Caltex joins the hunt for assets
Another big player is on the prowl in the depressed oil and gas sector, with Caltex Australia saying it could make large acquisitions outside its core refining and marketing business, including in gas exploration and production.
Caltex managing director Julian Segal said that now the company’s two-year-long closure of the Kurnell refinery in Sydney was nearly complete, he was looking at how to grow the company using more serious measures than the bolt-on acquisitions of less than $100 million pursued in recent years.
“We do have the financial capabilities to look at bigger opportunities,” Mr Segal told The Australian yesterday.
“Those bigger opportunities could be both in the core business if some opportunity for consolidation occurs but also some related step-outs in the energy industry, and those opportunities could be significantly bigger.”
Mr Segal made the comments after Caltex delivered a better-than-expected underlying full-year profit, mainly because sliding oil prices had provided cheaper raw material for the company’s remaining Lytton refinery in Brisbane.
But because the profits came from the refining business, where Caltex is reducing its presence, and were seen as a one-off that would probably reverse if oil prices rebound, Caltex shares slipped 6c to $36.61.
The lower oil prices could produce the opportunity Mr Segal has been waiting for to broaden Caltex’s business since he took the helm five years ago but has been delayed by having to deal with a poor refining outlook that led him to close Kurnell.
That complex closure is now almost complete.
“We are not just being opportunistic saying we are interested in gas today because of the current special conditions in the market; we have been scanning the environment for these type of opportunities for quite a while,” Mr Segal said.
“But one should be looking at these kind of opportunities, and market conditions are very favourable to companies with a strong balance sheet.”
Caltex, which has a $10 billion market value and is half-owned by US major Chevron, joins Woodside Petroleum, ExxonMobil and Kerry Stokes’s Seven Group as companies with strong balance sheets that have declared they are on the hunt for investment opportunities that emerge in a depressed market.
Mr Segal stressed that Caltex had no “concrete” targets in mind and was looking at a broad spectrum of opportunities. Any step out into energy would be in line with Caltex’s competencies, he said. “Clearly, one opportunity we could look at is energy for transport, but if there is the opportunity to move into the upstream part of gas, we don’t have to limit ourselves,” he said.
If acquisition targets did not present themselves, shareholders may be rewarded with increased capital returns, he said.
Caltex reported a statutory profit slump of 96 per cent to $20m, from $530m the year before, missing guidance of between $90m and $110m because of the non-cash impact the continued slide in the oil price had on inventories.
After-tax “replacement cost operating profit”, which strips out the effect of crude price movement on inventories, surged 48 per cent to $493m, up from $332m in 2013 and well ahead of guidance of $450m-$470m.
“The sharp decline in Brent crude oil prices towards year end was a major contributor to the stronger refiner margin in the second half as product prices have not fallen as quickly as the crude price,” Mr Segal said.
Caltex declared a final and fully franked dividend of 50c per share, bringing the full-year dividend to 70c, more than double last year’s 34c full-year dividend. The dividend is payable on April 2.
A target dividend ratio of 40-60 per cent of RCOP has now been restated in the wake of the Kurnell refinery closure.
Morgan Stanley analyst Stuart Baker said the result was strong, but apart from some big gains on lower oil prices, little had changed from when Caltex issued its recent guidance.
“The real engine of profit growth has been sold to the investment community as marketing, which has shown stable growth but as per previous guidance,” Mr Baker said. The supply chain business, previously called refining, delivered $64m of earnings before interest and tax, up from a $171m loss in 2013.
The marketing business, where Caltex has focused its attention in the face of tougher conditions in refining, delivered record EBIT of $812m, up 6 per cent on 2013, which was also a record.
Mr Segal’s total 2014 remuneration rose to $5.69m, up from $4.19m the year before.
Extracted in full from The Australian.