Noble to sell oil and North America gas, power units

Singapore-listed commodities trader Noble Group has agreed to sell its North American natural gas and power unit to Switzerland-based trading firm Mercuria for $248mn and plans to shed its global oil business to cut debt and free up capital to fund its surviving operations.

The firm said it also is seeking a new investor to recapitalize its coal and metals businesses and will pursue further strategic alliances, including possible deals with Mercuria, to provide the capital to underpin growth in those operations.

It said the move "reinforces the group's focus on its Hard Commodities, Freight and LNG businesses".

The North America asset deal with Mercuria, which was signed today amid Noble's efforts to negotiate more breathing room from its lenders and restore its trading businesses to profitability, is valued at $89mn less than the North American assets were valued on the firm's books. Noble said it expects to close the sale to Mercuria by the end of this year and to take final bids for its oil liquids unit — its most capital-intensive business — during the current quarter.

The two planned sales result from a review of strategic alternatives that Noble undertook to overcome a liquidity crisis. Restructuring plans include an additional $800mn to $1bn in asset sales over the next two years and a reduction in the firm's workforce to about 400 from 900. Selling the North American and oil units will allow the trader to retire credit lines of $2bn and $1bn and to use remaining proceeds to pare other borrowings, Noble said.

Noble also will have less reliance on trade financing facilities and overall bank funding, which have become more constrained amid recent trading losses and downgrades to the firm's credit ratings. Those constraints left the firm unable to take advantage of some profitable trading opportunities in the second quarter, contributing to an operating loss from supply chains estimated at $250mn-$300mn, Noble said.

The oil desk has proved a heavy burden and Noble was forced to unwind derivatives positions in the second half of the second quarter. It said an expected second-quarter $250mn-300nm adjusted operating loss to be "primarily" attributable global oil liquids trading

Noble's larger competitors have been boosting oil volumes over the last few years because trading margins have been shrinking and competition from the NOCs is getting stronger. Vitol, Glencore and Trafigura have each increased oil trading volumes by 1.7mn-1.8mn b/d over the last two years.

The move to sell the oil business has been expected in the European products market where Noble has traded significant volumes of Argus Eurobob oxy gasoline barges in recent years, buying 215,000t during 2010-2015, and selling 211,900t in the same period. The firm's northwest European gasoline barge trading activity peaked during 2012-14. But Noble's contribution to Eurobob oxy barge liquidity slowed sharply from 2015 onwards. Noble did not buy or sell any barges for prompt Argus loading dates in 2016, while purchases in 2017 were limited to a single 2,000t barge in March this year. Noble is also a significant participant in the spot northwest European jet fuel barge market, purchasing 36pc of volumes traded in the Platts window so far this year.

Noble is also an active — albeit small — player in the North Sea crude market, trading paper CFD contracts, as well as North Sea Forward contracts. But its activity has slowed noticeably in recent weeks. According to data from brokers, after conducting an average of around one CFD or forward deal each day in March, April and May, there were just seven Noble trades in the whole of June and have been none so far in July.

Full second-quarter results are scheduled to be released in August. Noble said it expects to report a loss in the range of $1.7bn to $1.8bn, partly because the strategic review called for more conservative accounting of such assets as unrealized trading gains.

Access to trade financing has eased in the current quarter because of a partnership with Mercuria that will explore strategic alliances in Asia-Pacific, Noble said.

A shake up in global coal markets wrecked Noble's trading strategies late last year and early this year, resulting in a first-quarter loss of $129.4mn. The firm views a decoupling of the Newcastle coal benchmark and other major markets around the world as a permanent dislocation and has completed a reconfiguring of its coal hedging positions. Noble said its portfolio of long-term physical contracts in its coal, steel and metals businesses recovered in the April-June quarter.