Brazil Petchem Buyout Plan Delayed
Brazil’s recent change of government has further delayed the long-awaited finalization of LyondellBasell Industries NV’s plan to buy Brazilian petrochemical company Braskem SA, three sources with knowledge of the matter said. Netherlands-based LyondellBasell first said it had entered into exclusive talks to acquire control of Braskem from Brazilian conglomerate Odebrecht SA in June. However, the deal’s price depends on a long-term naphtha supply contract with state-controlled Petroleo Brasileiro SA, which also owns shares in Braskem.The current contract with the state-controlled oil company, known as Petrobras, expires in December 2020. The sources, who requested anonymity to discuss private talks, said a draft naphtha supply agreement was reached in December under former Petrobras Chief Executive Officer Ivan Monteiro. But Monteiro declined to ratify the deal when it became clear he would be replaced under the newly elected administration of far-right President Jair Bolsonaro, the people said.Lyondell representatives are now waiting to hear whether there will be any changes to the Petrobras team that was negotiating the contract and for the talks to resume, one of the sources added. Jorge Celestino Ramos, Petrobras’ refining and natural gas director, who had headed the team, was replaced earlier this month by Anelise Lara. Odebrecht and Petrobras expect a premium on the value of their stakes. Braskem’s current market capitalization on the Sao Paulo stock exchange is around $38.5 billion reais ($10 billion)
Indonesia’s state-owned energy company, Pertamina, expects to sign a production sharing contract for the Rokan oil block, after paying a $784 million signature bonus for its bid in December, a company director said. Indonesia’s energy ministry announced in July that Pertamina will take over operation of Rokan, the country’s second-biggest oilfield block, once Chevron’s operating contract there expires in 2021. The Rokan block occupies 6,000 square km (2,300 square miles) on the Indonesian island of Sumatra. It contains 96 oilfields and has been a focus area for Chevron, but a proposal by the U.S. oil major earlier in 2018 for an extension of its Rokan contract beyond 2021 came in far below Pertamina’s offer. Pertamina has formed a subsidiary named Pertamina Hulu Rokan that will take over operations from Chevron Corp. unit Chevron Pacific Indonesia in 2021, Pertamina upstream director Dharmawan Samsu told reporters. Pertamina is in discussions with Chevron on the transition, and hopes to start drilling in Rokan this year, Samsu said. The company has been “directed to seek a partner” for Rokan by the state-owned enterprises ministry, he said without elaborating. Pertamina will open a tender this year to install new pipelines to transport crude from Rokan, as existing pipelines were already 40 years old, and had decided to begin work immediately, Samsu said. “If we wait until 2021 to replace them, building pipelines takes two years or 18 months, so there would be a period where we’d face high risks that those pipes may not function because they need maintenance.”
India’s Reliance Posts Record Profit
India’s Reliance Industries posted record quarterly profit driven by its telecoms, retail and petrochemicals businesses, which offset the impact of a weaker refining margins due to volatile crude prices. The results saw the conglomerate making progress in its drive, announced last year, to make its consumer businesses eventually as large as its core energy operations, which are also struggling with slowing growth in China. “Consumer business now contributes more than 25 percent of the EBITDA (earnings before interest, tax, depreciation and profit),” V Srikanth, joint chief financial officer said, referring to the telecoms and retail businesses.The businesses contributed around 12 percent to EBITDA in 2017. Net profit on a consolidated basis rose to 102.5 billion rupees ($1.44 billion) in October-December, beating analysts’ average estimate of 96.48 billion rupees, according to Refinitiv Eikon data. Consolidated revenue grew 56.4 percent to 1.60 trillion rupees. Gross refining margin (GRM) - the profit earned on each barrel of crude processed - was $8.8 per barrel for the quarter, the lowest for 16 quarters but outperforming the benchmark Singapore complex margin by $4.5 per barrel. Operating profit from refining fell 18 percent year-on-year, despite a 47 percent jump in revenues from that business. Srikanth said that while there would be short-term weakness in refining, the company could cope due to its ability to process a wide variety of crudes and a diversified business portfolio.
OPEC Cuts Offset Headwinds from Slowing Economy
Oil traders seem increasingly convinced OPEC’s prompt action in cutting production will be enough to offset the impact of rising shale production and slowing global growth. Brent futures prices have stabilized around $60 per barrel in recent sessions, well below the peak of over $85 at the start of October, but significantly higher than the trough of less than $50 in late December. More importantly, Brent’s six-month calendar spread has strengthened from a contango (discount) of almost $1.80 per barrel to just 35 cents over the same period. Calendar spreads have been correlated with the changing balance between production and consumption, alternating between contango and backwardation as the market cycles between over- and under-supply. The narrowing discount on futures for early delivery in recent weeks indicates traders expect the market to be less oversupplied than before. Stronger spreads suggest OPEC’s cuts have succeeded in shifting market expectations about the outlook for 2019. Saudi Arabia and its OPEC and non-OPEC allies have implemented substantial reductions in production and exports during December and the first part of January.OPEC crude production declined by 750,000 barrels per day in December, according to industry sources surveyed by the OPEC secretariat.Most of the reduction came from Saudi Arabia (470,000 bpd), but there were also substantial cuts from Iran (160,000 bpd) and Libya (170,000 bpd) as a result of U.S. sanctions and domestic unrest, respectively.