Refining revenues have for many oil businesses been the difference between life and death over these past two years. Now they are helping some of the biggest oil companies in the world ramp up their balance sheets in a different, more final way.
Chevron, BP, Shell, Total, and Lukoil have all recently sold or are looking to sell downstream assets, which fetch higher prices than fields. The reason: urgent need for cash, at least for three of these five, and suspicions that the recent oil price rally will soon be renewed and will push down refining margins as fuel prices lag behind crude oil on the upward curve.
Chevron is currently looking for a buyer for its Burnaby refinery in Canada, after offloading one in April, in Hawaii. Its 75 percent stake in a Cape Town refinery is also for sale, and has been since January.
The company has been struggling with sparse cash flows after investing heavily in large-scale natural gas projects, such as the Australian Gorgon and Wheatstone offshore fields, and failing to remain profitable through the recent price crisis.
Shell is in a similar position. Unlike Chevron, it went for a peer acquisition, splashing some $53 billion on BG Group and its natural gas assets. As a result, Shell is now undergoing a restructuring, which includes the sale of some downstream assets, such as its 51 percent stake in its Malaysian refining operations, sold in February, and reportedly, its Martinez refinery in California. Related: Slavery At Sea: The Ugly Underbelly Of Oil Shipping
Both deals are part of a $30-billion asset sale plan devised to restore cash flows following the BG Group acquisition that didn’t take place at the best of times, amid the raging oil price crisis.
Total, the French major, has been doing fairly well and is not in such urgent need of cash, unlike its bigger rivals, but last year when it put its Port Arthur refinery up for sale, it must certainly have been worried about the direction oil prices were taking. Now this sale is no longer on the table, but the company has retained its advisor on the matter, Lazard.
A Reuters report notes that all these sales concern relatively minor refining operations, and none of the three companies are offloading their biggest downstream operations. Of course they wouldn’t – who knows when the next oil price crash will happen?
BP has also been selling assets, upstream and downstream, after finding itself between the rock that is dropping oil prices and the hard place it put itself in after the 2010 Deepwater Horizon explosion. Since then, it’s had to pay over $50 billion in fines and compensations, and there’s more to come as there are groups of plaintiffs still suing the company. Related: OPEC May Be Forcing Venezuela Into Regime Change
So, BP has been divesting assets and will continue to do so in all likelihood until it gets back firmly on its feet
Lukoil, on the other hand, managed to survive the price rout with relatively moderate damages. It is now considering a spin-off for its European refining operations, or a sale of the lot. Despite the stable profitability of refining and retail operations, the Russian giant is betting on exploration and production, probably planning to take advantage of its return to Iran, along with ongoing operations at home and abroad.
Selling non-core downstream operations is a logical choice at a time when production assets are not especially sought after. However, selling too many non-core assets too fast will leave the seller with little space for future maneuvering in case the market swings again. It seems Big Oil is betting on another price jump, which may or may not happen. If it does, the sales of small refineries won’t matter so much. But what if the jump is short-lived and then prices start sinking again?
By Irina Slav for Oilprice.com
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