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After the Merge with BG, Shell will have 20% of its Global Production in Brazil

Responsible for the biggest oil industry M&A deal in the past decade, the president of Royal Dutch Shell, Ben van Beurden, does not rule out increasing the company’s exposure in Brazil, expanding the already billionaire investment program that will be put in place following the merger with BG.

After the merger of $ 70 billion is completed, which is expected for early 2016, after regulatory approvals in several countries, Brazil will be the country with the largest stake in Shell’s production portfolio. Even with its partner Petrobras involved in a corruption scandal, the Dutch executive says it is closely watching, but trusts the technical expertise of the state-controlled company.

Beurden estimates that Brazil will account for 20% of global production of the company when some of the projects under development by the two companies

come into operation, including Libra, which Shell has 20%, and the giant pre-salt fields where BG is a partner, like Lula and Sapinhoá, to name a few. The executive points out, however, that the appetite of Shell does not stop there and is willing to increase its presence in Brazil. He does not rule out participating in the 13th Round of the National Petroleum Agency (ANP), scheduled for October.

“I believe that the fundamentals of Brazil are very strong and, particularly, if you look from our perspective, we are investing in a world-class resource. We have to be optimistic. And I am.” he said, concluding that he will “look seriously” to the ANP auction data.

Shell chose Brazil for the annual meeting of its board of directors and the executive committee. A testament to the appetite of the Anglo-Dutch company with the country is that Brazil should stay out of the sale of $ 30 billion of assets, planned program to take place between 2016 and 2018.

Speaking to newspaper Valor Economico, Beurden listed projects in the country, including Raízen distributor partnership with Cosan, and explained that investing in the Libra auction came from the realization that Shell’s participation in E&P was small in the country.

“We always had the perception that our presence was not big enough, considering the size of the country, its reserves, and also due to its geology. We thought we needed to be more exposed to Brazil and the deal with BG will fix it.”

Shell invested $ 35 billion in 2014, largely on the company’s organic growth program. In 2015, the plan is to reduce the investment through cost cutting, forced by falling oil prices.

“We want to take a little advantage of the supply chain weakness. We are putting off investments, renegotiating contracts and, of course, questioning ourselves about some projects”, he said. “But we’re still looking at more than $ 20 billion investment in 2015. In 2016 and beyond it’s hard to predict because we have to consider the portfolio of Shell and BG, combine the two and decide which areas to prioritize.”

It is a fact that Shell will sell some assets, but Beurden ensures that “there will no fire sale”. He said Shell will be investing, with annual program of $35 billion to $40 billion. The expectation for the long term is that oil prices remain in the range of $70 to $90 per barrel. Yesterday a barrel of Brent crude closed at US$ 63.34, for example.

On the asset sale program, the executive said that two main areas, that even justified the merger with BG, will be left out: the areas of exploration and production in deep waters and the integrated gas business, as the company refers to the projects of Liquified Natural Gas (LNG).

The oil and gas projects of unconventional sources should go through further scrutiny. The involvement of Petrobras in what is already one of the biggest investment corruption scandals in the world was discussed before the offer for BG, which is relevant partner of the state-controlled company in the pre-salt.

Beurden says it is “uncomfortable” to read the news involving the Brazilian oil company, but says that as a partner of Petrobras in Libra, Shell did not notice any side effects on the projects.

“Of course when the agreement with BG completes, Petrobras will be an even greater partner. We discussed this a lot with our board before presenting the proposed merger and take a fundamental decision, based on the fact that Petrobras is very important for Brazil. It is a company we know well from a technical and commercial point of view and regard it as a first class company on the technical expertise and competence”, he said.

The executive also said that it was considered the possibility to involve BG in the corruption investigations, since the British company is a partner of the pre-salt areas where took place the projects led by Petrobras’ Service Board, under Renato Duque (arrested by the police) and the snitch Pedro Barusco (head of engineering).

“Up until now, this is clearly not the case. But it is very difficult to have a clear vision. It’s still too soon and you never know what else can come from this investigation”, he said. “We did a due diligence with our counterparts in BG after we discussed the commercial terms and I can say that was the first question we asked. And of course one can only give guarantees based on what they know. And I don’t know what I don’t know. But so far, there is no concrete indication of risk [of BG involvement]”, he said.

Admitting concern over delays in platform delivery schedules, Beurden said the bid for BG suffered a “discount” on the basis of identified problems, which were not enough to stave off Shell. “Our business, in a sense, is risk management. So, we may have surprises, we may have some negative events, but in this context, it’s no different from any other project”.

Ethanol use in Brazil grows with new rules, says Louis Dreyfus unit

Ethanol producers in Brazil are feeling relief from improving demand, prices with tax incentives and an increase in the amount of fuel mixed with gasoline, according to a unit of Louis Dreyfus Commodities.

“I’m excited about the prospect of demand for ethanol this year,” said CEO Rui Chammas of Biosev in a telephone interview. “The market is reacting to the incentives.”

Sales of hydrated ethanol at gas stations in Brazil rose 32.6% in the first four months of the year, to 5.47 billion liters (1.44 billion gallons), while gasoline sales fell 3.7% after the government reintroduced a tax on fossil fuels that had been discontinued in 2012, showed regulator data.

Consumption has also increased due to a tax exemption in sales in the state of Minas Gerais, as well as the increase in the mandatory blending in the national gasoline, Chammas said. The Biosev is the largest producer of ethanol from Brazil after Raizen Energia.

Most of Brazil’s cars can be fueled with either gasoline or ethanol, and often consumers choose the most cost-effective fuel at the pump.

The country’s ethanol plants suffered from low demand in recent years, hurt by weak demand related to the measures by President Dilma Rousseff like price caps and tax breaks for gasoline in inflation control efforts. Only 36% of the country’s flex cars were fueled with ethanol last year, down from 82% in 2009, according to data from Datagro.

Since 2001, 49 producers were forced to close the doors and 67 others are under bankruptcy protection, according to a report from Unica.

Biosev’s harvest of sugarcane will probably grow in the 2015-2016 season, which began in April, with better weather after years of drought, Chammas said. The company expects to reach between 29 and 32 million tonnes this season, up from 28.3 million in the previous season.

Read More: Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Cosan’s most known business is indeed Ethanol and Sugar production. That’s how the company started and they are still the largest producer in Brazil and a major player worldwide. However, due to volatility in these commodities’ prices, Cosan’s management has been diversifying its activities in the last few years and now half of it’s EBITDA comes from other businesses.

Cosan today operates on production, transportation and distribution of renewable energy sources. They prospect land, grow and process sugarcane, distribute fuels, transport and sell sugar on the domestic and international markets and produce and sells lubrificants. It is the world’s first vertically integrated bioenergy company. The below image, shows the different parts of the company:

Cosan Group

 

In the fiscal year ending in March, 31st, 2013, the company reported only 20% of its EBITDA from Raízen Combustíveis, the traditional Sugar and Ethanol business. Revenue and EBITDA were distributed as follows:

Cosan Numbers 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Business above is composed of manufacturing and distribution activities for the Mobil and Comma brands, base oil distribution and the corporate structure of Cosan, except Raízen.

Exchange rate was around BRL 2 for US$ 1 at the end of FY2013.

Cosan Ltd.

The diversified and vertical business model adopted by Cosan provides a much more stable operating environment. Furthermore, Cosan operates with renewable energy and presentes several areas for growth in the next decade or two. Overall, the company deserves a 4-star EBI Rating.

ADR Ticker CZZ
Bovespa Ticker CSAN3, CZLT33
Investor Relations Website http://ri.cosan.com.br/Default.aspx?linguagem=en
Industry* Renewable Energy
EBI Rating 4-star