Big Oil’s Next Merger Mania Has an Eye on Its Demise

Bloomberg2021-08-18

With an over-heated planet and the move to renewables, it looks like this market’s best years are behind it. Is a barren year for oil industry deal activity finally coming to an end? So far there’s ...

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Comments

SandDust
2021-08-19
SandDust
It is inevitable that when an industry declining as a whole, companies will need to be merged.
Success9999
2021-08-18
Success9999
Ok
ycwoo
2021-08-18
ycwoo
Like
- rDj:
  Ok
ycwoo
2021-08-18
ycwoo
Done
Chrissssy
2021-08-18
Chrissssy
Like and comment please:)
- rDj:
  Ok
yizong
2021-08-18
yizong
yes

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If things continue at those rates through December, it will be one of the most lackluster years for energy deal-making in two decades.\nHope is on the horizon. Saudi Arabian Oil Co. isfinally growing close to an equity swapwith Reliance Industries Ltd. after years of gestation, people with knowledge of the matter told Bloomberg this week. Meanwhile, BHP Group announced plans Tuesday to merge its oil and gas business with Woodside Petroleum Ltd. in a share-based deal that would see the mining company quit the petroleum sector and roughly double Woodside’s output. With the first valued at an estimated $20 billion to $25 billion and the latter worth about $15 billion at Woodside’s current share price, that would instantly increase the year’s tally by almost half.\nDon’t take that for a sign that animal spirits are picking up in the industry. Although crude prices touched a three-year high last month and cash is once again flowing freely, this wave of deal activity doesn’t suggest an industry gearing up for a rally in demand.\nWith the Intergovernmental Panel on Climate Change last week saying global warming is advancing faster than previously expected — likely exceeding the threshold of 2°C during the 21st century without deep emissions cuts — and the International Energy Agency forecasting thatrenewable power investment will exceed that in oil and gasproduction for the second year running, this merger boom has a distinctly end-of-an-era feel about it.\nTake the Reliance-Aramco deal, which is expected to see the world’s largest oil company swap between 1% and 2% of its equity for a 20% share in the largest refinery. This is hardly the sort of transaction that Saudi Arabia might have made in the past, when it was able to reach into its bottomless cash pile to buy assets at a keen price from needy, low-margin refiners. Instead, Asia’s richest man, Mukesh Ambani, holds all the cards.\nThe estimated deal value would be double the $10 billion that Reliance reportedly expected for a 25% stake when it was first being offered around in 2019, although the balance-sheet value of the Jamnagar refinery and its earnings haven’t really improved since then. Meanwhile, a Saudi Inc. that was once so cash-rich that it thought little of splashing greenbacks onsoccer teams and Leonardo da Vinci paintings is instead having to part with equity so precious that it wasn’t even offered to the kingdom’s own subjects until two years ago.\nAs a financial transaction, the deal does little for either party. Shares in Indian and Saudi companies aren’t much use as an alternative form of cash, since they’re locked up on illiquid local exchanges. Strategically, though, Aramco gets itself a seat at the table of a company that’s made no secret of its planned turn away from petroleum and toward renewables and a fast-growing telecoms unit. Jamnagar isn’t going to stop buying crude any time soon, but Aramco’s enthusiasm for a tie-up at any price suggests it’s keen to keep an eye on the situation before it starts to cause problems.\nThe BHP-Woodside deal isn’t happening on quite such a grand scale. While a combined company would have produced about 649,000 oil-equivalent barrels a day in 2019 — enough to put it in the top 30 listed oil producers by volume — Aramco pumps about that amount every hour.\nIt makes a different sort of sense for the players, though. Every company with assets less spectacular and owners less involved than Aramco has to care about the views of its shareholders and lenders. For BHP, that’s become a problem as the cost of capital for fossil fuel businesses rises and shareholders look to decarbonize their portfolios.\nArch-rival Rio Tinto Group quit its last fossil-fuel assets several years ago and Anglo American Plcsold out of its last thermal coal businessin June. While the coking coal used in steelmaking is still a core business for BHP (not to mention iron ore, which can’t be turned into steel using existing commercial technology unless some coal-derived coke is thrown into the mix), selling out of a petroleum business that was always an odd fit for a mining company is a good way to project a cleaner image.\nWoodside gets a different sort of benefit. At present it sits toward the lower end of investment grade at major ratings companies, an uncomfortable position at a time when the interest costs on junk energy debt are at a higher premium relative to higher quality bonds than they’ve been in years. By roughly doubling in size, it will get the cashflows and balance sheet to become more self-sufficient in its spending, an important consideration in a market where lenders are increasingly being asked to scrutinize the climate impact of their loan books.\nFor energy dealmakers looking to expand the fee pool, the signs of green shoots in the energy M&A market will be welcome after a year of drought. Just don’t mistake it for the start of a harvest. With its best years in the past, this field is looking more and more barren.\n(Updates with IPC report detail in 5th paragraph. A previous version corrected the figure in 9th paragraph to 649,000 oil-equivalent barrels a day in 2019 from 649 million.)","kind":null,"is_publish_news":false,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":831212796,"gmtCreate":1629329823215,"gmtModify":1676530002569,"author":{"id":"3581331938298103","authorId":"3581331938298103","name":"SandDust","avatar":"https://static.tigerbbs.com/ea6083d742fc232449a625fb122842c8","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3581331938298103","authorIdStr":"3581331938298103"},"htmlText":"It is inevitable that when an industry declining as a whole, companies will need to be merged.&nbsp;","listText":"It is inevitable that when an industry declining as a whole, companies will need to be merged.&nbsp;","text":"It is inevitable that when an industry declining as a whole, companies will need to be 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and comment please:)","listText":"Like and comment please:)","text":"Like and comment please:)","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/831896226","repostId":1133857963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5569591,"gmtCreate":1629298876670,"gmtModify":1663232567367,"authorId":3560659454957997,"author":{"id":3560659454957997,"idStr":"3560659454957997","authorId":3560659454957997,"name":"rDj","avatar":"https://static.tigerbbs.com/5d780bed87fa959fa825e01587af3b59","vip":1,"crmLevel":4,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":831896226,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"EN"},{"id":831174828,"gmtCreate":1629297369564,"gmtModify":1676529996373,"author":{"id":"3571636386843724","authorId":"3571636386843724","name":"yizong","avatar":"https://static.tigerbbs.com/b3520301445bdba3e3e6d42a61717e6f","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3571636386843724","authorIdStr":"3571636386843724"},"htmlText":"yes","listText":"yes","text":"yes","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/831174828","repostId":1133857963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":77,"commentSize":10,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 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