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Monday, April 30, 2018

#Marathon- #Andeavour $MPC $ANDV #Oil merger details #OOTT

- Combined company would be largest independent #refiner in the US, with ~$92B EV
- MPC expects to realize +$1b in annual run rate cost savings & operating synergies within first 3 years
- $600MM termination fee, 2.6% of transaction value


Comments below from BMO energy trader Brad Pavelka:

M&A cycle continues to accelerate in energy-land.

Following WSJ indication last night, MPC announced this morning acquisition of ANDV for $35.6B EV, including $23.3B of total equity value. ANDV holders will receive 1.87 MPC shares or $152.27 in cash, a 24.4% premium to Friday's close. MPC will offer up to 15% of deal size in cash. Transaction is expected to close in 2H18. 

·       MPC expects to realize > $1b in annual run rate cost savings and operating synergies within the first three years.

·       MPC board has authorized an incremental $5b share repurchases

·       ANDV CEO/Chairman Greg Goff will join MPC as Executive Vice Chairman

·       $600MM termination fee, 2.6% of transaction value

 

Quick Thoughts: M&A continues to heat up in the sector and MPC is clearly looking to expand its portfolio leverage to key assets in West Texas (WNR) where the majority of US production growth is expected to occur along with premier West Coast refining and logistics assets. Combined company would be the largest independent refiner in the US, with ~$92B EV. Likely increases discussions about further consolidation within downstream, DK looking the most likely target. ANDV G&A in 2017 was $742MM, making the run rate synergies look relatively conservative and the increased repurchase authorization is a strong indication of confidence from the MPC board and should satisfy pushback from the 'return of capital' bulls'. After a monster 2017, ANDV has underperformed MPC by 16% YTD18, which likely helped to facilitate the transaction and ANDV is trading at the 29th percentile vs MPC on a 5yr basis and 19th over the past year. Both stocks are relative longs in terms of positioning, so the 'street impacts' should be relatively positive. Anti-trust concerns are always front of mind with consumer sensitive industries, especially in California but the asset overlap is minimal. Combined entity would be 50% larger than the second largest US refiner now.

 

Feedback appreciated as always.

 

ANDV a timely acquisition?

 

 

Wednesday, April 25, 2018

Further 1MM BOPD may come offline as #Venezuela’s @PDVSA implodes and if Trump reimposes #Iran #Oil #sanctions #OOTT

The world risks a full-blown oil shock within months | Financial Post

World risks a full-blown oil shock within months as 3 geostrategic crises come to the boil 


'We are pretty confident that oil will be in triple digits by next year'

The world risks a full-blown oil shock within months as three geostrategic crises come to the boil and Saudi Arabia hints at US$100 crude, setting off a speculative scramble by commodity hedge funds.

Brent crude has surged this week to a 40-month high of almost US$75 a barrel even though the global economy is losing momentum. This price spike is different from earlier China-driven episodes over the past 15 years. It reflects a constriction of supply and a rising "political premium." Such a context makes it more threatening.

We are pretty confident that oil will be in triple digits by next year

It is now highly likely that Donald Trump will reinstate oil sanctions against Iran on May 12, this time adding extra curbs on distillates. Japan and South Korea will almost certainly join the Americans. Most European firms will fall into line whatever the policy of their own governments since it is dangerous to defy the U.S. Treasury. Most insurers and shippers will steer clear of Iranian cargoes.

"We are pretty confident that oil will be in triple digits by next year," said Jean-Louis Le Mee from Westbeck Capital. By then the oil market will be feeling the delayed effects of a 40 per cent slump in investment from late 2014 to early 2017, storing up a structural shortfall of 8 million barrels a day (b/d).

Le Mee said the Iranian sanctions alone will take up to 500,000 b/d off the global market by the fourth quarter, rising to 700,000 in 2019.

This is happening just as the proxy-war between Saudi Arabia and Iran over Yemen reaches a lethal crescendo.

Escalating missile attacks on Saudi targets by the Iranian-backed Houthis threaten to detonate an epic clash between the rival Sunni and Shia alliance systems.

"The Houthis are not backing off. My fear for contagion is that one of these missiles will get through Saudi air defences and then we will be in a Mid-East war," said Helima Croft from RBC Capital. "If a Saudi tanker is sunk with 2 million barrels of oil, people are going to start worrying about the security of the sea lanes. Markets have been far too complacent," she said.

A Houthi fighter inspects the site of an air strike in the Yemeni capital Sanaa in November. Mohammed Huwais/AFP/Getty Images

It is also happening as Venezuela's oil industry goes into near-terminal collapse, with drilling parts running out and thousands of long-suffering staff at the state energy group PDVSA walking off the job in protest over pay arrears. Output has crashed by 550,000 b/d since early 2017.

There is a clear risk that Washington will impose tighter curbs on the Maduro regime after the elections on May 20. "We would end the year down another 1m b/d if the crisis metastasises," said Ms Croft.

Residents sit at a closed Petroleos de Venezuela SA (PDVSA) gas station near Puerto Ordaz, Bolivar State, Venezuela in February. Manaure Quintero/Bloomberg

The OPEC-Russia cartel can at last declare "mission accomplished" though it has taken much longer than they ever imagined. Joint cuts of 1.8 million b/d have reduced OECD oil inventories towards their five-year average and cleared most of the global glut, with the Saudis cutting even deeper than agreed in an attempt to lift prices well above US$80 before selling off shares in Aramco.

Saudi Arabia and Russia are now signalling that they aim to extend the cuts deep into 2019. This has been the green light for hedge funds and ETF commodity investors. Ole Hansen from Saxo Bank said the speculative rush has pushed "long" commodity contracts to a five-year high of US$1.09 trillion.

The oil surge has pushed U.S. petrol prices to US$3 a gallon, prompting Trump to tweet in an unexpected outburst last Friday that OPEC is keeping prices "artificially very high."

U.S. shale output can no longer keep up with the global shortfall. Although U.S. production has rocketed by 800,000 b/d this year to a modern-era high of 10.5 million b/d in April, a lack of pipelines is increasingly leaving "stranded barrels" in the Permian basin of east Texas. The new infrastructure will not be in place until mid-2019. The logjams are even worse in Canada.

America's refineries are geared to mixing sulphurous imports from Venezuela. They cannot cope with the volume of quality "super-light" grades from shale. This chronic mismatch will remain until new refineries are built.

Strictly speaking, Trump's criticism of OPEC is correct. Bjarne Schieldrop from SEB says prices would slide to the low US$50s without the cartel cuts.

Nikolaos Panigirtzoglou from JP Morgan says global consumers enjoyed a US$1.8 trillion annual windfall — worth 2.2 per cent of global GDP — when oil prices crashed. This acted as a "tax cut" stimulus. The process is now going into reverse. Consumers have seen an US$800 billion squeeze. On cue, JP Morgan's instant "Nowcast" tracker of world growth has dropped from 4 per cent to 3.2 per cent since the start of the year, far below estimates of the International Monetary Fund.

It is hard to separate cause and effect. China has been cooling as credit curbs bite. Monetary tightening by the US Federal Reserve is lifting global borrowing costs. The slowdown may prove to be nothing more than a soft patch but late-cycle pathologies abound and there are reasons for caution. The rest of the commodity nexus has yet to show much sign of life. Metals have been lacklustre after stripping out price spikes in both aluminium and nickel, caused by US sanctions against Russia.

In the end, OPEC and Russia are walking a tightrope. They risk a serious misjudgment if they push prices too high. "It was US$100 oil from 2011 to 2014 that kicked off the renewable revolution that we have seen," said Hansen from Saxo. A return to US$100 oil would accelerate investment in electric vehicles and bring forward the moment of cost parity with petrol and diesel engines, at which point the oil industry risks losing its footing forever and going into run-off.

Whatever happened to those Saudi counsellors sagely warning last year that any sustained move above US$60 was short-sighted folly.



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Tuesday, April 17, 2018

,#Venezuela #oil workers quit in a stampede as @PDVSA collapses under military rule

@Reuters reports 25,000 workers said to have resigned between the start of January 2017 and the end of January 2018, according to opposition oil union leaders

"Some PDVSA offices now have lines outside with dozens of workers waiting to quit. In at least one administrative office in Zulia state, human resources staff quit processing out the quitters, hanging a sign, 'we do not accept resignations,'"

Under military rule, Venezuela oil workers quit in a stampede

(Reuters) - Chauffeured around in a sleek black pick-up, the head of Venezuela's oil industry, Major General Manuel Quevedo, last month toured a joint venture with U.S. major Chevron.

Flanked by other trucks carrying security guards, Quevedo passed a handful of workers waiting by an oil well cluster. They wanted a word with the OPEC nation's oil minister and president of its state-run oil firm, PDVSA [PDVSA.UL], about the sorry state of the company.

Quevedo and his caravan drove on by.

"He didn't get out to ask workers about what is going on," said Jesus Tabata, a union leader who works on a rig in the oil-rich Orinoco Belt. "That way it's easier to keep saying everything is fine - and at the same time keeping us on like slaves on miserable wages."

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What's going on is that thousands of oil workers are fleeing the state-run oil firm under the watch of its new military commander, who has quickly alienated the firm's embattled upper echelon and its rank-and-file, according to union leaders, a half-dozen current PDVSA workers, a dozen former PDVSA workers and a half-dozen executives at foreign companies operating in Venezuela.

Some PDVSA offices now have lines outside with dozens of workers waiting to quit. In at least one administrative office in Zulia state, human resources staff quit processing out the quitters, hanging a sign, "we do not accept resignations," an oil worker there told Reuters.

Official workforce statistics have become a closely guarded secret, but a dozen sources told Reuters that many thousands of workers had quit so far this year - an acceleration of an already troubling outflow last year.

About 25,000 workers resigned between the start of January 2017 and the end of January 2018, said union leader and government critic Ivan Freites, citing internal company data. That figure comes out of a workforce last officially reported by PDVSA at 146,000 in 2016.

Resignations appear to have increased sharply this year, said Freites, a prominent union leader at Venezuela's major refineries in the northern Paraguana peninsula.

"It's unstoppable," he said.

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Many of those leaving now are engineers, managers, or lawyers - high-level professionals that are almost impossible to replace amid Venezuela's economic meltdown, the PDVSA workers and foreign executives told Reuters.

PDVSA and the Oil Ministry did not respond to repeated requests for comment. PDVSA board member and pro-government union representative Wills Rangel acknowledged the flight of talent is a serious problem.

"The massive resignations are worrying," Rangel said in an interview. "In refinery operations, many have left."

The pace of departures has quickened with the rapid deterioration of PDVSA's operations and finances - radiating pain through the OPEC nation's oil-based economy, now beset with food shortages and hyperinflation.

Quevedo - a little known former housing minister who replaced two executives jailed for alleged graft - has further poisoned the atmosphere, according to the two dozen sources who spoke with Reuters.

A stiff official who rose through the National Guard, Quevedo fired many long-term employees upon arrival and urged remaining ones to denounce any of their colleagues who oppose Maduro. He tapped soldiers for top roles, giving the oil firm the atmosphere of a "barrack," two company sources said.

"The military guys arrive calling the engineers thieves and saboteurs," said a Venezuelan oil executive at a private company who frequently works with PDVSA.

Quevedo is also fighting to retain control of a company increasingly riven by turf wars. The ruling socialists, once held together by late leader Hugo Chavez, have succumbed to infighting under Maduro, a former bus driver and union leader who lacks Chavez' charisma and has seen his budget slashed with the decline in global oil prices.

Quevedo has clashed with Venezuela's powerful Vice-President Tareck El-Aissami. When El-Aissami in February appointed a vice-president to the PDVSA unit that oversees joint ventures with foreign companies, Quevedo removed the appointee and had him arrested, according to three sources with knowledge of the incident, which has not been previously reported.

Quevedo is an ally of Socialist Party heavyweight Diosdado Cabello.

"There is a fight between Diosdado and Tareck for control of the industry," said Hebert Garcia, a former army general who later broke with Maduro and fled the country.

The political turmoil and mass resignations threaten Maduro's government, which depends on oil for 90 percent of export revenue.

In the Orinoco Belt, some drilling rigs are working only intermittently for lack of crews, said two sources there. In PDVSA's refineries, several small fires have broken out because there are no longer enough supervisors, two sources in the northern Paraguana peninsula said. Lack of personnel in export terminals have forced some ports to cut back working hours, according to two shippers and one trader.

Oil production in the first quarter of this year slipped to a 33-year low of 1.6 million barrels per day.

'WHEN ARE YOU LEAVING?'

Jobs at PDVSA were once coveted for their generous salaries and benefits, including cheap credit for housing. Now, many PDVSA workers can't feed their families on wages that amount to a handful of U.S. dollars a month.

Rampant food shortages that caused Venezuelans to report losing an average of 11 kilograms (24 pounds) last year are particularly tough for oil workers tasked with grueling physical work in often remote oil fields.

Some oil workers have resorted to working odd jobs on the side, taking vacation to work abroad, or even selling their work uniforms - red overalls - for money to eat.

Some workers in Lake Maracaibo, a production region near Colombia, can no longer get to their jobs, according to two sources there. Transport can cost up to 55,000 bolivars - equal to only 10 U.S. cents, but close to what some workers earn in a day.

"Now what we ask each other is: 'When are you leaving and for where?'," said one of the Maracaibo workers, who like thousands of other Venezuelans emigrated to Colombia this month. "Even in the bathroom, people are talking about quitting."

'WHO WILL BE LEFT?'

At PDVSA headquarters, Quevedo often walks through the offices with a half dozen bodyguards who clear his path, according to one current and one former PDVSA employee.

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The company's ongoing decay is evident all around him in the once polished office tower: Broken elevators, poor cafeteria food, empty desks in once-crowded divisions.

Maduro has overseen the arrest of dozens of high-level PDVSA executives since late last year, sometimes at the Caracas headquarters as shocked employees looked on. Workers now feel watched by supervisors and are loathe to make any business decision out of fear they will later be accused of corruption, the sources said.

PDVSA workers, often visibly thinner, sometimes surreptitiously hand out resumes to executives from private companies, according to a source at a foreign firm.

In a rare protest last month, angry Oil Ministry workers blocked access to the cafeteria, demanding better benefits and chanting that Quevedo should resign.

Venezuela's foreign oil partners, which include California-based Chevron, Russia's Rosneft and China's CNPC, are increasingly worried about PDVSA's rapidly departing workforce, according to a half-dozen sources at multinational companies operating in Venezuela. But as minority partners, they have little or no sway over salaries and management.

The foreign partners have also grown increasingly frustrated with Quevedo, who initially asked for their suggestions on fixing the state-run firm but now appears ill-disposed toward reforms, the sources said.

At least one foreign company is considering bringing in foreign specialists to improve its operations, one of the sources added. But with crime, power cuts and shortages rampant in Venezuela, luring foreign professionals is tough.

Still, in the Orinoco belt, some vow to stay in the belief that Maduro's government can't last.

"We can't give up," said Tabata, the union leader who watched Quevedo's truck drive by that day. "This government is unstable and could fall at any moment - and who will be left?"

(Reporting by Deisy Buitrago and Alexandra Ulmer; Additional reporting by Mircely Guanipa in Punto Fijo, Marianna Parraga in Houston, and Brian Ellsworth in Caracas; Writing by Alexandra Ulmer; Editing by Brian Thevenot)



#PDVSA refineries in #Venezuela, Caribbean ran at 31 pct capacity in Q1

UPDATE 1-PDVSA refineries in Venezuela, Caribbean ran at 31 pct capacity in Q1 -document
@Reuters reports: "@PDVSA's refining operations have been degraded in recent years due to lack of cash for spare parts and maintenance, and insufficient light oil for the facilities. Staff departures, which have particularly affected the firm's refineries, have become the most recent obstacle to sustaining output levels."

UPDATE 1-PDVSA refineries in Venezuela, Caribbean ran at 31 pct capacity in Q1 -document

(Adds context, details on operations)

By Marianna Parraga

April 16 (Reuters) - Venezuela's oil refineries worked at 31 percent of their combined 1.62 million-barrel-per-day capacity in the first quarter, well below 2017 levels, according to an internal document from state-run firm PDVSA viewed by Reuters.

PDVSA's refining operations have been degraded in recent years due to lack of cash for spare parts and maintenance, and insufficient light oil for the facilities. Staff departures, which have particularly affected the firm's refineries, have become the most recent obstacle to sustaining output levels.

The company's Amuay, Cardon, Isla, Puerto la Cruz and El Palito refineries processed 510,000 bpd of crude in the first quarter, down sharply from a 631,000 bpd average in all of 2017, the document said.

The very low processing rate, worse than in Mexico, where growing fuel imports have displaced domestic production, has led to a lack of refined products to fulfill the country's export commitments, according to the report.

In May, PDVSA will face a deficit of 14,000 bpd - mainly diesel and jet fuel- for export contracts, even though Venezuela's fuel consumption this year has remained well below the peak of 750,000 bpd registered a decade ago.

Declining domestic demand should have left a surplus for shipping abroad. Instead, the deficit continues to cause delays in exports, with customers receiving only a portion of the cargoes promised.

The lack of spare parts and feedstock to operate the refineries properly is PDVSA's most recurrent problem. But a lack of crude has become another big issue, forcing the firm to boost oil imports, according to the document.

PDVSA did not respond a request for comment.

GOING DOWN AGAIN

PDVSA lowered its expectation for refining in May compared with April to 647,000 bpd, 39.9 percent of capacity, due to longer-than-expected maintenance projects.

The firm was hoping to restart one of the Amuay refinery's five atmospheric distillation units in April, but has postponed it without setting a new deadline. At Cardon, a vacuum distillation unit is out of service, while the reformer and a diesel hydrotreater are working with limitations.

At the 335,000-bpd Isla refinery in Curacao, the restart of several units under maintenance since February and April was delayed to May, including two crude units, an alkylation unit, a catalytic cracker and two hydrotreaters, the document showed.

At El Palito and Puerto la Cruz, an acute lack of medium crude has forced a halt to key units. (Reporting by Marianna Parraga; editing by Gary McWilliams and Dan Grebler)


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