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All-in: Chevron Invests $3 Billion in Alternative Fuels
04/12/2022
With the purchase of Renewable Energy Group Inc. for $3.15 billion, Chevron makes its largest investment in alternative fuels.
In a statement on Feb. 28, the second-largest U.S. oil and gas company said it would pay $61.5 for each share of Renewable Energy, higher than its February 25 closing price by nearly 40%. In premarket trading, renewable energy shares rose more than 37% on the backdrop of this staunch.
This turn in investments highlights the shift in the world’s attitude toward climate change. Since oil companies contribute heavily to global emissions, governments and investors are increasingly urging them to reduce their carbon footprints and join the fight against emissions.
As state and federal subsidies to decarbonize fuels increase, U.S. refineries have likewise increased the production of renewable diesel.
In line with this, by 2050, Chevron aims to cut gas emissions to zero and in September committed to investing $10 billion to reduce its carbon emissions through 2028, with about $3 billion dedicated to renewable fuels.
In the biofuel industry, agricultural waste and traditional food crops are grown specifically for use as fuel. The feedstock for biodiesel and renewable diesel is similar, however renewable diesel goes through a separate refining process so that its chemical composition is the same as ultra-low-sulfur diesel.
At the moment, various markets are being explored by Chevron as potential sources for blending biodiesel into renewable diesel.
The executive vice president of downstream products and chemicals, Mark Nelson, believes that biodiesel is viewed by business people as a blendstock to achieve optimal margins since it is less expensive than renewable diesel.
As a result, the EIA estimates that renewable diesel capacity in the U.S. may grow more than fivefold by 2024, from a current capacity of 1 billion gallons to over 5 billion gallons.
It is intended that this deal will accelerate Chevron's goal of increasing the production of renewable fuels to 100,000 barrels/day by 2030, and it will provide additional feedstock supplies and pre-treatment facilities.
According to Reuters, Chevron is not likely to break out its renewables business' financials separately immediately. But the possibility of such an outcome will grow with each year.
After the start-up of Renewable Energy Group's Geismar expansion plant in Louisiana, the transaction is expected to add earnings to Chevron in its first year and cash flow to its free cash flow. While the deal itself is expected to close in the second half of the year.
Guggenheim Securities advised Renewable Energy on the deal, while Goldman Sachs provided financial advice to Chevron.
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Winds of Change: Admiral Sold Its Assets in Delaware Basin
And Petro-Hunt E&P is the new sheriff in town with 21,430 net acres of leasehold in the Basin, production of which surpasses 7,000 bbl/d and 100 MMcf/d respectively. To take advantage of it, Petro-Hunt plans to begin an active development drilling program on these assets in the coming months heavily upgrading the numbers of its 775 operating oil wells and contributing to over 8,100 non-operated wells. Time will tell, however, whether or not this move will be able to deliver such results.
Canadian Assets on Sale: Energy Transfer Sells Gas Processing Bussines to Pembina-KKR for $1.3 Billion
Under the agreement, Energy Transfer will sell its 51% interest in Energy Transfer Canada to the Pembina-KKR joint venture, for more than CA$1.6 billion (US$1.3 billion) including debt and preferred equity. KKR's funds already own the remaining stake. TC’s assets include 6 natural gas processing plants with a combined operating capacity of 1.29 Bcf/d and an 848-mile naturalgas gathering and transportation network in the Western Canadian Sedimentary (WCS) basin. While this process is underway, Pembina and KKR will combine their Western Canadian natural gas processing assets into a single, new joint venture entity — Newco, owned 60% by Pembina and 40% by KKR. This new entity is expected to have a natural gas processing capacity of about 5 Bcf/d or about 16% of Western Canada’s total processing capacity.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.