Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Showing posts with label China. Show all posts
Showing posts with label China. Show all posts

Thursday 17 May 2018

Iranian sanctions supports Chinese cause for the Petro-Yuan


Iran is not short of heavyweight supporters following the decision to re-impose strong sanctions on the country by the US. Although Europe works to salvage what it can of the JCPOA, most likely going down the ex-US route, President Trump’s decision on 12 May will still likely cause a retrenchment of European investment into Iran given the far reaching implications for any company (US or not) with a connection to the country.

The Chinese and Indians see the sanctions as a massive opportunity to strengthen ties with Iran. Both countries had negotiated waivers under previous sanctions under a US diplomatic push. However, with trade tensions now in the mix, especially between the US and China, the latter could use this opportunity to secure additional oil supplies from Iran at improved pricing – an economic decision, but also to send a message to the US. Indian refiners have also agreed to double imports to 500,000 bopd under improved terms.

In April, China (re)launched its long awaited Petro-Yuan – Yuan priced oil futures. An experiment which China tried before and abysmally failed when retail punters had so much sway on volumes and caused such volatility in pricing, that the government had to step in and close it down. The story is different this time as the Petro-Yuan hopes to attract serious institutional traders. Iran should also be on board, having stated a desire to settle its trade in currencies outside of the US Dollar.

As a result, the sanctions may not have the full intended effect of fully taking Iranian crude off the market, especially if it can find willing buyers in the likes of India and China for its oil. The current oil price highs, hitting USD80/bbl on 17th May, may be short lived as the markets have priced in foamy speculation and geopolitical risk, and not looked beyond alternative buyers for Iranian oil or the ability of the other OPEC members to step up and compensate for any lost Iranian barrels.

Iran currently exports c.2mmbopd. The members to the JCPOA, the P5 + 1, comprises China, France, UK, USA, Russia plus Germany

Friday 8 December 2017

In AWE

China Energy Reserve and Chemical Group (“CERCG”) has returned with a second bid for AWE at A$0.73/share, valuing the company at A$463 million. This follows the withdrawal of the earlier offer at A$0.71/share on 4th December.

On 30th November, CERCG put out a takeover offer for AWE at A$0.71/share contingent on due diligence, approval by the regulatory authorities and the CERBG board. The offer was at a 30% premium to the share price was deemed insufficient by AWE to grant access for due diligence. The bid was subsequently withdrawn on 4th December.

CERCG remains fiercely private with limited information in the public domain. It is reported to have deep pockets with material property investments in Hong Kong to the tune of billions. It is also understood that some of the directors are also on the board of China New Energy Mining Limited, which is the JV partner to Sino Gas on upstream gas developments in China.

On 8th December, CERCG re-launched an offer at A$0.73/share – marginally better but places limited value on the vast contingent resource base of the company with potential upgrade at Waitsia. The approach from CERCG is the third bid in four years. The Lone Star bid at A$0.80/share (A$421 million) in 2016 and Senex scrip/cash bid in 2013 (at A$672 million) were both rejected.

This bid demonstrates continued Chinese interest in pursuing overseas acquisitions, and follows GeoJade’s venture into the international E&P arena with the acquisition of Bankers Petroleum in 2016. However the Chinese state oil companies remain on the sidelines having been burned by poorly timed acquisitions in the past decade, and it is the smaller private Chinese E&Ps and investors that are coming to the foreground.