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A Fascinating Week For M&A Activity

With oil prices having enjoyed amazing weekly gains on the back of the OPEC production cut deal, tight markets and a string of sanctions - something’s got to give, and on Friday morning it started, with prices shedding 2%. Following the end of sanctions waivers for Iranian crude, the market is expected to further tighten, and OPEC countries could raise output if demand necessitates. What the Saudis seem to be hoping for is a narrow spread between WTI and Brent crude, so watch for production adjustments to ensure that WTI stays in the range between $70-$80.

Prices aside, this week has seen the relatively unchanged continuation of the conflict in Libya, bringing us no closer to the endgame, as well as a political-crisis regarding the leadership of Algeria’s sate-run Sonatrach, and - perhaps most interestingly - all-out corporate warfare in the juiciest part of the American shale patch ...

Fascinating M&A Activity from Permian to North Sea

There are vast amounts of ego floating around the oil patch right now. Last week’s excitement over Chevron’s $33-billion bid for Anadarko’s Permian Basin assets was followed by some unusual activity in oil markets this week in the form of an unexpected bidding war. Bidding wars aren’t par for the course in the oil industry, so when Occidental broke the unspoken rules by making a public $38-billion offer for Anadarko in an attempt to derail Chevron’s deal, it was not well-received by certain groups – including OXY shareholders. Indeed, OXY stock lost 4% following the announcement, but has since pared its losses. Chevron’s shares also took a hit, but Anadarko is soaring, with stocks gaining nearly 12% on the news.

What happens next? Well, breaking up with Chevron over this would cost Anadarko $1 billion in fees, and would mean giving up the idea of becoming one of the top four oil companies, directly competing with the likes of Exxon. Throwing in with Occidental would mean the less-dramatic marriage of two second-tier producers. Chevron can up its bid now, but it’s already offering more beyond cash.

But we’d also like to take you across the Atlantic, to the North Sea, where big things are happening that escape mass media attention. M&A activity is heating up here, too - particularly in the British section of the oil and gas rich basin. Just this week there were two acquisition announcements from the region (detailed below) involving supermajors Shell, BP, and Chevron. The deals are the latest indication that North Sea oil and gas is still attractive despite relatively higher costs.

But what should be most interesting to investors is the change in ownership patterns.

Private equity-backed independents first stepped onto that scene a few years ago, in the wake of the 2014 price collapse, buying assets the supermajors were shedding to cut costs and weather the crisis. Today, the largest oil and gas producer in the area is not a supermajor; it’s Chrysaor, which has only been in existence for a decade but now produces the most oil and gas in the North Sea, at about 180,000 bpd of oil and gas, ahead of supermajors such as Total, BP, and Shell.

And it’s got further plans for growth, too, through acquisitions. It also plans to enhance production at the assets it already operates. The slew of recent deal suggests the field ownership sift is far from over and we can reasonably expect more asset sales as supermajors double down on their core operations and/or seek to shrink debt amassed in their own acquisition activities.

Renewables Look to the Waterways

Fields of wind turbines and solar panels are becoming controversial in some parts, forcing the industry to come up with solutions. Dutch engineers are embarking on a highly ambitious project to build an archipelago of islands of solar panels. While they won’t be the first, this project looks set to be the biggest so far.

From the UK and the Netherlands to China and Japan, water-based solar islands are in the works, and the Dutch team plans to build 15 of these solar islands. In all, the archipelago will house over 73,000 panels and will trace the sun.

Construction has already begun and the first cluster is set be completed by November this year.

Tech advancements in this area of renewables are moving at breakneck speed. Not only is solar now floating, but it’s also more efficient with the development of sun-tracking technology.

So where does this leave the U.S.? Right now, solar panels (land-based ones hogging up real estate) only generate about 1 percent of the country’s energy needs; however, the Fed’s National Renewable Energy Lab says that if we used even one-quarter of America’s man made reservoirs to house floating solar with sun-tracking, it would generate 10% of our energy needs. The systems have been dubbed “floatovoltaics”, and of the 100 installations worldwide, the U.S. houses only seven - most in California. The bulk of them are in Japan.

For investors still hesitant to get in on solar, look to the water instead because this is where the solar future is shaping itself for something more than 1%.


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