Weekly Oil & Gas Notes: Shell-BG Deal Clears Australian Hurdle, Worker Strikes Continue To Drag Down Petrobras’ Daily O&G Production
The Oil & Gas industry saw significant activity last week, with the Australian competition authority ACCC recently announcing that it is giving its approval to the Royal Dutch Shell-BG Group deal. The companies now need clearance from China and Australia’s Foreign Investment Review Board for the deal to close as planned in early 2016. On a separate note, the worker strike at Petrobras continues to affect the company’s Brazilian oil & gas production. Petrobras’ management had earlier reached an agreement with union representatives to end the strike, but 7 out of 17 local unions are now refusing to accept this agreement. On that note, we discuss below these developments related to the Oil & Gas companies over the past few days.
Shell-BG Deal Approved By Australian Competition Authority
The proposed Royal Dutch Shell Plc. (NYSE:RDSA) – BG Group Plc. (LON:BG) merger received a major shot in the arm as the Australian Competition and Consumer Commission (ACCC) recently announced that it is clearing the deal. [1] The commission gave its blessing to the deal while concluding in its investigation that the proposed merger would not change the dynamics of the domestic market. Ever since announcing the $70 billion deal to acquire BG Group back in April, Royal Dutch Shell has been busy these last few months obtaining the required merger related approvals from various regulatory authorities. After obtaining the required clearances in Brazil, the U.S., and Europe, the process had hit a snag in Australia as the country’s antitrust regulator decided to delay its decision by about two months to November. [2] This was not surprising as Australia is significantly more affected by the deal in comparison to the other countries.
The ACCC’s main concern was that Shell could resort to suppressing local supply in favor of exporting to more rewarding destinations such as Asia once the deal was completed. Shell owns the largest known undeveloped gas reserves in eastern Australia through its 50% stake in Queensland-based Arrow Energy. [3] On the other hand, BG owns the Queensland Curtis LNG project, which started exporting gas early this year. Local gas users had claimed that Shell’s takeover of BG would align Arrow’s reserves with the Curtis LNG plant, with Shell preferring to export LNG instead of meeting domestic gas needs. However, the ACCC was not convinced by this argument and reasoned that the Arrow facility was currently not supplying to domestic customers and appeared unlikely to do so in the future, so aligning it to the Curtis LNG project would change nothing. [2] Talking about the deal, ACCC chairman Rod Sims stated that “The ACCC’s view is that the proposed acquisition would be unlikely to substantially lessen competition in the wholesale natural gas market, in either Queensland or eastern Australia more broadly.” With the ACCC approval in the bag, Shell now needs clearance from China and Australia’s Foreign Investment Review Board for the deal to close as planned in early 2016.
Royal Dutch Shell stock gained around 5.6% over the week through Thursday. We currently have a price estimate of $62 for Royal Dutch Shell. For the year 2015, we estimate revenues of $337.3 billion and EPS of $4.04, compared to a consensus estimate of $3.77. Please note that the calculated revenue figure has not been subjected to any intersegment elimination.
Petrobras Continues To Suffer Due To Worker Strikes
Petroleo Brasileiro Petrobras (NYSE:PBR) continues to reel under the pressure exerted by its worker unions. The worker strike in currently in its third week and continues to negatively affect the company’s domestic oil & gas production. The FUP federation of oil worker unions had earlier claimed that it had reached an agreement to end the strike after meeting with Petrobras Chief Executive Officer Aldemir Bendine. [4] However, 7 out of 17 local unions are still to accept this agreement with the main bone of contention being Petrobras’ refusal to pay full wages for the days on which the workers were on strike. The company had offered to pay 50% of full wages for the days of the strike. From Petrobras’ point of view, the company’s production continues to suffer as the impasse drags on. Petrobras claimed on November 17 that the strike’s impact on daily oil production has been stabilized at around 100,000 barrels, approximately 5% of total production in Brazil. [5] The initial loss of output was around 300,000 barrels per day and the company has done well to reduce the strike’s negative impact on production. [6] Daily natural gas production is down by 1.5 million cubic meters or 3% of the market’s availability. Petrobras’ Brazil production will continue to remain affected in the near term until a lasting resolution between the company management and worker unions is reached.
Petrobras stock gained around 12% over the week through Thursday. We currently have a price estimate of $7.41 for Petrobras. For the year 2015, we estimate revenues of $181.2 billion and EPS of $0.63, compared to a consensus estimate of $0.51. Please note that the calculated revenue figure has not been subjected to any intersegment elimination.
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- Australia watchdog clears Shell’s $70 billion bid for BG Group, November 18, 2015, Reuters [↩]
- Shell’s Takeover of BG Faces Hurdle in Australia, September 17, 2015, Wall Street Journal [↩] [↩]
- Australia watchdog queries Shell-BG £43bn deal, September 17, 2015, ft.com [↩]
- Petrobras Workers Agree to End Strike After Talks With CEO, November 14, 2015, Bloomberg [↩]
- Oil Workers’ Strike Update – 11/17, November 17, 2015, Petrobras Press Release [↩]
- Petrobras Turns Into Worst-Performing Oil Stock Amid Strike, November 3, 2015, Bloomberg [↩]