Asian Buyers Are Scooping Up Dirt Cheap Oil Assets

When a week ago, Rystad Energy reported that the oil and gas industry was divesting more than 12 billion barrels of oil equivalent in assets, it hardly came as a surprise. Asset sales, along with layoffs, are the default reaction of the industry to hard times.  But is anyone buying?

It has been said time and again, but it’s worth noting nonetheless: This oil crisis is not like the ones before it. It is, above all, a demand crisis rather than a simple imbalance between supply and demand. And, also unlike in previous price crashes, even the oil executives don’t know if demand will ever return to pre-crisis levels. In fact, some believe it might never recover fully. And this makes selling assets a tad harder than it would have been otherwise.

There are already signs of that. 

BP had to slash the price of the North Sea assets it was selling to Premier Oil by half, to $210 million, plus oil-price linked payments. It also had to revise the terms of its Alaska asset sale to Hilcorp Energy. Meanwhile, Total walked out of not one, but two asset acquisition deals with debt-laden Occidental, one for assets in Ghana and one for business in Algeria.

Total’s motivation for the decision could not be clearer: the company’s CEO, Patrick Pouyanne, said that Total was walking out because of “the extraordinary market environment and the lack of visibility that the group faces.” He added that refraining from the acquisition of Oxy’s African assets would make Total more financially flexible. It is also worth noting that while it shunned the oil and gas assets of Oxy, Total is happily expanding its solar and wind presence through asset acquisitions. Related: The Unique Ways Oil Companies Are Looking To Avoid Bankruptcy “Many players are trying to divest their low-priority assets, while others are considering this the right time to break into the industry or expand their portfolios by acquiring these assets at a lower price,“ said Rystad’s senior upstream analyst Siva Prasad in the asset sale report.

Meanwhile, some like Occidental simply must sell assets because they have maturing debt coming soon, and they need every dollar they can get to keep paying that debt.

This is what usually happens in an oil price crisis. This is what happened last time, too, with a lot of private equity-backed companies taking over the North Sea from the supermajors who at the time retrenched and tried to become leaner to weather the crisis. It will be interesting to see if there will be a repeat of this scenario or if this time, private equity will look for other venues to deploy its capital.

There is another difference from the last crisis besides the events that brought it about: The climate change narrative has gained a lot of strength since 2014. Everyone in the industry has some sort of environmental responsibility plan. The supermajors have more than that—they are planning to become net-zero companies in the next few decades, and they might simply not need as many oil and gas assets over the long term.

Eni, for instance, is selling natural gas assets in Australia that will reduce its presence in the country to virtually non-existent. The sale should fetch about $1 billion, according to unnamed Reuters sources, but more importantly, it is not a sale of low-quality assets. On the contrary, Eni’s operations in Australia are in domestic gas sales, which means they were not affected by the international demand drop in both oil and gas. And yet the Italian major has to sell to raise cash.

Maybe Eni needed the cash and did not have any other assets with which it could easily and lucratively part. Or maybe the Italian company is looking at the long term, when it will, as per its own pledge, be producing a lot less oil and a lot more energy from renewables.

So, many are selling--but who’s buying? Local companies, in the case of BP’s North Sea sale and Conoco’s Australian asset sale to Santos. That was a sale that was agreed earlier, by the way, not a fire sale prompted by the crisis. But it seems that the new starts on the acquisition scene are coming from Asia. 

Related: Bulls Beware: A Dark Cloud Is Forming Over Oil Markets

In March, Australia’s Santos sold a 25-percent stake at the Darwin LNG project and the Bauy-Udan gas condensate field to South Korea’s SK E&S for $390 million. Exxon has put up its 6.8-percent stake in the Caspian Azeri-Chirag-Guneshli field in Azerbaijan for sale again, after shelving it earlier. The reason? Interest from Asian companies.

According to a Reuters report from May, energy companies from China, India, and Indonesia were among those eager to tap a cheap oil asset market while it lasted. Perhaps Asian energy companies will do the job of PE-backed firms this crisis around. Perhaps some of the assets put up for sale will be pulled off the market now that prices are on the rebound. And perhaps even if the rebound never really happens, some, like Oxy, will be forced to sell at low prices to get some urgently needed cash. In any case, we may see some interesting changes in asset ownership in the world’s oil fields.

By Irina Slav for Oilprice.com 

More Top Reads From Oilprice.com:

• Oil Infrastructure Operators Grapple With A New Energy Reality
  
• The Most Dramatic Year In The History Of Oil
  
• Oil Prices Crash On Second Wave Of COVID-19