven members of his Fundsmith asset manager after profits quadrupled, the Sunday Telegraph reported. Smith, the former boss of Tullet Prebon, oversaw a 23% gain in the value of Fundsmith’s investments compared with an 11.5% rise in global shares in the year to March 31st 2014. Pre-tax profits for the period rose to £10.6m from £2.9m a year earlier, figures filed at Companies House showed.