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OJG June – Reasonably sized Downstream Refinery deals have impact on acquired values

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This topic contains 2 replies, has 2 voices, and was last updated by  Charles Randall 8 years, 8 months ago.

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  • #2223

    basil parmesan
    Participant

    Fitch: ‘Reasonably sized’ downstream deals to have modest impact

    Jun 13, 2011 OGJ : June 2011/ Issue /24 Vol 109
     
    Link/Source:( http://www.ogj.com/index/article-display/9359188543/articles/oil-gas-journal/volume-109/issue-24/general-interest/fitch-reasonably-sized-downstream-deals.html )
     

    Measured withdrawal from downstream operations by large integrated oil companies has slashed refinery acquisition values from high levels prevalent a few years ago.

    But a widening spread between US and European crude prices might counter the trend in the US interior by encouraging investments aimed at capitalizing on discounted feedstock, according to Fitch Ratings.

    Analysts at the firm described key refining trends in an industry assessment concluding, “Given current conditions, reasonably sized deals are likely to have modest impact on key credit metrics for most names in the sector.”

    In addition to shrunken acquisition values and widening US-European crude-price differentials, the credit-rating firm noted strong cash flows from refining and “a backdrop of improving supply-demand fundamentals.”

    ‘Nosebleed multiples’

    Fitch said recent refinery acquisition values, by its calculations, have ranged from as low as $765/b/d of capacity to, more commonly, $2,000-3,000/b/d (see table).

    It said a drop in valuation multiples might show sellers have become unwilling to wait for strategic buyers in their eagerness to shed downstream properties and increase investment in higher-return projects upstream.

    And it contrasted recent valuations with what it described as “nosebleed multiples paid for refining assets just a few years earlier during the ‘golden age of refining.'”

    Peak transactions, it said, included the 100,000 b/d refinery in Wilmington, Calif., that Tesoro Corp. bought from Shell at a calculated value of $16,300/b/d of capacity and the stake Citgo sold to Lyondell in the 268,000 b/d Houston refinery the companies had operated as a joint venture, valued at $16,047/b/d. Both deals occurred in 2007.

    Fitch nevertheless pointed to more-recent deals with relatively elevated values involving buyers that “might be thought of as strategic.” In this category it included Lukoil’s acquisition of a 45% stake in Total’s refinery in the Netherlands at a calculated value of $8,439/b/d of capacity, Rosneft’s purchase of a 50% interest in Ruhr Oel of Germany at $6,868/b/d, and PetroChina’s offer of a 50% stake in the European refining business of INEOS at $4,833/b/d.

    “Russian oil and gas companies remain interested in downstream integration in the European market, which is a primary outlet for their crude oil sales,” Fitch said. “Similarly, in a number of cases oil and gas companies have partnered with European refiners to expand internationally, gain access to end-user markets, and allow access to technological and operational know-how of more sophisticated/developed refining markets.”

    Limiting risk

    The firm said improving financial performance across the North American downstream industry might further limit deal-financing risk by increasing the share of funding that can be made with current liquidity.

    High and volatile crude oil prices remain a risk because of the potential for further demand destruction and associated increase in working capital needs. Another risk for US refineries is steadily increasing regulatory pressure, Fitch said.

    For US refiners able to take advantage of “cheaper, landlocked North American crudes,” the growing discount of West Texas Intermediate to Brent crude has created “a windfall.” The price differential has developed partly because of a logistical bottleneck at Cushing, Okla., the US pricing hub. Fitch doesn’t expect that pressure to ease “for at least the next several quarters.”

    The development, the firm said, “opens up the possibility of renewed incentives to increase downstream activity to capture this differential.” Future deals might include debottlenecking of refineries, joint ventures linking Midcontinent refiners with producers, or acquisitions.

    “This dynamic may also cause Midcontinent mergers and acquisitions to buck the broader trend of low-priced deals,” Fitch said.

  • #5027

    Charles Randall
    Participant

    I’m sure you saw this in OGJ June Issue 24/Vol 109 but just in case here it is! (Note looks like you will have go link or read issue to see table on sales example – because table did not post)
     
    Here is good article from this months OGJ June 2011 on all the downstream deals where integrated oil companies trying to shed refining assets (and get into “better return” E&P investments) have not bothered to find strategic buyers and taken half value (many US ~$800-6,000 per bpd capacity) prevalent just few years ago (+$16,000 per bpd capacity ~2007).
     
    The article goes on to show that many purchasers end up with a windfall US landlocked, cushing bottlenecked WTI discounted crude/feedstock values compared to EU Brent/other US sweet crudes (LLS) which is (would have past purchases) bring values back closer to 2007 levels. 
     
    I have reported on several other articles (June-May BP Arco/Carson & Tx City asset sale & LyondellBasell French refinery sale, May-June recap EU refinery asset sales & June-1Q recap US Excess Refinery assets) about folly of integrated upstream oil companies giving away downstream assets to shift funds into E&P on false premise that crude demand & supply are driving crude market prices instead of speculators trading paper volatility on false rumors.
    Regards 

  • #4586

    Anonymous

    is that this is not a stand alone gas escape, wind afcetfed spark initiated explosion dissipating it’s energy to the atmosphere. This explosion, from the photographs, is a violent explosion, including a pressure vessel containing hydrocarbons. Flying debris, shrapnel if you like, creating damage well without a directionally driven gas plume. This could result in secondary uncontrolled situations. The RADIUS of damage, 400m., is more than likely a correct assumption. The issue here is not the damage you see but that which cannot be seen on a photo. Days ? Maybe but at 1% capacity. Months ? More than likely.And the Head of PDVSA says it’ll be online in a couple of days !!!!! That’s the las thing a man in that position should be saying.And if maintenace is the issue, critical issue I mean, Venezuelas’s hydrocarbon industry is buggered well in to the future. No different from the roads, bridges, Conviasa and so on. And I haven’t had my breakfast yet !

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