Exxon, Chevron CEOs discussed merger in early 2020
The chief executives of ExxonMobil Corp and Chevron Corp held preliminary talks in early 2020 to explore combining the two largest U.S. oil producers in what would have been the biggest merger of all time, according to people familiar with the matter. The discussions, which are no longer active, are indicative of the pressure the energy sector’s most dominant companies faced as the COVID-19 pandemic took hold and crude prices plunged. The talks between Exxon Chief Executive Darren Woods and Chevron CEO Mike Wirth were serious enough for legal documents involving certain aspects of the merger discussions to be drafted, one of the sources said. The reason the talks ended could not be learned. The sources requested anonymity because the matter is confidential. Exxon and Chevron, which have market capitalizations of $190 billion and $164 billion, respectively, declined to comment. Exxon and Chevron’s shares nosedived last year after a Saudi-Russian price war and fallout from the novel coronavirus outbreak caused the value of oil to crater. Exxon’s stock was hit hardest, as investors raised concerns about the company’s long-term profitability and spending decisions. In their talks, the CEOs of Exxon and Chevron envisioned achieving synergies through massive cost cuts to help weather the downturn in energy markets, one of the sources said. At the end of 2019, Exxon employed about 75,000 people and Chevron roughly 48,000. Following the aborted talks with Exxon, Chevron went on to acquire oil producer Noble Energy in a $5 billion cash-and-stock deal that was completed in October. A combination of Exxon and Chevron would have faced significant hurdles, including antitrust concerns and objections from corporate rivals. Some U.S. lawmakers, mainly Democrats, have faulted Big Oil for contributing to climate change, which President Joe Biden’s administration has made a top priority. News of the unsuccessful talks emerged as Exxon has come under pressure from some of its shareholders over its strategic direction. Engine No. 1, a investment firm based in San Francisco, last week nominated four directors to Exxon’s board and is pushing the company to spend its cash better, preserve its dividend, and invest more in clean energy. Exxon is also in the crosshairs of hedge fund D.E. Shaw, which is pressuring the company to cut costs and improve performance. Exxon reports fourth-quarter results on Feb. 2. Chevron last week reported a surprise $11 million fourth-quarter loss as low margins on fuel, acquisition costs and foreign currency effects overwhelmed improved drilling results.
Diesel demand moved to used car market, rural customers over years
Diesel’s share in used car sales has more than doubled in the last 5 years as buyers in smaller towns prefer this fuel coupled with not so stringent environmental laws in these locations, a study said. In 2015, 36% of all used car sales were diesel vehicles. In 2020 that has jumped to 65%, a study by Droom, a used car buying portal said. Used car marketers say the rise in numbers is because of a sudden increase of diesel vehicle supply in the used car pool as metro markets move towards petrol and also because diesel has a solid presence in hinterland and rural markets. Used car marketers say diesel rules the used car market because post BS6 a diesel used vehicle is simply a better bargain. “Diesel vehicles have far more compelling pricing than petrol. In 2020 the average selling price of used diesel vehicles on our platform declined 15% year on year as diesel lost shine in the new car market,” said Sandeep Aggarwal, founder chief executive officer(CEO), Droom. For non-metro customers this meant they could now buy their dream SUVs at a more affordable price in the used mart. “Customers in non-metros prefer diesel to petrol because the price differential between petrol and diesel versions make them more economical,” agreed Amit Kumar, chief executive officer, OLX Autos. The diesel demand is also a reflection of hinterland markets joining the SUV craze. “The share of diesel cars in the used car pool has been increasing especially in SUVs in the period 2013-2017 from where most used cars come into the market currently. SUVs which are gaining customer preference and share are largely diesel powered and the demand for SUVs is so strong in the used car market that there is a demand-supply mismatch for popular models,” said Ashutosh Pandey, CEO Mahindra First Choice Wheels.
BP profit sinks as epidemic pummels demand
BP’s fourth-quarter profit sank to $115 million, missing analysts’ forecasts, pummelled by continued weak energy demand due to the coronavirus epidemic and weak trading results. On annual basis, BP sunk to a loss of $5.7 billion, its first in a decade after it wrote down the value of oil and gas assets by $6.5 billion as a result of sharply lowering its long-term energy prices. Its fourth-quarter underlying replacement cost profit, the company’s definition of net income, of $115 million fell short of the $360 million seen in a company-provided survey of analysts. That compared with a $86 million profit in the third quarter and a profit of $2.6 billion a year earlier. (This story corrects to show forecast was for a $360 million profit (not loss)in paragraph 3)
France urges Germany to scrap Russia gas pipeline over Navalny
France on Monday urged Germany to scrap a major gas pipeline project with Russia in protest over the detention in Moscow of opposition leader Alexei Navalny, but the plea fell on deaf ears in Berlin. “We have always said we have the greatest doubts on this project in this context,” European Affairs minister Clement Beaune told France Inter radio. Asked specifically if France wanted Berlin to drop the project, Beaune said: “Indeed, we have already said this.” Nord Stream 2 is a 10-billion-euro ($11-billion) pipeline that will run beneath the Baltic Sea and is set to double Russian natural-gas shipments to Germany, Europe’s largest economy. The United States and several European countries such as Poland have criticised the project, saying it will increase German and EU dependence on Russia for critical gas supplies. German Chancellor Angela Merkel has stood by the project, and work resumed on it in December after an almost year-long pause due to American sanctions. Asked about the French objections, Merkel’s spokeswoman on Monday said “the government has not changed its basic position” in support of Nord Stream 2. France’s Beaune said European leaders were weighing new sanctions against Russia over President Vladimir Putin’s crackdown on the opposition led by Navalny, who was arrested in mid-January and faces a trial that could see him detained for years. Thousands defied government warnings to protest across the country on Sunday in a second weekend of mass demonstrations against the arrest of Putin’s most prominent opponent. “Sanctions have already been imposed, we could do that but we have to be clear, they will not be enough,” Beaune said. “The Nord Stream option is one under consideration,” he added, while acknowledging that “it’s a decision for Germany, because the pipeline is in Germany.” Merkel’s spokeswoman condemned the violent crackdown in Russia and called for “the immediate release” of detained protesters as well as Navalny himself.
‘$104bn in stranded asset risk for oil, gas pipelines in India’
With the Union Budget for 2021-22 laying a major focus on the launch of a National Hydrogen Mission for generating hydrogen from green power sources, a survey by international researchers on Tuesday said there is $104 billion in stranded asset risk for oil and gas pipelines in India. While the Indian government has not announced any net zero targets, continued deflation in renewable energy price is making its economics of continued dependency on fossils untenable. India’s energy sector has the highest exposure to nonperforming assets (NPAs), said the survey by Global Energy Monitor. Globally, continuing a decade-long slowdown and year-on-year oil and gas pipeline additions fell by 13 per cent in 2020. Nevertheless, over $1 trillion in pipeline expansion projects are in development, drastically undermining pledges by the world’s major economies to achieve carbon neutrality by mid-century. The report cites seven major policy options available to the Biden Administration for reining in pipeline overbuilding. The report findings include stranded asset risk of $1 trillion. A planned 2,12,000-km expansion in the global system of oil and gas transmission pipelines, amounting to $1 trillion in capital expenditures, is on a collision course with commitments by most large economies to transition to carbon neutrality by mid-century, setting the stage for large amounts of stranded assets. It says there is lock-in of future emissions. Pipeline projects under construction and in pre-construction will support a lifetime increase in oil and gas CO2 emissions of 170 gigatonnes, only 15 per cent less than the projected lifetime CO2 emissions of the currently operating global coal plant fleet. The gas dominates the mix. Eighteen of the 20 longest pipelines in development and 82.7 per cent of all pipelines in development will carry gas, reflecting the fossil fuel industry’s success in perpetuating the myth that gas can be a “bridge fuel” to a clean energy future. The findings say the US is the leading developer of pipelines as measured by capacity, with 19.6 million barrels of oil equivalent per day in development. This expansion presents a major climate risk since US exports of liquified natural gas have the highest greenhouse gas intensity of any major exporter, according to Boston Consulting Group. China continues a massive 32,800-km expansion of the country’s oil and gas pipeline network. That network is being consolidated under a new company, PipeChina, which will soon be the largest builder of gas pipelines in the world, says the report. The global pipeline expansion has slowed in the past decade and some projects were delayed in 2020 by the Covid-19 pandemic. Overall, however, the expansion curve has been bent rather than broken, with pipelines continuing to enjoy both policy support and financial support by governments and major financial institutions. The findings are based on the Global Fossil Infrastructure Tracker, a project-by-project survey of oil and gas pipelines and terminals. “The policy landscape facing the new administration in 2021 is radically different from the one that Biden left in 2017,” said James Browning, lead author of the report. “Fossil gas is now recognised as a climate buster, not a climate solution. That means Biden faces the tough decision to rein in gas infrastructure, which is the most effective way to limit emissions.” “Last month the head of the European Investment Bank, the world’s biggest publicly owned financial institution, remarked that ‘Gas is over’,” said Greig Aitken, GEM’s finance researcher. “It’s high time for other significant financial institutions, both public and private, to step up and follow the EIB’s lead in ending their support for oil and gas infrastructure projects and companies.”
Fuel prices will not increase: Javadekar
Ruling out the possibility of a hike in fuel prices after the imposition of Agriculture Infrastructure and Development Cess in the Budget presented on Monday, Union Minister Prakash Javadekar said that the Modi government’s budget will take the country forward. He said, “There will be no increase in petrol and diesel prices. There will be no additional burden on people. The cess has been imposed to re-constitute the taxes. The government has reduced excise, and has started new agricultural cess.” Rs 5.71 crore will be invested in infrastructure, including roads, electricity, water, ports, railways, roads, runways and gas pipeline which is a huge success. The budget aims to provide justice to the farmers, general public and introduce reforms in all the sectors including law, he added.
No cut in excise duty on petrol, diesel; tweak in rates to accommodate agri cess
Petrol and diesel prices will not be cut as Finance Minister Nirmala Sitharaman ignored calls for a reduction in excise duty rates to help bring down prices from historic high levels. Instead, her Budget for the 2021-22 fiscal tweaked excise duty structure to accommodate an agriculture infrastructure development cess, whose accruals would not be shared with the states. Besides the tweak, the Budget proposed monetisation of oil and gas pipelines of gas utility GAIL and oil refiners Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd (HPCL). Ujjwala scheme of providing free cooking gas to poor women will be extended to 1 crore more beneficiaries. A gas pipeline to Jammu and Kashmir as well as setting up of an independent gas transport system operator (TSO) also form part of the budget. Sitharaman in the Budget imposed a Rs 2.5 per litre agri cess on petrol and Rs 4 a litre on diesel. But this was offset by an equivalent reduction in excise duty. As of now, a basic excise duty (BED) of Rs 2.98 per litre is levied on petrol, and another Rs 12 a litre is charged as special additional excise duty (SAED) and Rs 18 as road and infrastructure cess. To accommodate the agri cess, the BED was cut to Rs 1.4 and SAED to Rs 11. Similarly, on diesel, BED was cut from Rs 4.83 to Rs 1.8 a litre and SAED to Rs 8 from Rs 9 per litre. The government had last year hiked excise duty by Rs 13 and Rs 16 per litre to mop up benefits arising from falling international oil prices. It hasn’t cut the duty now that oil prices have risen, resulting in fuel prices climbing to record highs. Petrol comes for Rs 86.30 per litre in Delhi and diesel for Rs 76.48. In her Budget speech in the Lok Sabha, Sitharaman spoke of monetising operating public infrastructure assets for new infrastructure construction. “A ‘National Monetization Pipeline’ of potential brownfield infrastructure assets will be launched.” Infrastructure assets that will be rolled out under this programme will include “oil and gas pipelines of GAIL, IOC and HPCL,” she said. The Finance Minister said the government had kept fuel supplies running across the country without interruption during the COVID-19 lockdown period. Now, the Ujjwala Scheme under which 8 crore poor households were provided free cooking gas connection will be extended to cover 1 crore more beneficiaries. Also, 100 more districts will be added in the next 3 years to the City Gas Distribution network. “A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir,” she said adding an independent Gas Transport System Operator will be set up for facilitation and coordination of booking of common carrier capacity in all-natural gas pipelines on a non-discriminatory open access basis. Commenting on the budget proposals, Deepak Mahurkar, Partner and Leader Oil & Gas, PwC India, said: “The transparent, independent and digital Transport Service Operator will unlock pipeline capacity for the shippers.” Also, the future energy carrier Hydrogen gets the Energy Mission to deal with planning green generation and transportation, he said. Prashant Vasisht, Vice President and Co-Head, Corporate Ratings, ICRA said the move towards a gas-based economy is clear in the budget with city gas distribution planned to be rolled out in 100 additional districts and independent gas pipeline operator to be set up for non-discriminatory pipeline access. “Besides, monetisation of several large oil and gas assets including pipelines through InvITs would open other avenues of funding for the sector,” he said adding the reduction in customs duty on naphtha to 2.5 per cent would reduce the realisations of refineries and impact their gross refining margins (GRMs) marginally. Oil subsidy provided for FY22 and FY21 is fairly adequate, which is positive for the PSU OMCs, he added.
Govt announces gas pipeline project for J&K
The Centre has announced a maiden gas pipeline project for the Union Territory of Jammu and Kashmir. In her Budget speech on Monday, Finance Minister Nirmala Sitharaman said a gas pipeline project will be taken up in Jammu and Kashmir. She also announced setting up of a central university in Leh district of Union Territory of Ladakh for accessible higher education. The Centre has provisioned Rs 30,757 crore budget for the Union Territory of Jammu and Kashmir, while Ladakh has been allocated Rs 5,958 crore in the Union Budget for 2021-22. “We recognise our commitment to fiscal federalism and propose therefore to adhere to this recommendation. Jammu and Kashmir in the 14th Finance Commission was entitled to get devolution being a State. Now, the funds to the UTs of Jammu and Kashmir and Ladakh would be provided by the Centre,” Sitharaman said.