NEWS OF THE DAY:
Oil Search, Santos to Merge Into $16 Billion LNG Powerhouse
James Thornhill, Bloomberg, August 1, 2021
Australia’s second- and third-biggest oil and gas companies are set to merge to become one of the largest in the region and in the top 20 globally.
Oil Search Ltd. on Monday said it agreed to an improved all-share offer from Santos Ltd. that would give its equity holders 0.6275 new Santos shares for each one held, giving them about 38.5% of the merged group. The combined entity would have a market capitalization of about $16 billion, vying with Woodside Petroleum Ltd. to be Australia’s biggest independent liquefied natural gas producer.
The move follows a wave of tie-ups among exploration and production companies in the U.S. shale patch, as smaller producers seek to cut costs while majors look to exit carbon-intensive operations. It may not be the last deal in Australia this year, with Woodside said to be eyeing BHP Group’s petroleum business in the nation, according to Wood Mackenzie Research Director Andrew Harwood.
“We’ve been expecting to see more consolidation among international E&Ps, following the lead of the U.S. independents that have sought strength and resilience in scale,” he said in a statement. “The Santos-Oil Search merger follows the consolidation template, bringing together two firms with overlapping interests, building scale in a strategic resource theme, LNG in this case, and on terms that provide additional value upside potential for both sets of shareholders.”
Santos Wins Oil Search Backing by Lifting Bid 6.5%: M&A Snapshot
Monday’s announcement comes less than two weeks after Oil Search rejected an earlier proposal that offered 0.589 shares in Santos. The non-binding, indicative offer “presents Oil Search shareholders with an opportunity to maintain ongoing exposure to Oil Search’s portfolio of world-class assets as part of a merged group for which there is strategic logic,” the Sydney-based company said in a statement.
Oil Search rose as much as 8.7% by 3:40 p.m. in Sydney, while Santos gained up to 3.6%.
The merger would combine Oil Search’s operating assets in Papua New Guinea with Santos’s gas portfolio in Australia, which includes the Gladstone LNG export facility in Queensland and the Darwin LNG plant in the Northern Territory. Santos also has a stake in the Exxon-operated PNG LNG project. Together, the companies sold 135 million barrels of oil and gas in 2020, almost half of which was LNG.
Combining the two would improve the alignment of growth projects in PNG, Santos said in a statement. Oil Search is a junior partner in the TotalEnergies SE-operated Papua LNG project, which is targeting first production in the latter half of the decade and plans to use processing infrastructure at Exxon’s PNG LNG plant.
The pair’s diverse portfolio of core assets would help reduce exposure to operational risks and provide a strong platform for sustainable growth, Santos said, adding that the scale of the merged group would open it up to a wider pool of investors. The agreement is subject to conditions including regulatory approval.
The all-share deal would give Oil Search shareholders exposure to synergies created by the combined group, according to John Ayoub, portfolio manager at Wilson Asset Management International Pty, which owns shares in both companies.
“Santos has a wonderful track record of over-delivering on synergies,” he said by telephone, citing the value extracted from Santos’ $2.15 billion purchase of Quadrant Energy in 2018.
OIL:
Oil prices fall on declining Chinese factory output
Jessica Summers, World Oil, August 2, 2021
Oil slid by the most in a week as the fast-spreading delta variant poses a threat to demand and as data out of China signaled a slowdown.
Futures in New York declined as much as 2% on Monday. The virus is clouding the outlook for consumption as China faces a fresh outbreak, Thailand expands its quasi-lockdown measures and infections in Sydney matched a record. Meanwhile, data indicated China’s economic activity eased in July and U.S. manufacturing data also showed some weakness.
Chinese manufacturing data “was below expectations. There are concerns that it is a function of Covid,” said Bob Yawger, head of the futures division at Mizuho Securities.
Crude prices are off to a shaky start in August after July’s small gain with the resurgence of Covid-19 offsetting the global demand recovery. At the same time, Saudi Arabia, Kuwait, and the United Arab Emirates boosted their crude exports to multimonth highs last month, signaling a return of OPEC+ barrels to an uncertain market.
Oil has “given back some of last week’s gains in response to weaker China data and continued worries about the spread of the delta variant,” said Ole Hansen, head of commodities research at Saxo Bank A/S. Crude has settled into a range “with delta demand worries offsetting the current tight supply outlook.”
Prices:
- West Texas Intermediate crude for September delivery dropped $1.13 to $72.82 a barrel at 10:14 a.m. in New York
- Brent for October settlement fell 97 cents to $74.44 a barrel
Meanwhile, the U.S. and Israel vowed to respond to a deadly drone attack on a tanker last week in a major waterway for global oil shipments that they blamed on Iran. Middle East foes Iran and Israel have traded multiple accusations of shipping attacks in recent months. But Thursday’s strike off the coast of Oman, which Tehran denied carrying out, was the first to kill crew members — a Romanian and a Briton.
GAS:
Shell LNG Project Threatened Amid Cost Dispute Over Pipeline
Robert Tuttle, Yahoo! Finance, July 29, 2021
A Royal Dutch Shell Plc-led project to build a C$40 billion ($32 billion) liquefied natural gas facility in Canada is threatened with another delay amid a dispute over who will bear the escalating cost of a pipeline to supply the plant.
TC Energy Corp., builder of the Coastal GasLink pipeline that will feed the LNG Canada plant on the coast of British Columbia, warned Thursday it may suspend “certain key construction activities” on the pipeline as it quarrels with the project’s backers over “recognition of certain costs and the impacts on schedule.”
Calgary-based TC Energy didn’t say how much costs have increased. In early 2020, the estimated price tag for the pipeline was C$6.6 billion.
Work on the LNG Canada plant, billed as the largest private-sector investment in Canada’s history, began in 2018 after years of delays due to high costs and regulatory hurdles.
The project, owned by a consortium that includes Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co., and Korea Gas Corp., will send as much as 14 million metric tons a year of natural gas, chilled to a liquid so it can be loaded onto tankers from the Pacific port of Kitimat, to energy-consuming markets in Asia.
But the effort to build the gas pipeline from northeastern B.C. to the plant has faced protests and Covid-related delays that have caused the cost to “increase significantly,” TC Energy said. It wants to include the incremental costs in the final pipeline tolls.
TC Energy is in confidential discussions with LNG Canada to resolve the disagreement and “we do remain hopeful that we will have a fair and reasonable outcome,” Tracy Robinson, the pipeline company’s president of Canadian natural gas, said on an earnings call.
Stymied
LNG Canada is committed to delivering its first cargo on cost and on schedule by the middle of the decade but “we remain concerned with TC Energy’s proposed cost increases and schedule performance on the Coastal GasLink pipeline, which are well beyond what was agreed to at the October 2018 final investment decision on the LNG Canada project,” Brian Hutchinson, a spokesperson for LNG Canada, said by email.
“We have been working hard with TC Energy to understand the reasons for the increase in cost and schedule, and we have provided recommendations on improved execution efficiency,” Hutchinson added.
Coastal GasLink has been stymied since work first began on the pipeline after the LNG Canada project was sanctioned. In early 2020, protests by indigenous groups along the construction pathway grew into a Canada-wide protest movement that blocked trains from moving goods and passengers across the country.
After the Covid-19 pandemic started, the number of workers building the pipeline was restricted by the B.C. government, slowing work on the line, the company said.
MINING:
Alaska Native tribes urge feds to reconsider mining road
James Marhsall, GreenWire, July 30, 2021
Alaska Native leaders urged federal agencies this week to reconsider their approval of a 211-mile-long mining access road planned across the remote interior part of the state.
The state-sponsored gravel road across the Gates of the Arctic National Park and Preserve would allow miners to reach the Ambler Mining District, which is abundant with copper.
The so-called road to resources got the seal of approval from the Interior Department and the Army Corps of Engineers last year (E&E News PM, July 23, 2020). But Alaska Natives who hunt and fish in the area say the project would inhibit their ability to continue their subsistence lifestyle.
Natasha Singh, general counsel for the Tanana Chiefs Conference, said the Trump administration’s environmental analysis and tribal consultation were inadequate,
In meetings with Interior and the Army Corps this week, Singh said tribal leaders implored federal officials to restart the review process to consider a less environmentally damaging route for the road.
“It’s one of the most remote areas in the world. And they want to put a 200-mile road right through their hunting and fishing grounds. That will dramatically change the lifestyle of our people,” she said in an interview yesterday.
This is the time of year when many Alaska Natives focus on hunting and fishing to put away food to last through the long winter. But this week, members of the Tanana Chiefs Conference, a consortium of 37 federally recognized tribes, have been pleading their case to government agencies, Singh said.
As planned, the road threatens to disrupt migrating moose and caribou herds that villages along the south slope of the Brooks Range rely on, according to a lawsuit that a handful of tribal councils filed against Interior’s Bureau of Land Management.
The state of Alaska, which is intervening on behalf of the federal government in the case, says road construction would create 360 jobs. That’s not including jobs associated with copper, gold and zinc mines that could potentially open.
Prospectors have already staked more than 1,300 mining claims, according to a motion the state filed in the U.S. District Court for the District of Alaska.
The state says the federal government has a duty to carry out construction of the road because Congress explicitly identified the need for access to the Ambler Mining District in the Alaska National Interest Lands Conservation Act of 1980.
Alaska Native leaders hope to convince the Biden administration to prepare a supplemental environmental impact statement rather than continue to defend the project in court, Singh said.
“If the road is built with a process that follows the law — at the very least — we will be protected. Our rights will be protected, our hunting and fishing resources will be protected, and our homelands and waters will be protected,” Singh said.
POLITICS :
Federal court ruling likely allows unlimited cash in Alaska political campaigns
James Brooks, Anchorage Daily News, July 31, 2021
A three-judge panel of the 9th U.S. Circuit Court of Appeals overturned three of Alaska’s main limits on campaign contributions in a major decision on Friday.
The Alaska Public Offices Commission declined to comment on the ruling, saying state attorneys are still examining it, but without additional action, Americans likely will be able to donate unlimited amounts of money directly to Alaska politicians campaigning for office.
Until the Legislature and governor take action, there are largely no limits,” said Daniel Weiner, deputy director of the election reform program at the Brennan Center for Justice, which argued in support of the state’s restrictions.
“I think it’s a good day for free speech,” said Anchorage attorney Robin Brena, who represented the plaintiffs.
Friday’s ruling affects four rules. It upheld a $5,000 limit on the amount of money a political party can give to a candidate, but it overturned three others:
• A $500 per-year limit on the amount of money an Alaskan can contribute to a particular candidate;
• A $500 per-year limit on contributions to a particular political group;
• A $3,000 limit on the amount of money a candidate can accept from all out-of-state donors combined in a given year.
Those limits were imposed in a 2006 ballot measure that passed with the support of 73% of voters. It applied only to candidates in state and local elections, not those seeking federal office.
Friday’s decision came after almost six years of arguments that began when three Republicans sued, challenging the limits.
Most were upheld in a 2016 Alaska District Court Decision and in a 2018 appeal to the 9th Circuit, but in 2019, the U.S. Supreme Court overturned that ruling and told the 9th Circuit to reconsider.
It did, and on Friday, a three-judge panel ruled 2-1 against the restrictions. The ruling suggests that higher limits, indexed to inflation, might pass legal muster, said Weiner and attorney Scott Kendall, who wrote campaign finance disclosure rules in last year’s Ballot Measure 2. That measure requires additional disclosure of some indirect campaign contributions but did not change the amount of any limits.
Kendall was uninvolved in the case but said it is major news for anyone concerned about money in politics.
“I really think the Ninth Circuit said this law is gone. I think there has to be something put in place to to replace it,” he said.
Because the case has already been heard by the Supreme Court, Brena said he believes an appeal is unlikely to succeed, but Weiner noted that one 9th Circuit judge dissented, and if the case is heard by a larger panel of 9th circuit judges, the result could change.
A U.S. Supreme Court ruling known as Citizens United already allows unlimited contributions to third-party groups forbidden from coordinating with campaigns. Brena said Friday’s ruling “rebalances” things.
“What this does is, it gives the candidate and their campaign an opportunity to be heard in the din, in the conversation, so it’s not just massive, well-financed independent expenditure groups that have special interests, dominating the conversation,” he said.
Kendall disagreed with that interpretation.
“There’s a very different flavor to giving to an (independent expenditure group) versus being able to go to a candidate as an individual and saying, ‘I can subsidize your entire campaign. Here’s a check for $200,000,’” he said. “I think that is a startling and disturbing state of affairs if they don’t fix it.”
CLIMATE CHANGE :
Utilities Eye Mini Nuclear Reactors as Climate Concerns Grow
Elena Shao, The Wall Street Journal, August 2, 2021
U.S. utilities are looking to miniature nuclear reactors, as they seek a steady energy source that can help reduce the carbon emissions linked to climate change.
While power companies have stopped building big nuclear reactors because of cost overruns and construction delays, not all utilities are giving up on nuclear power.
Several U.S. utilities and power consortia—including Energy Northwest, Utah Associated Municipal Power Systems, and PacifiCorp, part of Warren Buffett’s Berkshire Hathaway Inc. BRK.B +0.08% —have entered into partnerships with manufacturers to build small modular reactors, or SMRs, attracted to their potential to produce carbon-free, 24-hour-a-day power.
Dozens of SMR developers world-wide—ranging from 22-person startup Oklo to Bill Gates-founded TerraPower—are testing designs for the reactors, which have less than a third of the generating capacity of traditional nukes and have components that can be mass-produced in factories.
Their development is backed by the U.S. Energy Department, which said last fall that it would invest $3.2 billion over seven years to support such projects to boost cleaner technologies and decarbonize the power sector.
However, SMR makers are still years away from proving that the technology can live up to its promise. None of the designs being tested across the country have fully made it past the U.S. regulatory review process, and the first miniature reactors likely won’t start delivering power to customers until the end of the decade, at the earliest.
Opponents question whether the shrunken nuclear reactors can shed the issues that have plagued the now aging fleet of full-size plants, such as costly development times, nuclear waste management and safety concerns.
Some power companies, including Ameren Missouri, say they see promise in the technology but have stopped short of committing to any agreements until it is proven cost-effective.
Many SMR makers are keeping the exact price tag on their projects confidential, citing competitive reasons, but analysts think costs could range from tens of millions for the smallest microreactors to low billions for larger projects.
For example, TerraPower’s 345-megawatt Natrium reactor will cost about $1 billion, with a levelized cost of electricity—or generation cost over the plant’s lifetime—estimated in the $50 to $60 range per megawatt-hour, according to a company spokesperson. The same metric for a new combined-cycle natural-gas plant ranges from $44 to $73 per megawatt-hour, according to 2020 estimates from global investment bank Lazard.
There is only one full-size nuclear plant under construction in the U.S.— Southern Co. SO +0.67% ’s expansion of its Vogtle facility in Georgia. The project is more than five years delayed and billions of dollars over its initial projected cost. Numerous plants around the country are in the process of being closed or decommissioned, as the industry faces political opposition to nuclear power and competition from low-cost natural-gas power plants and renewables such as wind and solar.
Utilities that have bought into the SMR promise say that relying on renewables and storage technology alone isn’t enough to reach goals to slash carbon emissions within the next couple of decades.
The Utah Associated Municipal Power Systems, a consortium of city-owned utilities serving the Intermountain West, has joined with SMR developer NuScale Power and aims to bring six miniature nuclear reactors online by 2030, each producing 77 megawatts of electricity, or enough to power over 350,000 homes.
“Our cities have a desire to distribute carbon-free electricity to their citizens, and we’re looking to replace our coal plants and eventually natural gas plants with carbon-free energy,” said UAMPS spokesman LaVarr Webb. Coal power made up 61% of Utah’s total electricity net generation in 2020, compared with 19% nationwide, according to data from the Energy Information Administration.
Some opponents aren’t persuaded, saying the project represents a big risk for consumers.
“A city-owned power company shouldn’t be acting essentially as venture capital investors with ratepayer money,” said Rusty Cannon, president of the Utah Taxpayers Association. The group has been urging cities to withdraw from the program, and several have done so.
Even for utilities that don’t operate coal or gas plants, some power companies say that mini reactors could still play a role in supporting a transition to a clean energy grid. SMRs have the ability to “load follow,” or ramp up and down quickly to match electricity demand throughout the day, said Jason Herbert, strategy director for new nuclear development at Energy Northwest. This characteristic makes them a good partner for renewables, whose output is dependent on weather conditions and time of day.
Decarbonization goals, propelled by growing concern over carbon emissions’ contribution to climate change, are likely to play in the technology’s favor, said Robert Rosner, physicist and professor at the University of Chicago.
“The outstanding question is how far you can push down the price,” he added. “And there I think the jury’s still out.”