Australia’s biggest ever block trade worth about $3.7 billion happened as U.S. oil major Chevron (CVX, Financial) sold out 50% stake of Caltex, an Australian fuel marketer and refiner. The shares were sold at a floor price of A$34.20 (Australian dollars) per share which as approximately a 9.7% discount to the closing price of Caltex of A$37.88 on last Friday. The sale was solely underwritten by Goldman Sachs (GS, Financial).
Why the exit
Chevron Corporation, the American multinational energy company, is based in California with active operations in more than 180 countries. The decision to exit Caltex was long awaited and much decisive on Chevron’s part. In an effort to continuously improvise its portfolio and generate cash for other priorities of the business, the company was eager to sell off stakes since the past few months. This block trade was also seen as an outcome of block trade of Woodside petroleum last year by Shell (RDS.A, Financial).
With $54 billion investment in Gorgon liquefied natural gas project and A$29 billion in the Wheatstone LNG venture, Chevron still remains the biggest overseas investor in Australia. Even after the sale of Caltex’s stake, Chevron looks forward to long-term business opportunities with the company. It will also continue to supply fuel for Caltex’s retail and franchise network of service stations.
Chevron corporation has also quit its A$300 million Cooper basin shale gas exploration joint venture with Beach energy. Also, Chevron wants to put focus on exploration and production of fuel which has higher margins rather than investing in refining and marketing of fuel.
Caltex after the exit announcement
Caltex, which used to be a petroleum brand name of Chevron Corporation in more than 60 countries outside U.S., believes it won’t change much even after this block trade.
The company rather believes it will have less complex capital management and no change in "daily usual business." The company’s shares had shot up this year by 74% to close at A$37.88 on last Friday. Caltex’s focus will now be on closing its Kernel refinery in New South Wales and investing in its convenience store, fuel retail and fuel storage and transport businesses. The sale of the stake was taken as a positive point by Caltex, and it looks forward to continuing its business with equal dedication.
Market scenario
In the recent past in Australia, such block trades have happened like the sale in 2010 of Royal Dutch Shell’s stake in Woodside petroleum for about A$3.3 billion as per data compiled by Bloomberg.
This block trade of Chevron can be termed as Asia’s biggest block trade recently of $3.7 billion which has surpassed the government of India’s transaction of selling its stake in Coal India Ltd. in January for $3.6 billion this year.
With global oil prices reduced to half since 2014, the pressure on Australian refiners was increasing and aging equipment, cheaper imports and high costs. Hence, there were block trades happening and Chevron also followed suit.
Conclusion
Caltex, Australia has closed a lot of its refineries in the recent past led by diminishing oil prices whereas a lot of other players have restructured their operations. As for Chevron now, Asia will become a strategic land for its downstream businesses.
