Fossil Fuels

Permian tech-like valuations come down to Earth

3 Aug 2017

Parsley Energy is the latest Texas driller to report sharply higher oil output yet see its stock fall. Companies’ growing efficiency drives global oil prices and has won multiples far higher than Google’s and Facebook’s. But in a commodity business, investors want profits too.

Rio Tinto right to take China’s $2.7 bln and run

27 Jun 2017

In selling a group of thermal coal mines, the miner weighed up a higher, less certain price from China’s Yancoal, or a lower, more secure bid from Glencore. The former looks better. Selling to China could bring other benefits. The main thing is to get shot of dirty fuel assets.

Natural gas inflicts fresh wounds on old victim

22 Jun 2017

Southern risks a new writedown after regulators tired of waiting for a novel “clean-coal” plant. As with its troubled nuclear project, the $50 bln U.S. utility tried untested designs. Efforts to diversify fuel sources are admirable but cheap gas prices continue to crush them.

Saudi Aramco IPO is exercise in reverse valuation

22 Jun 2017

The oil producer is worth $2 trillion, say its owners. The question might not be whether that valuation is right, but what Aramco’s owners and bankers will have to do to get it. A Breakingviews calculator suggests this will be a stretch of reason.

RWE can sparkle with a dirty energy merger

20 Jun 2017

The German utility risks turning into a mere holding company after spinning off clean power unit Innogy. It can avoid this fate by bulking up on coal and gas. An 8.4 billion euro bid for rival Uniper would create value even before synergies and fire up the group’s revival.

UK energy producer shows limits of futurology

15 Jun 2017

British utility Drax has stretched the definition of long-term targets with plans to triple its EBITDA by 2025. Though its business model is stable, much can go wrong in eight years. A less specific dividend promise exposes management’s limited belief in its own predictions.

Tax windfall charges up RWE, E.ON recovery

7 Jun 2017

Germany’s battered utilities can get back more than 6 bln euros in past tax payments, the country’s top court decided. It’s the final stage in the sector’s rehabilitation, following big restructurings and settlements on nuclear liabilities – and sets the scene for M&A.

Finnish-German utility would make odd couple

1 Jun 2017

Shares in Uniper jumped on a report that Finland’s Fortum is considering buying E.ON’s 47 pct stake in the 6.3 bln euro power group. Yet Uniper’s big carbon footprint would tarnish the Finns’ clean energy strategy, and its lackluster earnings make the financial logic a stretch.

DONG’s green energy premium is a work in progress

24 May 2017

By hiving off its North Sea oil and gas assets for $1.3 bln, the state-owned Danish utility is now one of the biggest clean energy pure-plays. Yet its stock market value does not reflect this unique position. A 20 pct discount to German rival Innogy seems excessive.

Engie can offer RWE a new spin on spinoff

14 Mar 2017

The French utility is reported to be interested in bidding for Innogy, which is majority owned by RWE. The latter wants to retain at least a 51 percent stake in the 19 bln euro business that it carved out in 2016. Yet a minority stake in enlarged Engie may be just as good.

Saudi’s Trump friendship more about money than oil

1 Feb 2017

Riyadh may boost its investments in American energy under the new president. An abundance of shale oil and a focus on domestic supply means Saudi Arabian crude is no longer enough to secure U.S. political support in the Middle East. Its cash is still attractive, though.

OPEC resolve is strong enough to turbo-charge oil

30 Nov 2016

The cartel’s deal to cut crude output for the first time since 2008 ends its two-year-old policy of putting market share before higher prices. This may be self-defeating if shale production rebounds. But OPEC unity is convincing enough for oil to extend and sustain gains.

Arch Coal jumps from bankruptcy frying pan to fire

11 Oct 2016

The U.S. miner, fresh from burying over 90 pct of its debt, is exiting Chapter 11 after coking-coal prices more than doubled of late. But uncertain Chinese demand, renewable-energy growth and global pressure to stem climate change leave the coal industry stuck in the pits.

RWE beats E.ON in parallel power spin-offs

7 Oct 2016

The two German utilities took opposite approaches to splitting up their dirty energy assets from newer, clean ones. E.ON spun off the bits investors liked least, while RWE has floated its best parts in a 5 bln euro IPO. The latter path looks smarter in the near term.

RWE gives masterclass in financial alchemy

26 Sep 2016

The troubled German utility is listing a minority stake in its healthy parts - grids, renewables and retail. Nothing will change much operationally. Yet the company hopes the spun-off part, Innogy, will have twice RWE's market cap. If that sounds illogical, that's because it is.

Corporate decline, thy new name is Uniper

9 Sep 2016

German utility E.ON is listing its coal and gas-fired power plants and other unwanted bits and bobs on the Frankfurt stock market. Uniper is wooing investors with high dividends. But over time, the carbon-heavy group will suffer badly from the fight against climate change.

E.ON coal legacy has potential for further smudges

10 Aug 2016

Despite a 3.8 bln euro writedown on its fossil fuel assets, German utility E.ON may still be overestimating the value of its soon-to-be spun off subsidiary Uniper. The likelihood of further adjustments, and a costly nuclear settlement, suggests it needs more capital.

Climate is in firing line from Britain’s EU vote

20 Jun 2016

A UK exit from the EU could weaken the fight against global warming. Brussels would lose a key voice for climate action, and coal-loving Poland’s influence would rise. A smaller EU - and go it alone Britain - would also find it harder to sway big polluters like China and the US.

EU emissions rules yet to hit U.S.-style top gear

15 Jun 2016

Brussels is tightening standards on cars’ CO2 output. It’s the second time European authorities have redrawn industry standards since the VW scandal broke. But to decisively bin its image as a relative soft touch, EU rules on “defeat devices” need to match those of the U.S.

E.ON’s corporate alchemy hinges on nuclear boost

26 Apr 2016

Spinning off fossil fuels and energy trading might unlock around 7.5 bln euros in hidden value at E.ON, if the remaining group can catch up to valuations of peers like National Grid. A favourable deal with Berlin over nuclear decommissioning costs is a key precondition.