Coronavirus pain drives Big Oil’s dash for record debt
The world’s top oil and gas companies locked in cheap borrowing rates to raise a record amount of debt in the second quarter of 2020 and boost cash reserves as a buffer against a collapse in revenues because of COVID-19. The dash for debt piles pressure on company balance sheets and the issue is particularly acute for BP and Royal Dutch Shell . Already burdened by high levels of borrowing, they also face the disruption of a major shift towards renewables and low-carbon. The world’s top seven energy firms – BP, Shell, Exxon Mobil , Chevron , Equinor , Total and Eni – raised $60 billion in debt in the quarter, nearly half of the $132 billion in oil and gas sector borrowing over the period, Refinitiv data showed. BP, which had $78.5 billion in debt by the end of March, raised the most at nearly $16 billion, using for the first time hybrid bonds that place less strain on the balance sheet as the principal is not required to be repaid. Oil majors’ revenues are expected to drop sharply in the second quarter after movement restrictions to limit the spread of the novel coronavirus that causes COVID-19 led to a steep drop in fuel consumption. Benchmark Brent crude averaged below $30 a barrel in the second quarter when it hit the lowest in two decades. Exxon, the largest US oil company, is expected to report a second consecutive quarterly loss, while Shell said its fuel sales in the second quarter fell by around 40 per cent. COVID RECOVERY? The coronavirus crisis has battered oil company shares, which underperformed the broader indexes, as concerns over their ability to withstand the short-term shock added to uncertainty linked to the world’s shift to renewable power. The share price drop dealt a double blow to the companies as the ratio of their debt to total market size, known as gearing and an indicator of financial health, is set to rise. Higher gearing can impact a company’s credit ratings and increase its cost of borrowing. Jason Kenney, analyst at Santander, said oil majors were likely to see debt levels spike in 2020. “This is not necessarily all bad given the current low interest rates and the chance to increase liquidity cheaply,” Kenney said. “That said, gearing and leverage levels will likely move out of target ranges before moving back to more usual levels over the coming years.” The debt crisis coincides with Shell and BP’s plans to shift from fossil fuels in the coming decades, details of which they are expected to unveil later this year. BP acted to reduce its debts with the $5 billion sale of its petrochemical business in late June, helping it reach its $15 billion asset disposal target. But the strain on its balance sheet could lead its CEO Bernard Looney to cut the company’s dividend when it reports its second quarter results on Aug. 4. Redburn analyst Stuart Joyner said he expects BP to reduce its dividend by 33 per cent. Although the debt levels of BP and its rivals are set to rise, the companies do not face severe distress with current oil prices of above $40 a barrel, Joyner said. “As long as you believe that there is some sort of recovery from COVID, there is no problem with the debt,” Joyner said.
US natgas output, demand to fall in 2020, 2021 due to coronavirus
US natural gas production and demand will drop in 2020 and 2021 from record highs last year as government steps to slow the spread of coronavirus cut economic activity and energy prices, the US Energy Information Administration (EIA) said in its Short Term Energy Outlook (STEO) on Tuesday. The EIA projected dry gas production will drop to 89.24 billion cubic feet per day (bcfd) in 2020 and 84.23 bcfd in 2021 from the all-time high of 92.21 bcfd in 2019. It also projected gas consumption would fall to 82.35 bcfd in 2020 and 78.62 bcfd in 2021, from a record 84.97 bcfd in 2019. That would be the first annual decline in consumption since 2017 and the first time demand falls for two consecutive years since 2006. The EIA’s gas supply projection for 2020 in July was lower than its June forecast of 89.65 bcfd, while its latest demand outlook for 2020 was higher than its June forecast of 81.87 bcfd. The agency forecast US liquefied natural gas exports would reach 5.35 bcfd in 2020 and 7.28 bcfd in 2021, up from a record 4.98 bcfd in 2019. That is lower than its June forecasts of 5.70 bcfd in 2020 and 7.31 bcfd in 2021. US coal production is expected to fall 29 per cent to 501 million short tons in 2020, which would be its lowest since 1967, before rising to 536 million short tons in 2021 when power plants are expected to burn more coal due to a forecast increase in gas prices, EIA said. It projected carbon emissions from burning fossil fuels will fall to 4.507 billion tonnes in 2020, the lowest since 1983, from 5.130 billion tonnes in 2019, the lowest since 1992, before rising to 4.775 billion tonnes in 2021 as coal use increases.
Delhi: Centre files forgery case against gas-field company
The Union petroleum and natural gas ministry has filed an FIR with Delhi Police after a company, which was allotted a small gas field, allegedly tried to dupe it by submitting forged documents. A senior official of Economic Offences Wing confirmed that an investigation had been initiated into this bank fraud case, filed by the ministry on Saturday on behalf of the directorate general of hydrocarbons. The FIR has been filed for cheating, forgery and criminal conspiracy. Under the Discovered Small Field (DSF) policy to extract oil and natural gas from unmonitised small discoveries, the ministry issued a notice inviting bids in 25 contract areas on August 9, 2018. Successful bidders were to enter a revenue-sharing contract with the government and the directorate general of hydrocarbons was implementing the policy. An essential requirement was a bank guarantee of the work programme commitment terms, under which “a one-time bank guarantee valid for the development period amounting to $ .15 million and $ .23 million was to be paid for the contract area of land and water, respectively”, the complaint stated. The ministry executed a revenue sharing contract with a firm on March 7, 2019. The firm submitted all required documents and compliances to the ministry for verification and managing the contract. However, on October 22, the company informed the ministry about changing its name and address without showing any reason. On February 14, 2020, the accused firm and its officials submitted a guarantee in the form of a demand draft of Rs 7.2 crore issued by Allahabad Bank, the ministry said. But when the bank was requested to verify genuineness, the branch said it hadn’t issued any such document, the ministry added. Sensing a forgery, the directorate requested the bank to probe the matter and submit another report. On March 13, the bank again confirmed that it had not issued the guarantee and the company was not even its client. The accused firm and its officials are based in Mumbai. “From these circumstances, it was evident that the document was forged and fabricated and legal opinion was sought by the ministry and Delhi Police was approached,” said a senior official. Police will soon ask the accused to join the probe. A team will go to Mumbai to serve summons to the accused.
Shell weighs sale of Convent, Louisiana refinery
Royal Dutch Shell Plc is weighing the sale of its 211,146 barrel-per-day (bpd) Convent, Louisiana, refinery, the company said on Tuesday. Robin Mooldijk, Shell’s executive vice president of manufacturing, told employees in an internal message on Tuesday about the possible sale of the refinery, located 58 miles (93 km) west of New Orleans, according to sources familiar with plant operations. Shell took sole ownership of the refinery on May 1, 2017, when Motiva Enterprises became a wholly-owned subsidiary of Saudi Aramco. Motiva had been a joint-venture between the two companies for 15 years. Shell spokesman Curtis Smith said the possible sale was part of the company’s plan announced in 2019 to structure its operations to match the future market for downstream products. “The remaining core sites will be advantaged by way of increased integration with Shell trading hubs and by producing more chemicals and related products expected to be resilient in a low-carbon future,” Smith said in an email. Shell has not announced consideration of a possible sale of its 227,400 bpd Norco, Louisiana, refinery which produces motor fuels and also supplies feedstocks to the company’s adjoining chemical plant. Along with the refinery, Shell plans to sell “its associated co-located logistics infrastructure – the products truck terminal, marine docks, Sorrento, Louisiana, salt cavern LPG storage, and line history rights for Bengal Pipeline,” Smith said. In February, Shell sold its 156,400 bpd Martinez, California, refinery and logistics assets to PBF Energy for $960 million plus the price for oil and refined products on hand. That would set the pre-pandemic price for refining assets at about $6,000 a barrel. Because of reduced travel caused by the COVID-19 pandemic, US refinery utilization fell to 68 per cent of 19 million bpd in April. Utilization rose to 75.5 per cent by the last week of June.