Weekly Overview: A Tale of Two Takeovers
Two UK companies lost their boards on the same day this week: the exploration minnow JKX, which has interests in Russia, Ukraine and Hungary, was taken over by stealth by Russian finance company Proxima, which has now installed its own men on the board; and, at the other end of the scale, UK BG – the company created in 1997 to focus on the integrated gas chain – succumbed to the blandishments of Anglo-Dutch major Shell.
The first coup was done by votes, representing no financial for shareholders. JKX’ share price had been hit by low oil prices but also by taxation hikes on production in Ukraine a year ago that a Dutch court had ruled illegal. Losing the board members, the previous board argued, would deprive the company of witnesses when the time came to seek restitution of the overpaid tax, totalling several hundred million dollars, before a Ukraine court. Nevertheless, those members were voted off.
The other deal saw BG shareholders so happy with the cash-and-shares deal that they were almost unanimous in their support. Shell had been reported to be buying BG almost continually ever since the much smaller company was spun off from the supply, pipeline and technology division of British Gas. However, under Frank Chapman’s captaincy overlapping with some weak leadership at Shell, the deal looked unworkable for a long time in terms of releasing value for BG.
Only four BG senior executives are expected to remain in place, one of them being Steve Hill, who delivered the $1.3bn earnings in 2015 that the company had forecast earlier for its flexibly tradeable LNG business – the company’s key differentiator almost since the beginning.
Among the division's assets Shell will appreciate are the very cheap offtake agreement from Equatorial Guinea and regasification capacity in Lake Charles, meaning it will never be a distressed seller. Well, you never know what might happen.
The year saw its ‘CEO for a year,’ Helge Lund, deliver better annual results than one might have expected – a nice bonus for the adventurous Dutch company.
Shell, now that it has BG, and all that means for eastern Mediterranean gas upstream, will almost certainly be among the companies scrutinising the terms of the Iranian petroleum contract, following the clean bill of health that the US awarded Iran. With the lifting of sanctions, western majors will be eyeing some of the lowest-cost gas production that is on offer. And Iran will be doing what it can to catch up with its North Field neighbour Qatar.
Iran’s president Hassan Rouhani has been visiting European heads of state and the national oil companies to drum up investment in either direction.
He met the CEO of Total Patrick Pouyanne on his visit to Paris January 28, and the French major Total signed a framework agreement to buy several hundred thousand barrels/day of crude for European refineries. The National Iranian Oil Company is also to provide the technical data on some gas and oil projects, so that Total can assess potential developments in Iran.
Trouble in UK power
More controversy in the UK power sector this week, as industry bodies lambasted the ministry responsible for delivering investment in power generation. This winter, it will be recalled, marked a low point in UK achievements, with the thinnest of margins between supply and demand ever and major end-users being paid to be willing to turn down their demand at key times to help; similarly there were payments for those being ready to turn up, at similar times.
Employers’ lobby group Confederation of British Industry wrote in a letter to government that spare capacity on the grid was being squeezed out; and a shortage of investment and the uncertainty about future subsidies for renewables meant Britain was heading for a supply crunch.
A day later, the Institute of Mechanical Engineers released a study showing that there could be an imminent supply gap owing to the closure of coal and nuclear plants.
The government announced plans last year to close coal plant if possible by 2025. That was not a surprise – if anything, the surprise was that it needed to be said at all – but more alarm bells may be triggered by the delay of French nuclear giant EDF’s failure again to take the final investment decision on its plan to build a plant at Hinkley Point C with its Chinese investors, with a third of the project. Even though consumers may be relieved that they can escape the massive price that the government guaranteed the operators, they will still want to see something come along.
Gas would normally be a good candidate as a source of energy, given the reasonable prospects for prices remaining low for so long; but this is no longer a conventional market. Regulatory risk, not to mention technology risk, is great. Raising financing has stymied investors in the past, and now, according to IMechE, there is not even the manpower available to build the vast amount of capacity that will be needed in the short time left.
William Powell