There are a lot of ways to indemnify an energy company against a dwindling income from plummeting oil prices. One is to lay off workers. One is to postpone or even abandon plans for bold new projects. And one is to sell off valuable assets to raise cash.
Chevron is picking Door Number Three. It said March 27 that it planned to raise about US $3.6 billion (Aus $4.6 billion) by agreeing to sell its 50 percent share in the Australian oil-refining company Caltex Australia Ltd., which owns Australia's biggest refinery, situated in Brisbane, as well as about 1,800 service stations around the country.
In a statement, Michael Wirth, Chevron's executive vice president for refining, distribution and marketing, made it sound like a routine affair. "This transaction reflects Chevron's commitment to regularly review our portfolio and generate cash to support our long-term priorities," he wrote. "It is aligned with our previously announced asset sales commitment." Related: Three Triggers That Will Send Oil Crashing Again
Yet earlier this month, Chevron increased by half its goal for proceeds from asset sales between 2014 and 2017, up from US $10 billion to US $15 billion. It also suffered a 30 percent drop in profit in the fourth quarter of 2014 compared with the same period the year before. That amount, US $3.5 billion, was its lowest since the recession year of 2009.
As Chevron has suffered, Caltex Australia has thrived, making it a valuable property to sell if one needed the money. Its shares have risen more than threefold since 2010, and rose fully 74 percent in the past year alone.
The reason is that the company reduced its reliance on refining, with its capricious revenues. The drop in oil prices has been difficult for Australian refiners, who must contend with older equipment and higher costs. Many such companies, including Caltex Australia, have either been forced to restructure their refining procedures or shut down refineries altogether. Related: Oil Markets Blow Yemen Crisis Out Of Proportion
But Caltex Australia has also directed more attention on marketing, which remains consistently profitable.
Goldman Sachs, which is underwriting the sale, is offering to sell 135 million shares of Caltex Australia to institutional investors at US $26.65 each, The Wall Street Journal reports. This price is 9.7 percent less than Caltex Australia's closing price on March 27. Such discounts are common incentives to potential buyers when companies want to sell large blocks of shares.
The Chevron-Caltex Australia transaction is the biggest block trade in Australian history. Until now, the largest such transaction was in 2010, when Royal Dutch Shell sold Woodside Petroleum Ltd. shares for about Aus $3.3 billion.. Related: Forget Rig Counts And OPEC, Media Bias Is Driving Oil Down
As for Caltex Australia's future operations, a company spokesman said in a statement that Chevron was emphatic that its sale of the Australian company was merely part of a broader review of its portfolio. "There will be no change to our ability to reliably and competitively deliver all our customers' fuel requirements," the spokesman wrote.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More