Mercuria Profit Slips 5% as Power, Gas Offsets Tough Oil Trading

(Bloomberg) -- Mercuria Energy Group Ltd. said profit fell by about 5 percent last year as earnings from its power, gas and structured-finance operations couldn’t fully offset tougher oil-trading markets.

Net income declined to about $419 million in 2018, from $442 million the previous year, according to Chief Financial Officer Guillaume Vermersch. “We achieved a solid performance in a weak market globally,” he said.

Co-founded by a pair of former Goldman Sachs Group Inc. executives and handling about 2.8 million barrels of crude and oil products per day, Mercuria is one of the five largest independent oil traders. The industry struggled to increase earnings last year as many were wrong-footed by dramatic swings in oil prices, which fell sharply in the second half.

Mercuria’s profit was boosted by the acquisition of Hong Kong-based Noble Group Ltd.’s North American power and gas business. The Geneva-based trading house also provided its struggling rival with about $400 million in short-term loans as part of the its structured-financing activities.

Setting it apart from other independent oil traders, Mercuria has built a large power and gas operation, particularly in the U.S. In 2014, it acquired JPMorgan Chase & Co.’s commodities business, which included a sizable power and gas unit. It also bought Noble Group’s wholesale gas trading operation in the U.S. in 2017.

“The resilience in the earnings, and an improvement in the quality of the earnings, is due to the diversification of our business model,” Vermersch said. “We are at the crossroads of having created a very efficient tool box and we have demonstrated that our competencies can be applied to different areas like distressed credit.”

Shrinking Margins

Revenue rose to $121 billion on higher volumes and prices. Crude and petroleum products accounted for about 54 percent of trading activity with other commodities including gas, power, coal and metals accounting for the rest.

Commodities traders have been increasing trading volumes as profit margins shrink due to tougher competition and more transparent markets. Mercuria Chief Executive Officer Marco Dunand recently said that current industry profit margins of about 0.5 percent of revenue are “not sustainable” and that consolidation is inevitable.

“Margins are thin and everyone’s business models needs to adjust,” said Vermersch.

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