TheChek News Flow

The Amazon founder’s $68 million Indian Creek purchase is among the priciest deals to close in the South Florida city in recent years

Agreement comes amid return of M&A in upstream oil and gas sector as cash-rich producers search for drilling sites

US shale operator Permian Resources announced on Monday it will buy Earthstone Energy in an all-share transaction valued at $4.5bn including debt, as dealmaking picks up among upstream producers in search of better inventory.

The acquisition of the oil and gas producer will strengthen Permian’s operations in the Texas shale patch and in New Mexico, increasing its assets by more than 400,000 acres and production by 70 per cent to 300,000 barrels of oil equivalent per day.

The deal will consist of 1.446 shares of Permian’s common stock for each of Earthstone’s common stock.

The announcement comes as the flow of mergers and acquisitions returns to the upstream oil and gas sector, with producers sitting on record levels of cash looking to shore up more drilling sites. 

US upstream M&A activity reached $24bn in the second quarter, up 167 per cent from a slow first quarter and the highest since 2021, according to Enverus. The energy research firm tracked 20 deals in the second quarter, with more than a quarter of them topping $1bn. 

Andrew Dittmar, director of Enverus, said the need for public buyers to secure quality drilling inventory in the Texas shale patch had been “brewing”. “The pressure to make a deal has been mounting as the remaining opportunities are narrowed with each successive transaction,” he said.

Chevron’s $6.3bn purchase of Nasdaq-traded PDC Energy in May, one of the largest deals during the second quarter, boosted the supermajor’s oil and gas reserves in Colorado.

Chevron’s and Permian’s acquisitions deviate from the dominant dealmaking route of public companies pursuing private-equity backed operators. The deals suggest that public company acquisitions will become more common as private operators with attractive valuations and large inventories become harder to find.

“It’s a race to consolidate the Permian,” said Matthew Bernstein, shale analytics manager at Rystad Energy, an energy consultancy. He added: “As far as a real large public-to-public merger goes [in the Permian], this is something we haven’t seen yet so far this year.”

The acquisition of Earthstone is expected to propel Permian into the top ten producers in the prolific Texas shale patch.

Shares in Earthstone jumped more than 9 per cent in pre-market trading on Monday, while those of Permian were down 3.4 per cent.

US crude oil and dry gas production are expected to reach record highs this year, according to the Energy Information Administration. While output is rising, growth is decelerating as drilling sites become harder to find and public operators prioritise shareholder returns over capital spending.

Annual US crude production will grow by 850,000 barrels per day in 2023, according to the EIA, down from the record 1.6mn b/d production increase seen between 2017 and 2018

Poor water quality of French river has cast doubt over games next summer

The Paris Olympics organisers have vowed to redouble efforts to clean up the Seine river after several test events were cancelled this weekend because of pollution, raising doubts over swimming plans for next summer’s games.

Athletes in the World Triathlon Olympic Games test event swam in the Seine on Thursday and Friday, but competitions scheduled for Saturday and Sunday were scrapped because water quality tests showed “significant discrepancies”, including higher than acceptable levels of E. coli bacteria, according to organisers. Instead of complete triathlons, the athletes did a duathlon of running and biking.

The decision was another setback to the city’s ambitions to reopen the Seine river to host two long-distance races and the swimming legs of the triathlon for the summer Olympics next year.

To prepare, Paris has embarked on a major clean-up and infrastructure upgrade that will cost €1.4bn, which includes new underground pipes, tanks and pumps to prevent sewage and pollutants from overflowing into the river when it rains heavily.

Tony Estanguet, the president of the Paris 2024 organising committee, told RMC radio on Sunday that “excellent improvements” to the river water quality had already been made and would continue “month by month”. “We are quite calm about next year,” he said.

Paris mayor Anne Hidalgo has also backed the effort to make the Seine swimmable again as a key legacy of the Olympics that will benefit city residents as summer temperatures rise because of climate change.

In early July, she announced the first three swimming sites scheduled to be opened to the public in 2025, and the goal is to eventually have about 20 sites in the Paris region and its suburbs. “It is a dream that will become reality for Parisiens,” she said at the time.

City officials were not able to immediately identify the reasons for the poor water quality on Saturday, and it had not rained much in the area in recent days. In early August, another test event was cancelled because heavy rains caused overflows of untreated waste in to the river.

The concentration of E. coli bacteria in the water on Saturday was found to be slightly above the allowed levels, said an official from the Paris mayor’s office.

Incidents of athletes falling ill after swimming in polluted water have marred recent triathlons. According to UK health officials, 88 people who took part in a British triathlon even in Sunderland in late July reported experiencing diarrhoea or vomiting after the event.

Estanguet, who won three gold medals in canoe slalom competitions, said much had been learned during the test events last week in Paris, even though some had to be cancelled. “We still have a year and during the games we can reschedule the events if needed,” he said on RMC radio.

The secondary market for luxury goods holds significant promise, but there are several key challenges to overcome, writes Luca Solca.

Secondhand luxury holds promise. Consumers have accumulated significant volumes of luxury goods in their wardrobes, some of which are hardly used. Giving these products a new life on the secondary market provides sellers with cash and gives a wider segment of consumers the opportunity to buy into luxury brands they could not otherwise afford. Over time, the secondary market for luxury goods could mature into something more structured, similar to what we have in cars.

But there are several key challenges that must be overcome.

Authenticity is a problem. Making sure secondhand luxury goods brought to the market are real is labour-intensive and fraught with scope for error. No secondhand player today can offer a 100 percent guarantee that what we buy is always authentic. At best, they can insure us against buying counterfeits.

Profitability is also a challenge. Managing secondhand inventory is also labour intensive and therefore costly. Attracting a critical mass of sellers and buyers — in order to produce a significant enough “network effect” — is also expensive. Secondhand pioneers are finding that low touch inventory management processes and a razor thin cost structure are essential to survival.

Furthermore, commitment from brands remains elusive. Secondhand luxury demand is highly concentrated on a handful of mega-brands which have no interest in making their styles more visible by providing means for consumers to reduce inventory in their closets. In fact, one of the ways mega-brands have kept ubiquity at bay while growing revenues is by getting the same customers to buy more and more. (Consumers can only use one bag at a time, so brands have been able to move more units while keeping them out of circulation by selling more pieces to existing customers).

Additionally, commitment from luxury clients is unclear. While it seems obvious that consumers want to buy coveted luxury goods products at a discount to their retail price, it is less sure that those who buy iconic luxury products at full price are keen to sell large volumes of their purchases at a loss.

Today, the secondhand luxury market gets a boost from professional traders. In such circumstances, secondhand can be profitable for the brands involved. Take the example of Privé Porter, the world’s largest reseller of Hermès bags. It’s a known fact that Hermès sales associates ask “inner circle” customers to buy other Hermès products to qualify for the chance to buy a Birkin or Kelly bag. Of course, among this “inner circle” are many canny traders who can afford to dress in head-to-toe Hermès and make some money on top from buying and reselling bags to clients with little patience.

In certain product categories, the prevalence of wholesale also supports second-hand sales. Who is uploading unworn watches with their original boxes and certificates to the resale site Chrono24? Definitely not brands or repentant consumers; it is multi-brand retailers which hope to monetise slow moving inventory they mistakenly bought (or were forced to buy). The rise of Chrono24 has brought an unprecedented level of transparency to the watch market, exposing the fact that some products, brand new, never worn, are selling for 30 percent off. This window will close, though, as leading watch brands, a few steps behind soft luxury brands, reduce wholesale exposure.

Thus far, brand participation in the secondary market has been limited. Many soft luxury brands have announced their interest in secondhand, but, in most cases, what they have done is to use the secondhand market to offload unsold products at the end of the season as an alternative to off-price channels — our field research points to Gucci, as one prominent example.

Other brands like Rolex (with Bucherer) seem to have embraced certified pre-owned as a way to limit demand spillover to competitors as they suffer persistent capacity constraints. This makes sense to all involved, as in these conditions certified pre-owned sells above the new recommended retail price.

Yet, the emergence of a small secondhand market benefits mega-brands. In fact, the emergence of the secondhand market further reinforces category consolidation and mega-brand concentration, as it provides instantaneous and transparent evidence of which brands hold value and which don’t. This is bound to push middle class consumers — which we consider as most conservative, as they have a limited number of luxury purchases they can afford — to converge even more to “sure fire” brands.

Many specialist resale players have failed to impress. It is not surprising that secondhand businesses jumping into the market with a mix of lofty ambitions, no clear cost operations strategy and no obvious trading angle have failed spectacularly. The Real Real is a case in point. Vestiaire Collective, run with hard-nosed cost and process efficiency, has better prospects.

Technology could help. The adoption of common blockchain standards in association with RFID could help solve resale’s’ authenticity problem. We are seeing the industry’s first steps in this direction with the recently launched Aura Blockchain Consortium, in which LVMH, Prada and Cartier participate. A rapid U-turn on secondhand is unlikely, however: LVMH chief Bernard Arnault has made it clear that his company’s priority is selling new products, not used ones.