CNBC

Becky Quick @BECKYQUICK

KEY POINTS

• The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets of Dominion Energy.
• Including the assumption of debt, the deal totals almost $10 billion.
• It’s Berkshire’s first major purchase since the coronavirus pandemic and subsequent market collapse in March.
• With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8%.
  Warren Buffett’s Berkshire Hathaway is finally pulling the trigger.
  The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets
  of Dominion Energy. Including the assumption of debt, the deal totals almost $10 billion. It’s Berkshire’s first major purchase since the coronavirus pandemic and subsequent market collapse in March.
  At his annual shareholder meeting in May, Buffett revealed that Berkshire had built up a record $137 billion cash hoard as financial markets tanked and that he hadn’t seen many favorable deals, despite the stock market’s swoon.
  “We have not done anything because we don’t see anything that attractive to do,” Buffett said at the time, suggesting that the quick actions taken by the Federal Reserve this year meant companies could get more access to financing in the public markets than they could during the financial crisis in 2008 and 2009.
  “If we really liked what we were seeing, we would do it, and that will happen someday,” Buffett said in May.
  For Dominion, the move is part of its transition to a pure-play regulated utility company that focuses on clean energy production from wind, solar and natural gas. Following the sale, Dominion expects that 90% of its future operating earnings will come from its utility companies that provide energy to more than 7 million customers in states like Virginia, North and South Carolina, Ohio and Utah.
  Dominion also announced that it is cancelling its Atlantic Coast Pipeline project with Duke Energy. The $8 billion project has faced increasing regulatory scrutiny and delays that have ballooned projected costs and raised doubts about its economic feasibility.
  As a result of the sale and its streamlined operations, Dominion is warning that it now expects its operating earnings for 2020 to be $3.37 to $3.63 a share. Its previous guidance was for $4.25 to $4.60 a share. The company is also planning to cut its dividend in the fourth quarter to 63 cents a share, from the 94 cents a share that it paid out in each of the first two quarters of the year and that it anticipates paying out for the third quarter.
  Currently, Dominion pays out 85% of its operating earnings, but post transaction the company is targeting an operating earnings payout of 65%, which it says is more in line with its peers.
  For Berkshire, the move greatly increases its footprint in the natural gas business. With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States,

https://www.cnbc.com/2020/07/05/warren-buffetts-berkshire-buys-dominion-energy-natural-gas-assets-in-10-billion-deal.html

up from 8% currently.

Under the deal, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission and 50% of Iroquois Gas Transmission System. Berkshire will also acquire 25% of Cove Point LNG, an export-import and storage facility for liquefied natural gas, one of just six in the U.S.

Berkshire Energy will pay $4 billion in cash for the assets, and assume $5.7 billion in debt. Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year.

The deal is subject to regulatory approval and is expected to close in the fourth quarter.

 Market Extra 

Published: April 28, 2020 at 4:14 p.m. ET

By

Sunny Oh

+2.54%                     6.00%                        +0.34%

The collapse in world crude oil prices since February is taking a toll on U.S. inflation expectations which are now at their lowest levels since the 2007-2009 recession.

But some strategists think there’s scope for price

pressures to build up again once the COVID-19 pandemic passes and the deflationary impact of the oil-market slump disappears, creating an opportunity to

invest in inflation protected bonds.

“With market-based inflation expectations now at such beaten-up levels, and with the disinflationary effect of falling energy prices set to fade, we see an opportunity to play for a cyclical rebound in inflation breakevens across the developed markets,” said analysts at BCA Research, in a Tuesday note.

BCA analysts expect Brent crude oil, the global benchmark, to rise to $42 a barrel by the end of this year, and $78 by the end of 2021.

Brent futures for June delivery BRNM20, +2.54% settled at $20.46 a barrel on Tuesday, and $12.34 a barrel for U.S. crude CLM20, 6.00%, FactSet data show.
Oil is a crucial input for a broad basket of consumer goods and some industrial products like plastics.

A recovery in crude oil prices could thus have a knock-on impact for consumer price inflation, especially as the muted inflation backdrop even before the COVID-19 pandemic led swings in energy prices to become “the marginal driver of both realized and expected inflation,” said the BCA analysts.

Based on current trading in U.S. Treasury inflation-protected securities, or TIPs, price levels were expected to average 1.14% over the next decade.

Investors buying up inflation insurance may be making a bet that prices are unlikely to undershoot the U.S. historical average of around 2% for an extended stretch of time, said market participants.

Last week, an auction for $17 billion of 5-year Treasury inflation-protected securities saw the strongest take-up since 2009.

The iShares TIPS Bond exchange-traded

fund TIP, +0.34% is up nearly 5% this year, reflecting the gains in government bond prices as cash has flowed into safe haven investments after

March’s stock-market crash.But traders in the TIPs market say it’s difficult to sometimes tell if U.S. Treasury auctions are an accurate reflection of demand for inflation insurance, given that trading in such securities remains thin even after the Federal Reserve’s purchases of hundreds of billions of government bonds over the past few weeks.

“There’s a lack of liquidity in the secondary market,” said Tim Magnusson, senior portfolio manager at Garda Capital Partners, in an interview.

Even now, he had a hard time buying and selling TIPs in significant size, as primary dealers to deal with the Federal Reserve are still unwilling to free up space on their trading books to act as middlemen for some government bond securities.

The strong auction demand could thus reflect the way in which the sale of inflation protected U.S. Treasury debt offers the main option for money managers to top up on TIPs, said Magnusson.

https://www.marketwatch.com/story/inflation-expectations-may-recover-with-crude-oil-prices- creating-demand-for-protection-2020-04-28

ExxonMobil is expanding its research efforts with the stated goal of producing more — but cleaner — energy in the face of climate change.

Driving the news: The world’s biggest publicly traded oil company has been creating new partnerships with American and foreign universities in recent years totaling at least $75 million, and it just inked another, unprecedented $100 million deal with the U.S. Energy Department.

The big picture: Oil and gas companies have been funding energy and climate research at universities and other entities for years. Exxon’s recent moves are an expansion of this trend at a time of heightened scrutiny facing oil companies and their role fueling climate change.

• To critics, this corporate funding casts doubt on the scientific independence of research, especially from oil and gas producers with bottom lines to protect in the face of policies targeting their products.
• To academics and executives involved, the partnerships are genuine and mutually beneficial as oil companies seek to adopt cleaner energy technologies and universities get deep pockets of money and expertise.
  What they're saying: Princeton University professor Lynn Loo has defended the $5 million she got from Exxon beginning in 2015 as part of her leadership of the school’s Andlinger Center for Energy and Environment.
  “When I first declared I was going to work with ExxonMobil, I faced a lot of backlash. I said, ‘Look, they’re an energy company. I want them at the table, and we have information that can help them make responsible decisions.’ ”
  — Lynn Loo, Princeton University engineering professor
  Where it stands: In 2014, Exxon began pursuing an internal goal to establish several partnerships with leading universities — roughly one per year — that go far beyond

money. Exxon-employed scientists spend significant time at the universities. Many have offices, give guest lectures and co-author peer-reviewed research.

Since 2014, Exxon has helped establish 5 energy centers with 6 universities, including:

• Massachusetts Institute of Technology (2014), Princeton University (2015), University of Texas at Austin (2016), Stanford University (2018), and 2 schools in Singapore: Nanyang Technological University and National University of Singapore (2019).
• Today, Exxon announced a new collaboration with the Indian Institute of Technology in two cities in India.
• Each agreement's funding ranges from $5 million to $25 million, for a total of at least $75 million.
• Exxon’s agreement with the Energy Department’s national laboratory system, led by the Colorado-based National Renewable Energy Laboratory and announced in May, is unprecedented. At $100 million over 10 years, it’s the largest single non- federal investment in NREL’s 42-year-history.
  “The vast majority of technology you see deployed in energy today started in academia. We need a line of sight,” said Vijay Swarup, Exxon’s chief scientist, in a recent interview at the company's research headquarters in Clinton, New Jersey. “Everything we do in research is designed to give us a competitive advantage.”
  The complete reach of Exxon’s university funding and that of other oil and gas companies is hazy.
• The liberal Center for American Progress did a study on the topic in 2010, but public tracking of the trend doesn’t appear to exist nor more recent data.
• That report scrutinized, among other agreements, a $100 million investment Exxon put into a Stanford energy initiative earlier last decade.
  Exxon’s research spans everything from solar panels to batteries, but its two biggest strategies to lower emissions are algae biofuels (to replace jet fuel, for example) and carbon dioxide capture technology, which could enable using oil and natural gas with far fewer emissions.

• Most of Exxon’s collaborations appear to be touting cleaner-energy technologies as opposed to, say, extracting oil and gas more efficiently. But none of the actual contracts specify that the research should go toward any one type of technology.

“The vast majority of our agreements have an element in them that is addressing the dual challenge: How to scale energy and how to scale energy with lower emissions,” Swarup says.

The other side: Environmentalists and some academic experts view these collaborations with deep skepticism. They point to decades of oil companies resisting

climate policy and claims by environmentalists that companies, especially Exxon, tried to muddle climate science for decades. Exxon denies such allegations.

Benjamin Franta, a J.D.-Ph.D. student researching this topic at Stanford University, said he wasn’t aware of certain aspects of the collaborations, including Exxon scientists co-authoring papers.

“It’s not a good idea for the fossil-fuel industry to be funding work that is supposed to ultimately put the fossil-fuel industry out of business. The case is made even stronger when you realize just how much disinformation and denial the industry has put out there for so many decades.”

— Benjamin Franta, Stanford University

What I’m watching: To what degree Exxon increases its funding and seeks to commercialize a particular low-carbon technology. Princeton's Loo says she pushes the company to spend more on research, pointing out that the amount is tiny compared to Exxon’s profits: $21 billion in 2018.

“We’re not just taking their money and are happy with what they’re telling us,” Loo said. “We’re good partners because we challenge each other.”

OIL PRICES ARE SET TO RECOVER WITH THE OPEC+ PRODUCTION CUTS AND GRADUAL LIFTING OF LOCKDOWNS AROUND THE WORLD IN THE SECOND HALF OF 2020, WHEN OIL PRICES “WILL BE $40 STARTING FROM THE THIRD QUARTER,” MOHAMED ARKAB, ENERGY MINISTER OF OPEC’S ROTATING PRESIDENTALGERIA, SAID ON SUNDAY.

THE GLOBAL ECONOMY WILL NOT STAY PARALYZED FOR TOO LONG, AND TOGETHER WITH THE 9.7 MILLION BPD CUTS THAT OPEC AND ITS ALLIES PLEDGED FOR MAY AND JUNE, THESE FACTORS ARE SET TO LIFT THE PRICE OF OIL IN H2 2020, ARKAB TOLD ALGERIA’S NATIONAL RADIO, AS QUOTED BY TURKEY’S ANADOLU AGENCY.

IN CHINA, WHICH WAS HIT FIRST BY THE CORONAVIRUS, AND WHICH EXITED THE LOCKDOWN FIRST, THE RETURN TO NORMALIZATION IN THE TRANSPORTATION SECTOR “IS DRIVING UP GLOBAL DEMAND,” ACCORDING TO ALGERIA’S ENERGY MINISTER.

JUST A FEW DAYS BEFORE THE OPEC+ DEAL ENTERS INTO FORCE, OIL PRICES CRASHED AGAIN EARLY ON MONDAY, AS THE MARKET CONTINUES TO SEE THE IMMINENT STORAGE SHORTAGE PROBLEM AS A BIGGER FACTOR FOR PRICES THAN THE POTENTIAL EFFECT OF THE OPEC+ CUTS AND THE POTENTIAL EASING OF THE LOCKDOWN MEASURES.

AT 8.30 A.M. EDT ON MONDAY, BRENT CRUDE WAS DOWN BY NEARLY 5 PERCENT AT $20 A BARREL, AND WTI CRUDE WAS CRASHING BY MORE THAN 20 PERCENT TO BELOW $14 PER BARREL.

LAST WEEK, OPEC’S FOURTH-LARGEST PRODUCER, KUWAIT, SAID IT HAD ALREADY STARTED TO REDUCE CRUDE OIL SUPPLY TO INTERNATIONAL MARKETS AHEAD OF MAY 1, “SENSING A RESPONSIBILITY RESPONDING TO MARKET CONDITIONS.” SAUDI ARABIA, OPEC’S TOP PRODUCER AND THE WORLD’S TOP OIL EXPORTER, HAS ALSO BEGUN TO REDUCE PRODUCTION EARLIER, A SAUDI INDUSTRY OFFICIAL WITH KNOWLEDGE OF THE ISSUE TOLD BLOOMBERG OVER THE WEEKEND. 

OTHERS, HOWEVER, INCLUDING NIGERIA AND THE LEADER OF THE NON-OPEC PRODUCERS, RUSSIA, HAVEN’T RUSHED TO CUT PRODUCTION AHEAD OF SCHEDULE.

DESPITE SOLEMN COMMITMENTS FROM OPEC+ PRODUCERS AND TENTATIVE SCHEDULES FORREOPENING ECONOMIES AND EASING THE LOCKDOWNS, INCLUDING IN ITALY, OIL MARKET PARTICIPANTS CONTINUE TO FOCUS ON THE IMMINENT THREAT OF GLOBAL STORAGE OVERFLOWING RATHER THAN ON THE EFFECT OF THE CUTS AND EASED LOCKDOWNS TWO TO THREE MONTHS DOWN THE ROAD.

BY TSVETANA PARASKOVA FOR OILPRICE.COM