Aramco plans to buy Reliance refining stake as earnings drop

MOSCOW (MRC) -- Saudi Aramco plans to buy a stake in the refining and chemicals business of India’s Reliance Industries Ltd., moving to diversify from Saudi Arabia as its first half-year earnings report showed a drop in net income, said Bloomberg.

The purchase by Aramco, the largest oil exporter and the most profitable company in the world, precedes a planned public offering that could be held as early as next year. Profit slid 12% to USD46.9 billion in the first six months as crude prices fell and costs rose, the state-owned company said Monday.

"In downstream we will further profitably diversify our operations and increase petrochemicals production,” Khalid Al-Dabbagh, senior vice president for finance, strategy and development, said in an interview. The details of the agreement with Reliance remain in the “early stages," he said.

The deal will allow Aramco, officially known as Saudi Arabian Oil Co., to expand its chemicals business as it seeks to reduce reliance on sales of crude. Saudi Crown Prince Mohammed bin Salman, who runs the country day to day, is pursuing a radical program to diversify the economy and can tap the company’s strong balance sheet to finance his plans.

For Reliance, the cash from Aramco will help reduce debt that’s been pushed up by a headlong expansion into new sectors such as telecommunications.

Aramco will buy a 20% stake in the company’s oil-to-chemicals business, including the 1.24 million-barrel-a-day Jamnagar refining complex on India’s west coast, Reliance Chairman Mukesh Ambani said in Mumbai. Reliance values its oil-to-chemicals division at USD75 billion including debt, implying a USD15 billion valuation for the stake.

Despite the decline in profit at Aramco, the state oil giant increased cash flow and raised its dividend to almost match net income, giving a special payout to the government. Those are key concerns for potential investors ahead of an initial public offering planned for 2020 or 2021.

Aramco will hold its first-ever earnings call with investors later Monday as it tiptoes toward the greater disclosure required of public companies. It published annual financial statements for the first time in April, ahead of a USD12 billion bond sale. An IPO would put the Saudi giant under even greater scrutiny from investors and invite comparisons with other oil majors.
MRC

MOSCOW (MRC) -- The European Union's proposal to impose anti-subsidy duties on Indonesian biodiesel is part of a "grand design" to block palm oil, a senior official at Indonesia's Trade Ministry said Reuters.

Earlier this week the European Commission proposed duties ranging from 8% to 18% on imports of biodiesel from Indonesia to counter what it says are unfair subsidies.

Biodiesel from Indonesia is mostly made from palm oil, which the EU said in March it will no longer consider as an environmentally sustainable source of fuel and it should be phased out of renewable transportation fuels.

"This is a structured, systematic and massive grand design," said Pradnyawati, the director of trade security at Indonesia's Trade Ministry. "The point is they don't want vegetable oils produced from European soil rivalled by vegetable oil produced by tropical countries."

The EU has said there is evidence that Indonesian producers benefited from subsidies in the form of export financing, tax breaks and provision of palm oil, the key raw material, at artificially low prices.

The EU began looking into biodiesel from Argentina and Indonesia in 2012 and imposed anti-dumping duties on companies from both major producers in 2013.

However, the exporters won challenges at the World Trade Organization and the European Court of Justice. This prompted the EU to remove duties on most biodiesel imports from the two countries, resulting in a surge in imports.

In 2018, Indonesia shipped 807,439 tonnes of unblended biodiesel to EU countries, such as Spain, the Netherlands and Italy, according to data from the Indonesian statistic agency.

Following the anti-dumping duties removal, the European Commission started an investigation into possible unfair subsidies.

Indonesian biodiesel exporters filed their rebuttal to the allegation on Friday, Pradnyawati said. While the Indonesian government is waiting for official document on the EU's preliminary determination before it sends a response.

Indonesia's biofuel producers association has said the allegations were "totally untrue".

The EU measures are provisional pending the conclusion of the EU investigation and will apply from Sept. 6. Definitive duties, typically applied for five years at the end of an investigation, would need to be set by Jan. 4, 2020. The measures can be blocked by EU member countries.

Indonesia has accused the EU of being "discriminatory" against palm oil. Pradnyawati said it hampers closer relations between the country and the group. "How can we improve our relationship to closer ties if they keep bothering our exports," she said.
MRC

MOSCOW (MRC) -- Oil jumped more than 2% on Thursday on expectations that falling prices could lead to production cuts, coupled with a steadying of the yuan currency after a week of turmoil spurred by an escalation in U.S.-China trade tensions, said Hydrocarbonprocessing.

Brent crude ended the session up USD1.15, or 2.1%, at USD57.38 a barrel, after hitting a session high of USD58.01. U.S. West Texas Intermediate (WTI) crude futures rose USD1.45, or 2.8%, to settle at USD52.54 a barrel after hitting a peak of USD52.98.

Prices rebounded after tumbling nearly 5% to their lowest since January on Wednesday after data showed an unexpected build in U.S. crude stockpiles after nearly two months of decline. Lending some support to prices on Thursday, inventories at Cushing, Oklahoma, the delivery point for WTI, fell about 2.9 million barrels in the week to Aug. 6, said traders, citing data from market intelligence firm Genscape.

China’s yuan strengthened against the dollar and its exports unexpectedly returned to growth in July on improved global demand despite U.S. trade pressure. The dollar fell 0.2% against the offshore yuan. “Today’s price rebound across the energy spectrum looks like a normal correction from a short-term oversold technical condition,” Jim Ritterbusch of Ritterbusch and Associates said in a note.

“While some Saudi overtures of additional output restraint, a softening U.S. dollar and lift in global risk appetite are facilitating today’s rally, we are not viewing this as the beginning of a sustainable advance by any measure." Reports that Saudi Arabia, the world’s biggest oil exporter, had called other producers to discuss the slide in crude prices have helped supported the market, traders and analysts said.

“Saudis are scrambling to send a signal that will stabilize oil markets ... With energy prices heading for the worst weekly close since December, we should not be surprised to hear more rumors that OPEC may be considering increased production cut efforts ahead of a key summit that is tentatively planned for the second week in Abu Dhabi,” said Edward Moya, senior market analyst at OANDA in New York.

Persistent worries about demand growth have weighed on global oil markets, particularly as the world’s two biggest economies are locked in a trade row. Crude oil shipments into China, the world’s largest importer, in July rose 14% from a year earlier as new refineries ramped up purchases. Fuel exports continued to climb as supply outstripped demand in the world’s second-largest oil consumer.

Saudi Arabia plans to keep its crude oil exports below 7 million barrels per day in August and September despite strong demand from customers, to help drain global oil inventories and bring the market back to balance, a Saudi oil official said.

Geopolitical tensions over the safety of oil tankers passing through the Persian Gulf remained unresolved as Iran refused to release a British-flagged tanker it seized last month.

The U.S. Maritime Administration said U.S.-flagged commercial vessels should send their transit plans for the Strait of Hormuz and Gulf waters to U.S. and British naval authorities, and that crews should not forcibly resist any Iranian boarding party.
MRC

MOSCOW (MRC) -- A Venezuelan oil joint venture with a state-owned Chinese company has started an expansion project to boost output to 165,000 barrels per day (bpd), President Nicolas Maduro said, from a current capacity of 110,000 bpd, said Reuters.

Sinovensa, owned by PDVSA subsidiary Venezuelan Petroleum Corp (CVP) and China National Petroleum Corp (CNPC), produces extra-heavy Orinoco crude and blends it with lighter oil to produce medium-grade Merey.

"Thanks always to China, for all of this effort and all of this cooperation," Maduro said in a televised broadcast that included a delegation of Chinese officials.

PDVSA said in a statement that a second phase of the project would take capacity to 230,000 bpd.

Blended crude grades are widely sought in Asian markets, where PDVSA is increasingly sending its crude production in the wake of Trump administration sanctions that have effectively halted sales of Venezuela oil to the U.S. market.

Venezuela last year sold CNPC an additional 9.9 percent stake in Sinovensa, leaving it with 49 percent ownership. PDVSA owns the rest.
MRC

MOSCOW (MRC) -- Shareholders of Anadarko Petroleum Corp voted overwhelmingly to sell the company for USD38 billion to rival Occidental Petroleum Corp , ending a short-lived contest that pitted two of the most storied names in the oil industry against one another, said Hydrocarbonprocessing.

Occidental in May beat out Chevron Corp to grab a major oil industry prize: Anadarko’s nearly quarter million acres in the Permian Basin, the top U.S. shale field, where low-cost output has helped turn the United States into the world’s top oil producer at more than 12 million barrels per day.

Anadarko’s shareholders voted 99% in favor of the deal that gives them USD72.34 per share based on Wednesday’s closing price for Occidental. Investors also voted in a non=binding measure 71% against executive payouts tied to the deal. Anadarko’s top six executives are to receive USD300 million in payouts.

Occidental said immediately after the vote it had closed the transaction, and had named new executives to run Western Midstream Partners LP, Anadarko’s natural gas pipeline business. Its shares rose 2.5% to close at USD47.13.

“We begin our work to integrate our two companies and unlock the significant value of this combination for shareholders,” Occidental Chief Executive Vicki Hollub said in a statement. Anadarko shares are up 56% from the day before it disclosed merger talks, while Occidental shares are down 30% since its discussions were revealed.

The market’s sour response has dampened enthusiasm for deals. Even with stocks of many shale firms trading at multi-year lows, it may not be enough to spur a buyout spree by the world’s largest oil and gas firms, said Artem Abramov, analyst with Rystad Energy.

“Some super-majors might be waiting for even lower pricing,” Abramov said. Hollub has been lining up financing and organizing asset sales to fund the deal while battling activist investor Carl Icahn, who wants to replace four Occidental directors and influence the pace of the company’s asset sales.

Hollub avoided her own shareholder vote on the deal by securing a controversial and pricey USD10 billion financing agreement with Warren Buffett’s Berkshire Hathaway. Icahn likened the deal to “taking candy from a baby” on Buffett’s part.

Occidental this week sold USD13 billion in bonds to help fund the Anadarko purchase and has proposed selling Anadarko’s Africa assets to Total SA. It also formed a drilling partnership with Colombia’s state-run oil company Ecopetrol SA to develop part of its Permian shale field for up to USD1.5 billion.

Occidental last week reported a 14% drop in second quarter profit, as costs related to the deal and weaker chemical earnings hit its bottom line.
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