10/10/2024

BIZ & FINANCE THURSDAY | OCT 10, 2024

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BP drops oil and gas output reduction target

Rio Tinto to become top lithium producer with Arcadium buy MELBOURNE: Rio Tinto said yesterday it would acquire Arcadium Lithium for US$6.7 billion (RM28.6 billion), in an agreed all-cash deal that would make it one of the world’s largest lithium producers. Rio said it would pay US$5.85 per share for the US-based lithium miner. That represents an almost 90% premium to Arcadium’s closing price of US$3.08 per share on Oct 3, the day before Reuters exclusively reported on a potential deal between the two firms. Rio would gain access to lithium mines, processing facilities and deposits in Argentina, Australia, Canada and the United States to fuel decades of growth, as well as a customer base that includes automakers Tesla, BMW and General Motors. Lithium prices have floundered due to Chinese oversupply and a slowdown in electric vehicle sales, resulting in miners of the metal emerging as attractive takeover targets. “This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle,” Rio CEO Jakob Stausholm said in a statement. The deal would make Rio one of the largest producers of the battery making metal alongside Albemarle and SQM . Arcadium chairman Peter Coleman said the cash offer would provide shareholders with “certainty and liquidity” and to avoid ongoing risks associated with lithium market fluctuations. Arcadium shares have fallen more than 37% since the start of the year, giving it a market capitalisation of US$4.56 billion. Jason Beddow, managing director at Australian fund manager Argo Investments, which owns shares in Rio, said the deal made a lot of sense. “Yes it’s a big premium but stocks have been sold off a lot,” he said. Beddow, who visited the firms’ Canadian operations in recent weeks said: “They are both close together geographically, they both use Quebec hydropower. Rio has a strong chemicals business in Canada that this will slot into.” The transaction, which has been unanimously approved by the companies’ boards, is expected to close in mid-2025. – Reuters German exports rise in August, defying expectations of decline BERLIN: German exports rose in August due to strong demand particularly from the US and the UK, official data showed yesterday, defying market expectations of a decline. Exports rose by 1.3% in August compared with the previous month, data from the federal statistics office showed. The result compared with a forecast 1% decrease in a Reuters poll. “The second slight increase in exports in a row is a small glimmer of hope, but no reason to sound the all-clear,” said Volker Treier, head of foreign trade at the German Chamber of Commerce DIHK. He said the export economy is still under pressure due to the high costs for energy, taxes and personnel, but also excessive bureaucracy. “Fundamental improvements are urgently needed in Germany as a business location if the German export engine is to pick up in the long term,“ Treier said. The foreign trade surplus broadened to €22.5 billion (RM106 billion) in August from €16.9 billion in July. Germany’s trade surplus jump was boosted mainly by a sharp fall in imports, which fell by 3.4% on the month. Exports of goods to the US were up 5.5% compared with July and exports to the UK rose by 5.7%. – Reuters

LONDON: BP has abandoned a target to cut oil and gas output by 2030 as CEO Murray Auchincloss scales back the firm’s energy transition strategy to regain investor confidence, three sources with knowledge of the matter said. When unveiled in 2020, BP’s strategy was the sector’s most ambitious with a pledge to cut output by 40% while rapidly growing renewables by 2030. BP scaled back the target in February last year to a 25% reduction, which would leave it producing two million barrels per day at the end of the decade, as investors focused on near-term returns rather than the energy transition. The London-listed company is now targeting several new investments in the Middle East and the Gulf of Mexico to boost its oil and gas output, the sources said. Auchincloss took the helm in January but has struggled to stem the drop in BP’s share price, which has underperformed its rivals so far this year as investors question the company’s ability to generate profits under its current strategy. The 54-year-old Canadian, previously BP’s finance head, has sought to distance himself from the approach of his predecessor Bernard Looney, who was sacked for lying about relationships with colleagues, vowing instead to focus on returns and investing in the most profitable businesses, first and foremost in oil and gas. The company continues to target net zero emissions by 2050. “As Murray said at the start of year ... the direction is the same – but we are going to deliver as a simpler, more focused and higher value company,” a BP spokesman said. Auchincloss will present his updated strategy, including the removal of the 2030 production target, at an investor day in February, though in practice BP has already abandoned it, the sources said. It is unclear if BP will provide new production guidance. o CEO scales back firm’s energy transition strategy to regain investor confidence: Sources

A massive drilling derrick on BP’s Thunder Horse Oil Platform in the Gulf of Mexico. – REUTERSPIC

In August, BP signed an agreement with the Iraqi government to develop and explore the Kirkuk oilfield in the north of the country, which will also include building power plants and solar capacity. Unlike historic contracts which offered foreign companies razor-thin margins, the new agreements are expected to include a more generous profit-sharing model, sources have told Reuters. BP is also considering investing in the re-development of fields in Kuwait, the sources added. In the Gulf of Mexico, BP has announced it will go ahead with the development of Kaskida, a large and complex reservoir, and the company also plans to green light the development of the Tiber field. It will also weigh acquiring assets in the prolific Permian shale basin to expand its existing US onshore business, which has expanded its reserves by over two billion barrels since acquiring the business in 2019, the sources said. Auchincloss has in recent months paused investment in new offshore wind and biofuel projects and cut the number of low-carbon hydrogen projects down to 10 from 30. – Reuters

Rival Shell has also slowed down its energy transition strategy since CEO Wael Sawan took office in January, selling power and renewable businesses and scaling back projects including offshore wind, biofuels and hydrogen. The shift at both companies has come in the wake of a renewed focus on European energy security following the price shock sparked by Russia’s invasion of Ukraine in early 2022. BP has invested billions in new low-carbon businesses and sharply reduced its oil and gas exploration team since 2020. But supply chain issues and sharp increases in costs and interest rates have put further pressure on the profitability of many renewables businesses. A company source said that while rivals had invested in oil and gas, BP had neglected exploration for a few years. BP is currently in talks to invest in three new projects in Iraq, including one in the Majnoon field, the sources said. BP holds a 50% stake in a joint venture operating the giant Rumaila oilfield in the south of the country, where it has been operating for a century.

RBI warns against ‘growth-at-any-cost’ approach MUMBAI: Some Indian non-banking finance companies (NBFCs) are aggressively pursuing growth and chasing excessive returns on equity, which could pose financial stability risks, the central bank governor said yesterday. The Reserve Bank of India (RBI) is “closely monitoring” this and “will not hesitate to take appropriate action, if necessary”, Governor Shaktikanta Das said. He said “self-correction” would be the desired objective. Overall loans given out by banks rose 13.6% from a year earlier in August, compared with a 19.7% growth in August 2023, data from the RBI showed. Loan growth in August this year was at 14.9%, excluding the impact of private lender HDFC Bank merging with its parent Housing Development Finance Corp. “An imprudent ‘growth-at-any-cost’ approach would be counter productive for their (NBFCs’) own health,” Das said. indebtedness could pose financial stability risks if not addressed by these NBFCs,” he said, without naming the NBFCs. NBFCs may review their prevailing compensation practices and incentive structures, some of which appear to be “purely target driven”, Das said. In particular, Das said microfinance institutions (MFIs) and housing finance companies (HFCs) are chasing excessive returns on their equity, sometimes under pressure from investors.

It is also concerning when certain NBFCs charge “usurious” interest rates and have “unreasonably high” processing fees and frivolous penalties, he said. Such practices appear to be a “push effect” as business targets drive retail loan growth rather than actual demand, the governor warned. “The consequent high-cost and high

Over the past year, the RBI has warned the financial sector against “all forms of exuberance”, tightened rules for credit card and personal loans, and made it more expensive for non-bank lenders to borrow from banks. It also has penalised entities and imposed business restrictions on companies that breached rules.

While bad loans in the banking sector remain low, analysts have warned about some increase in stress for unsecured loans. Certain non-bank lenders are seeing elevated slippages and high credit costs, and the central bank remains watchful, deputy governor Swaminathan J said at a post-policy press conference in Mumbai. – Reuters