Petrofac said to sell Mexico oil fields, seeks upstream exit

Petrofac is looking to refocus on core activities such as onshore engineering and construction. (Reuters)
Updated 11 May 2018

Petrofac said to sell Mexico oil fields, seeks upstream exit

  • Petrofac looking to focus on core strengths of onshore engineering and construction
  • Company might also consider selling its Greater Stella assets in the UK North Sea

Oilfield services provider Petrofac Ltd. has hired investment banks Barclays and HSBC to help with the sale of its oil fields in Mexico, as it prepares to scale back its oil and gas production operations, several banking sources said.
Petrofac, which designs, builds, operates and maintains oil and gas facilities, expanded into oil and gas production projects during the oil price boom earlier this decade.
The strategy didn’t last and last year the company warned that the integrated energy services (IES) division would have lower than expected profits, hit by weaker oil prices, lower capital investment by clients in Mexico, and a delayed entry into the Greater Stella Area in the North Sea.
The company is now looking to refocus on core activities such as onshore engineering and construction.
Petrofac, Barclays and HSBC declined to comment.
Petrofac, the subject of a Serious Fraud Office (SFO) investigation in Britain in connection with a probe into Monaco-based Unaoil on suspected bribery, might also consider selling its Greater Stella assets in the UK North Sea, the sources said.
One of the sources said that Ithaca Energy, a company owned by Israeli Delek Group, would consider making an offer for these assets, because it already holds a 54.66 working interesting in the Greater Stella Area.
Ithaca Energy was not available to comment. Its parent company, Israel-based Delek Group did not reply to a request for comment.
In early 2012, Petrofac became the first foreign company for more than 70 years to operate state oil fields in Mexico, when it was awarded two integrated services contracts by Petróleos Mexicanos (PEMEX), Mexico’s National Oil Company.
Petrofac’s net debt was about $600 million at the end of 2017, below the $850 million it forecast. It reported a net loss of $29 million for the year.
Oilfield service companies had been hurt by weak demand as recent subdued oil prices forced explorers and producers to cut capital expenditure and defer or cancel contracts.
Alongside oil producers, companies that drill wells, haul water and provide other services to energy exploration firms had been hit by a slump in oil prices, with benchmark Brent tumbling to about $27 a barrel in 2016 from more than $100 in 2014. It is now trading at $77.
In recent months, oil firms have returned to profits due to higher oil prices and the benefits of deep cost cuts they made during the downturn. But their suppliers are still feeling the squeeze and trying to cope with low profitability.
This has led to a wave of consolidation in the sector, with the merger of France’s Technip and US rival FMC Technologies and the acquisition of Baker Hughes by GE’s oil and gas equipment and services operations.

China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

Updated 3 min 30 sec ago

China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

SINGAPORE: A group of niche Chinese gas firms is set to make waves in the global market with plans to invest tens of billions of dollars and double imports in the next decade as Beijing opens up its vast energy pipeline network to more competition.

The companies, mostly city gas distributors backed by local authorities, are ramping up purchases of liquefied natural gas (LNG) as newly formed national pipeline operator PipeChina begins leasing third parties access to its distribution lines, terminals and storage facilities from this month.

The acceleration in demand in what is already the world’s fastest-growing market for the super-chilled fuel is a boon for producers such Royal Dutch Shell, Total and traders like Glencore faced with oversupply and depressed prices.

Just last month, UK’s Centrica signed a 15-year binding deal to supply Shanghai city gas firm Shenergy Group 0.5 million tons per year of LNG starting in 2024.

“They’re very, very interested in imports — we’re talking to a lot of them already,” said Kristine Leo, China country manager for Australia’s Woodside Energy, which signed a preliminary supply deal with private gas distributor ENN Group last year.

China could buy a record 65-67 million tons of LNG this year and is expected to leapfrog Japan to become the world’s top buyer in 2022. Imports could surge 80 percent from 2019 to 2030, according to Lu Xiao, senior analyst at consultancy IHS Markit.

State-owned Guangdong Energy Group, Zhejiang Energy Group, Zhenhua Oil and private firms like ENN were quick to take advantage of the market reforms and low spot prices for LNG, said Chen Zhu, managing director of Beijing-based consultancy SIA Energy.

Their imports will reach some 11 million tons this year, up 40 percent versus 2019, more than 17 percent of China’s total purchases, said Chen.

For years such companies have worked to expand a domestic consumer base among so-called “last mile” gas users like tens of millions of households, shopping malls and factories, but they had to rely on state majors for supplies.

With greater access to distribution networks, they are now incentivized to build their own import terminals that could account for 40 percent of the country’s LNG receiving capacity by 2030, versus 15 percent now, Chen said.

Frank Li, assistant to president of China Gas Holdings, a private piped gas distributor, said his company has been in talks with PipeChina for infr structure access as it prepares to import LNG next year.

In Southern China’s industrial hub Guangdong, companies like Guangzhou Gas, Shenzhen Gas and Guangdong Energy hold small stakes in LNG facilities operated by China National Offshore Oil Company. They imported their first cargoes from these terminals last year.

Guangzhou Gas is set to import 13 LNG shipments this year, up from five last year, after “tough negotiations” with CNOOC won it access to terminals, said Vice President Liu Jingbo.

“The reform is bringing us diversified supplies, helping us cut cost,” Liu said.

Some companies also plan to beef up trading expertise by opening offices overseas, such as in Singapore, executives said.

“Naturally, companies will be thinking of growing into a meaningful player globally,” said a trading executive with Guangdong Energy, adding that his firm looks to Tokyo Gas , Japan’s top gas distributor and trader, as a model.

The rise of niche players will erode some market share held by state giants CNOOC, PetroChina and Sinopec, prompting them to scale back gas infrastructure investment and focus on global trading, while extending into retail gas distribution at home, officials said.