Fitch: 'Reasonably sized' downstream deals to have modest impact

By OGJ editors
HOUSTON, June 1
-- 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.

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.

Related Articles

SOCAR consolidates Azerbaijani refining operations

12/29/2014 State Oil Co. of Azerbaijan Republic (SOCAR) plans to shutter and subsequently merge processing activities at its Azerneftyag refinery with those o...

Suncor wraps maintenance at Montreal refinery

12/24/2014

Suncor Energy Inc. has concluded 3 months of planned maintenance at its 137,000-b/d Montreal, Que., refinery.

Vietnam, Japan sign MOU for grassroots Vietnamese refinery

12/23/2014 State-run Vietnam National Petroleum Corp. (Petrolimex) and JX Nippon Oil & Energy Corp., a subsidiary of JX Holdings Inc., have signed a memor...

Regulators approve Unipetrol’s purchase of Czech refinery

12/22/2014 Unipetrol AS’s plan to acquire soon-to-be former partner Eni SPA’s interest in Ceska Rafinerska AS (CRC) to become the plant’s sole owner would not...

California Bay Area advances plan for enhanced refinery regulations

12/19/2014 California’s Bay Area Air Quality Management District (BAAQMD), the public agency responsible for regulating stationary sources of air pollution in...

ExxonMobil lets contract for Antwerp refinery

12/17/2014 ExxonMobil Petroleum & Chemical BVBA has let an engineering, procurement, and construction contract to Fluor Corp. for a delayed coker to be in...

BPC report examines 40 possible options to reform RFS

12/16/2014 The Bipartisan Policy Center issued a report outlining 40 possible options for reforming the federal Renewable Fuels Standard in an effort to move ...

Turkish refinery secures Canadian financing

12/16/2014 Export Development Canada (EDC) said it is participating as lead arranger in the $3.3 billion debt-financing consortium supporting STAR Rafineri AS...

Angola’s Sonangol secures $2 billion loan for refinery, other projects

12/15/2014 China Development Bank (CDB) has extended a $2 billion line of credit to state-owned Sonangol EP to support expansion projects in Angola’s oil and ...

White Papers

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

When Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST



On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected