Infratil, Super Fund owned Shell says oil, gas exploration move possible

Infratil, Super Fund owned Shell says oil, gas exploration move possible

The Shell fuel retail and distribution business bought in April by Infratil and the New Zealand Superannuation Fund could ultimately expand into oil and gas exploration as it also considers issuing bonds to retail investors.

In a Double Shot interview with interest.co.nz Mike Bennetts, CEO of the business that trades under the Greenstone Energy name, said a move into the so-called upstream side of the energy business was possible in the long-term.

“It’s absolutely a possibility,” Bennetts said.

He said, however, the Shell businesses hierarchy would have to think very carefully about what they brought to the party.

“I don’t think we can turn up and present ourselves as somebody who has frankly got lots of money to invest. I think the upstream business is about technology, it’s about knowledge.”

Infratil and the Super Fund bought Shell’s New Zealand downstream, or distribution and fuel retail business for NZ$696.5 million in April. The deal included a 17.1% stake in the Marsden Point based New Zealand Refining Company, but excluded Shell’s oil and gas assets in New Zealand such as its majority stake in the Maui gas field.

However, Bennetts said a move into upstream business was ultimately possible. But any such move would be some time off. At the moment the new owners and management team under Bennetts, a former BP executive, are planning a strategy focusing on their just acquired core business and the opportunities to improve that. After that he said there was another piece of strategy work to do looking at what the company might do over a 10 to 20 year timeframe.

“We’d have to think very carefully about what we actually brought to the party if we did want to go into something like that [upstream business] so we could partner up with the right sort of people and do what’s right for our shareholders,” Bennetts added.

Aside from the price paid for the Shell business, Infratil and the Super Fund also have bank facilities in place to cover peak working capital demands that lifts total funding for the deal to more than NZ$1 billion. According to Infratil, the quantity of Shell’s inventory has ranged from 300 million litres of fuel to 650 million litres with its value ranging from NZ$200 million to NZ$650 million over the past five years.

The Shell downstream business last year produced earnings before interest, tax, depreciation and amortisation of NZ$138 million on a current cost basis, which strips out the addition of a  NZ$38 million stock value adjustment. Infratil expects a similar performance this year. Last year’s revenue was NZ$2.15 billion and reported earnings before interest and tax NZ$157 million. Click here to read an Infratil presentation on the Shell business.

Infratil and the Super Fund's taking of Shell's helm comes at an uncertain time for two of the businesses main rivals, Chevron and Exxon Mobil. Chevron, which now leases out all 288 Caltex and Challenge petrol stations and diesel stops to independent operators, is preparing to lay-off staff at its Auckland headquarters spokeswoman Sharon Buckland said. The corporate office currently has about 140 staff but Buckland said it was too soon to say how many may go. CRT Fuel, a subsidiary of cooperative Combined Rural Traders, now operates the Challenge brand.

The job cuts follow a global Chevron announcement in March that it would sell some downstream assets and fire about 2000 staff. Buckland said there were no plans to sell up in New Zealand, where the company still owns 12.7% of the New Zealand Refining Company, a 25% stake in Coastal Oil Shipping, seven coastal terminals and interests in four others. A new job had been established with the title general manager products which would be the top local Chevron position. Someone was coming from overseas to fill this role, Buckland said, with the appointment likely to be announced later in June.

Chevron's local managers will, however, continue to report to the company's Singapore office.

Meanwhile Exxon Mobil's New Zealand downstream assets, which have been on the block for at least 18 months, remain there. Interest.co.nz understands working capital and ongoing profitability issues are the sticking points delaying any sale with two parties said to have been in talks about buying the business. Exxon Mobil, which recently sold its Australian petrol stations to retailer 7-Eleven, has about 183 petrol stations, tank farms and a 19.2% stake in the New Zealand Refining Company.

Shell's new owners, Meanwhile, are considering making a retail bond offer with Bennetts saying a decision is likely within a few months. The firm has NZ$350 million of bank debt and Bennetts said it wants flexibility around the maturity of that debt and the opportunity to invest for growth. Feedback on a potential bond issue has been encouraging, he added.

A range of companies including The Warehouse, Goodman Property Trust and Kiwibank have launched bond offers in recent months partly as a means or sourcing cheaper funding than was on offer from banks or wholesale markets. The Warehouse, for example, issued NZ$100 million worth of five-year bonds, without a credit rating, that will pay investors' annual interest of 7.37%.

  * This article was first published this morning in our paid subscriber email for bank executives, regulators and other industry experts. Subscribe here or email bernard.hickey@interest.co.nz

 

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