Price-Plunge Fallout: Let’s Make a Deal
Nearly everything’s on the table as companies aim to shore up portfolios by curtailing investments and dumping low-priority assets.
In efforts to preserve cash and repair busted balance sheets in reaction to depressed prices, companies are continuing to withdraw capital and curtail investments worldwide.
Oil and gas companies are selling off assets with recoverable reserves of more than 5 billion bbl of liquids and 7.5 billion BOED of natural gas, Rystad Energy estimates. While some divestments were announced before the COVID-19 crash, more were added in its aftermath.
The research and consultancy group examined divestment opportunities announced since the fourth quarter of 2019 that exclude unconventional and US onshore assets.
An estimated 104,000 square miles of exploration acreage, including potential exploration license sales, are also up for grabs by majors, E&Ps, industrial companies, and integrated companies. About 83% of that acreage is offshore.
Most resources on offer are in the producing phase, followed by undeveloped resources in the pre-front-end engineering and design stage. In other words, companies are either avoiding greenfield costs, divesting low-priority assets, or realigning their mature portfolio to focus on key projects.
Still other companies are considering whether this is the right time to break into the industry or expand their portfolios by acquiring these assets at a lower price, said Rystad analyst Siva Prasad.
ExxonMobil and Chevron are the most active among the majors, which together are contributing nearly 70% of the liquid volumes and 50% of the gas reserves lined up for divestment.
ExxonMobil is looking for buyers for upstream assets in the US Gulf of Mexico, the UK North Sea, Germany, Nigeria, Malaysia, Indonesia, Romania, Azerbaijan, Vietnam, Chad, and Equatorial Guinea as part of its wider plan to generate $15 billion by 2021 and $25 billion by 2025 from divestments.
Chevron is seeking to divest its equity in eight Nigerian blocks in onshore and shallow waters, and may sell its stake in the low-priority Indonesian Deepwater Development gas project to control long-term costs.
In a move that reflects material developments in global commodity markets, BP has demonstrated how the crude price collapse is forcing sellers to compromise. The British oil major discounted the price of the North Sea assets it is selling to Premier Oil. Premier will pay only $115 million of the initial price of $625 million if oil prices rise above $55/bbl. Prices have slumped around 40% this year, and in early June they stood at around $40/bbl.
Under the deal, BP will retain the $300 million that the North Sea fields generated through 2019, reducing the cash payment it was owed to around $210 million.
French major Total’s 12.5% stake in the Nigerian offshore block OML 118, which includes the Bonga, Bonga Southwest, and Aparo fields, is also up for sale as part of its bid to raise $5 billion from global asset sales.
The most prominent onshore package among farm-in opportunities is the Kenyan portfolio, where Total and Tullow Oil aim to reduce their stakes in a joint sale of blocks 10 BA, 10 BB, and 13T in the South Lokichar Basin in Kenya. The sale could see Tullow exit the blocks completely amid uncertainty over the project’s launch. Total, meanwhile, aims to sell up to half of its 25% stake in the Kenyan project. The entire project is valued at between $1.25 billion and $2 billion, though the development has not received a final investment decision.
Another major, ConocoPhillips, said in late May that it had completed the sale of its northern Australian business to partner Santos Ltd., which included a restructuring of the originally agreed-upon upfront cash payment.
The pair had previously announced the deal in October 2019 with Santos agreeing to pay $1.39 billion in cash for ConocoPhillips’ subsidiaries that hold its Australia-West assets and operations including interest in the Athena, Bayu-Undan, Bayu-Undan and Poseidon fields, the Barossa project, and the Darwin LNG facility.
When it comes to reserve volumes put up for sale, the majors are followed by industrial companies led by Japan’s Inpex. That company is looking to farm out its Australian operations, centered around the $45-billion Ichthys LNG project, among others. Although Inpex is selling all Australian operations, a divestment deal is unlikely to include the entire portfolio.
Along with Inpex, mining conglomerate BHP is considering a potential sale of its assets in Victoria’s Bass Strait fields as its Australian oil and gas production continues to decline along with long-term demand for hydrocarbons. ExxonMobil, which owns the remaining stakes in the Bass Strait fields, said last September that it would sell its 50% stake in the project.
Houston’s Black Stone Minerals said it entered into two separate agreements to sell certain mineral and royalty properties from its Permian Basin assets. Proceeds from the two separate deals worth about $155 million are earmarked to pay down debt and possibly boost distributions.
As part of the $155-million deal, $55 million will be collected from a “private buyer” for the mineral and royalty interests in Midland County, Texas; the second deal, worth $100 million, involves a 57% undivided interest across the company’s Delaware Basin position and a 32% undivided interest across the Midland Basin.
Pittsburgh-based EQT Corporation has closed a deal to sell certain nonstrategic assets in Pennsylvania and West Virginia to Diversified Gas and Oil PLC, for an aggregate purchase price of $125 million in cash. Proceeds from the sale have been used to improve EQT’s balance sheet and reduce debt.
In May, EQT temporarily curtailed approximately 1.4 Bcfe per day of gross production, equivalent to some 1.0 Bcfe per day of net production. The duration of the curtailment is subject to commodity price movements, relationships, and resulting economics, and could continue through the end of Q2 2020.