Ian

Director at Icarus Consultants
Last Updated: August 24, 2017
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Business Trends
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The forecasted and inevitable merger and acquisition season appears to be amongst us. We have already seen an increasing number of acquisitions  of individual distressed rigs over the last year or so by the likes of  Advanced Energy Systems, Arabdrill, Vantage, Ocean Rig and White Fleet  Drilling, but company mergers have been dormant through the worst part  of the downturn. But with green shoots of a recovery now evident, and  with a host of distressed or restructured companies around, M&A  activity is underway.

After Borr Drilling bought out Transocean’s jackup fleet plus  a couple of distressed jackups from Hercules, Transocean turned around  and is investing the money into Songa Offshore. This follows the earlier  acquisition of Atwood Oceanics by Ensco.  

The Ensco / Atwood merger does has an impact in this region,  providing Ensco with a strong presence in Australia where they have been  a regularly occasional player since early 2000’s, often the half rig in  a one and a half jackup market. They will now have a firm floater  presence there. The Atwood jackup fleet, all modern premium rigs, will  allow Ensco to phase out more of its older fleet, most likely their  present five (5) cold stacked jackups. Ensco has already scrapped nine  (9) of its jackup fleet and sold off at least four (4) others.

Transocean obviously have their sights on dominating the  harsh environment floater market with their $3.4bn acquisition of  Songa.  Songa have four (4) very modern semis all on long term charters  with Statoil in Norway as well as three (3) 1970/1980 vintage mid water  floaters that are currently idle and which Transocean will surely scrap,  probably with a few more of its own elderly floaters. Until this  happens Transocean will operate a fleet of fifty one (51) floaters, with  thirty (30) UDW units (and four (4) more under construction), eleven  (11) harsh environment floaters, three (3) deepwater floaters and seven  (7) mid water floaters. The Songa acquisition also strengthens  Transocean’s footprint in Norway. 

With sixty (60) different drilling contractors operating  floaters and one hundred and twenty (120) jackup drilling contractors  around the world, there is a lot of scope for further M&A activity.  Naturally the Ensco and Transocean deals have stimulated much  speculation by analysts as to who is the next in line. Odfjell seems to  be a common pick to be on Transocean’s radar but their roster of prime  acquisition candidates includes Ocean Rig, Pacific Drilling, North  Atlantic Drilling, Seadrill Partners and Seadrill itself, Maersk  Drilling, Rowan and Noble. Maersk Drilling may have just leapt to the  top of the list with Total having just acquired Maersk Oil, giving the  impression that Maersk are exiting the oil and gas sector.

But who are the buyers? The analysts are suggesting Diamond,  Rowan, Noble, Ensco, Seadrill (after restructuring), Borr Drilling as  well as Transocean. One thing is for sure, no-one is going to buy out a  company with a fleet of 1980’s vintage rigs unless they are mixed in  with an attractive number of modern premium rigs. We certainly need  consolidation, especially in the jackup market, but it is hard to  envisage the number of contractors being reduced by very many when most  of them operate thirty (30) year old rigs or older. But the jackup  market, with near one hundred (100) stranded new builds yet to be cut  lose into the market, is not going to improve until the old rigs are  scrapped and this means many contractors will also have to fall away or  invest in the new rigs and scrap the old.

However. the big boys are definitely preparing for an upswing  in the market. There is no doubt the rig market is going to look very  different a year from now. Meanwhile we are all guessing who is next.

Mergers and Acquisitions Drilling Contractors
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The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

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Market Outlook:

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