Oil companies bet on $100 a barrel as they rush to sell assets
Oil companies are betting that if they sell land, buyers will come, as crude prices have soared more than 50% this year, fueling the most robust pipeline of deals in more than four years. Large oil companies are unloading properties from Texas to California, with some using the market rally as a chance to rake in cash for future investment in the global transition to cleaner energy. Other sellers are taking the chance to profit when just a few months ago big properties were being sold at a loss, according to interviews with 10 advisers and analysts. Even though renewable fuel usage is increasing, overall global oil demand is expected to return to pre-pandemic levels next year, leaving opportunities for producers looking for deals. “In greed versus fear, last year fear was the factor. Greed is creeping in now,” said Dan Pickering, chief investment officer at Pickering Energy Partners. “There is more optimism in the market, there is a little more greed from the seller’s perspective, there is a little more urgency from the buyer’s perspectives.” Still, some buyers may struggle to secure financing. Some private equity firms that once loomed large in oil transactions have headed to the sidelines under investor pressure about climate change, while European banks have also largely pulled out of lending to oil companies. Smaller deals or land with more shale, seen as less polluting than tar sands oil, may be easier to finance, Pickering said. Among the largest sellers are the majors, including Royal Dutch Shell, BP and Chevron. Early this year, big players – like Norway’s state-run Equinor – were finding fewer buyers, as the company had to sell its position in North Dakota’s Bakken shale region for $900 million, roughly one-fifth of the value of its purchase there a decade ago. Now, companies see a better outlook for possible sales. On Wednesday, Chevron confirmed news first reported by Reuters that it planned to divest a swath of conventional assets in the Permian Basin, which sources valued at over $1 billion. While some sellers are motivated by an opportunity to unload underperforming assets at a profit, others, like Shell, are selling in an effort to cut back on carbon emissions under pressure from investors and government regulations. The potential transactions are concentrated in the largest U.S. shale formation, the Permian Basin of Texas and New Mexico. In addition to Chevron’s planned Permian sale, Shell is considering divesting all of its acreage in the Permian Basin and has notified joint venture partner Exxon Mobil that it will be leaving production in California as well. Smaller deals have also popped up as private equity firms seek to turn over long-held investments and distressed players look to shed unwanted assets. Three companies proposing Permian asset sales have pegged their desired deal prices to oil rising to $100 a barrel, according to one person familiar with the talks. Bank of America has estimated global benchmark Brent futures will reach $100 per barrel in 2022, with U.S. crude trading at $95 a barrel. That’s higher than Reuters’ poll on Wednesday of 44 analysts, who expect an average price of $64.54 this year and $65.44 next year. “While asset prices are coming up helping sellers, there is still plenty of room for buyers to capture upside at these commodity price levels,” said Andrew Dittmar, a senior M&A analyst at energy information provider Enverus. “Buyers are paying valuations on assets that leave room for commodity prices to come down a bit and they still make money.” Smaller, privately held companies also see a potential to take advantage of the current high prices. Private driller Recoil Resources is hunting for a buyer, and Mesquite is looking to divest Eagle Ford acreage as it considers selling off even more assets as it emerges from bankruptcy. Potential buyers for smaller packages may include Skye Callantine’s Validus, which people close to the firm say is among active bidders on assets in the Eagle Ford.
Tata Motors bags an order of 15 hydrogen-based fuel cell buses from Indian Oil Corporation Ltd.
Reaffirming its commitment towards sustainable mobility, Tata Motors, India’s largest commercial vehicle player and leading bus manufacturer, announced that it has won a tender of 15 hydrogen-based proton exchange membrane (PEM) fuel cell buses from the Indian Oil Corporation Limited (IOCL). IOCL had invited bids for supply of PEM fuel cell buses in December 2020, and Tata Motors was selected as the winner following a diligent evaluation process. All 15 buses will be delivered within 144 weeks from the date of signing of the Memorandum of Understanding (MOU). In addition to supplying the buses to the Research & Development Centre of IOCL, Tata Motors will also collaborate with them to undertake R&D projects and collectively study further the potential of Fuel Cell technology for commercial vehicles. This will be done by jointly testing, maintaining and operating these buses for public transport in real-world conditions in Delhi-NCR. The buses will be refuelled by hydrogen, generated and dispensed by IOCL. Sh. S.M. Vaidya, Chairman, IndianOil, stated that IndianOil has been pioneering the national efforts towards ushering in the hydrogen economy for various applications, including mobility. This 1st of its kind project in the country is bringing the country’s largest fuel supplier and largest commercial vehicle manufacturer on board to take the hydrogen & fuel cell technology to the next level. This initiative would also act as a stepping stone for various other key programs of IndianOil, which proposes to introduce hydrogen-based mobility on different iconic routes and important sectors in the country. These futuristic steps are in the right direction for making hydrogen as the ultimate net-zero fuel. Speaking on the occasion, Mr. Girish Wagh, President, Commercial Vehicle Business Unit, Tata Motors said, “We are delighted to win this prestigious tender from IOCL for it adds to Tata Motors’ rich legacy of introducing future ready technologies for cleaner and greener public transport. We have successfully supplied 215 EV buses under FAME I and won orders for 600 EV buses under FAME II. This order to supply PEM Fuel Cell buses from a company as respected as Indian Oil Corporation, further encourages our ongoing efforts on developing India-focused alternative sustainable fuels to transform the future of mobility in India.” Dr. SSV Ramakumar, Director (R&D), IndianOil while congratulating Tata Motors Ltd., mentioned that lot of hard work has been put in by the IndianOil R&D team towards conceiving, planning and executing this joint developmental cum demonstration program with a strong support from Ministry of Petroleum & Natural Gas. IndianOil through cutting edge R&D, is committed to strengthen the production and supply chain of hydrogen energy in India and would be setting up ~1 ton per day hydrogen production pilot plants based on 4 innovative pathways besides collaborating with Tata Motors for fuel cell research.
Oil price steady after OPEC+ delays meeting on supply decision
Oil prices held steady on Friday after OPEC+ ministers delayed a meeting on output policy as the United Arab Emirates balked at a plan to add back 2 million barrels per day (bpd) in the second half of the year. U.S. West Texas Intermediate (WTI) crude futures were up 5 cents at $75.28 a barrel at 0155 GMT, having jumped 2.4% on Thursday to close at their highest since October 2018. Brent crude futures inched up 4 cents to $75.88 a barrel, after rising 1.6% on Thursday. Both benchmark contracts posted strong gains on Thursday as a plan backed by Saudi Arabia and Russia for the Organization of Petroleum Countries and allies, together known as OPEC+, to add back 400,000 bpd each month from August through December 2021 was more cautious than investors had expected. Prices retreated after the plan met resistance from the UAE and OPEC+ postponed a ministerial meeting to Friday. “Failure to come to an agreement could mean that the group continues with current levels of production, which would mean that the market tightens even quicker,” ING commodities strategists said in a note. If existing curbs are extended, however, some OPEC+ producers may be less willing to stick to their quotas, which would result in an increase in supply, ING said. WTI was on track for a 1.6% rise for the week with the U.S. crude market seen tightening as refinery runs pick up to meet recovering gasoline demand, while U.S. shale oil production has not risen at the same pace. [EIA/S] Brent was heading for a 0.5% fall for the week, reflecting concerns about fuel demand in parts of Asia where cases of the highly contagious COVID-19 Delta variant are surging. Citi analysts said they do not expect WTI to climb to a premium to Brent, as they expect U.S. oil output to pick up at the end of 2021 and grow further in 2022.
City gas companies set to get protection after Oil Min proposes new rule
No company, except the licensee, can sell natural gas to homes and vehicle owners in a licensed area without the central government’s permission even after the city gas network has been declared a common carrier by the regulator, the oil ministry has proposed. This essentially means a city gas licensee may face automatic competition only for its industrial and commercial customers after the end of the exclusivity period while its home and super-profitable CNG business may get longer protection. Licensees get cheaper domestic gas for supply to homes and vehicles while depending on expensive imported gas for other customers. Cheap domestic gas comes mainly from old fields and its price is regulated by a government-set formula. “Third-party access for marketing natural gas to CNG (transport) and PNG (domestic) segments in an authorised geographical area, shall be allowed only when the central government finds it necessary or expedient to do so having regard to factors such as availability of domestic gas for such purpose and overall public interest,” say the oil ministry’s draft rules for open access to natural gas pipelines and city gas distribution network. The Petroleum and Natural Gas Regulatory Board (PNGRB) shall declare a city gas distribution network as common carrier upon the expiry of its exclusivity period and also determine its transportation tariffs, per the draft, which also provides for setting up of a transport system operator (TSO) to manage common carrier capacity of all gas pipelines. The TSO isn’t permitted to market or sell natural gas but can own and operate pipelines. The TSO can collect fees from users to meet its expenses. It shall frame suitable procedures to provide for the registration of users of common carrier capacity, receipt of necessary pipeline data from all pipeline entities, collection and scheduling of nominations for transportation of gas in open access capacity, and management of imbalances in open access capacity, per the draft. The TSO is also expected to set up a gas management control centre and a database management system. It would also provide information to gas exchange about available common carrier capacity, according to the draft.