Upstream merger and acquisitions (M&A) deals are expected to rebound in Asia Pacific this year after plunging to their lowest level this century in 2020, when the pandemic and collapse in oil and gas prices killed activity.
Asia mergers and acquisitions are shaping up to be headlined by majors exiting countries as they prioritise divestments in a bid to streamline portfolios, reckons energy consultancy Rystad Energy.
“In 2020, assets worth more than $1 billion were put on the market or were rumoured to be on the table. Going forward, including assets put on the market previously, the value of potential deals could surpass $10bn,” reported Rystad.
AUSTRALIA AND NEW ZEALAND HOTBEDS OF MERGERS AND ACQUISITIONS ACTIVITY
Wood Mackenzie estimates around $12bn worth of upstream assets are for sale in Asia Pacific. Majors and large international oil companies (IOCs) will be the primary sellers of assets with more than half of the packages on sale coming from Australia and New Zealand. LNG opportunities make up almost 60% of the 5.8 billion barrels of oil equivalent (boe) of resources on offer. A further $26bn of assets could also come to market as corporate strategies evolve, estimated the energy research company.
The big deals on the market include Chevron’s sale of its share in the North West Shelf project in Australia, ExxonMobil and Repsol’s exits from Malaysia, and Chevron’s transfer of its stake in the Indonesia Deepwater Development (IDD). ExxonMobil is also expected to farm-down its Ca Voi Xanh (Blue Whale) gas project in Vietnam and Shell is trying to divest its stake in the giant Abadi field in Indonesia.
The most likely Asian national oil company (NOC) to start selling in 2021 will be Indonesia’s Pertamina as it seeks to farm-down stakes in some of its key domestic assets taken over from IOCs exiting Indonesia.
Alay Patel, an analyst at Wood Mackenzie, believes the recovery in oil and gas prices should help bring buyers and sellers closer on price expectation, while ongoing consolidation among upstream producers in North America has driven a sharp uptick in global M&A, likely pushing more non-core Asia Pacific assets into the market.
This is raising hopes that long-anticipated deals in Australia, Malaysia, Vietnam and elsewhere could finally get done. Much will need to go right, but by the end of this year, Asia Pacific could well see signs of a refreshed corporate landscape and companies looking again to growth, said Gavin Thompson, Asia Pacific vice chairman at Wood Mackenzie. Although, he cautioned, “sounds great, but of course challenges remain.”
PLENTY FOR SALE, BUT WHO’S BUYIN’?
The recent withdrawal of Eni and ExxonMobil’s asset packages in Australia underscores the challenge sellers face finding the right buyers, Andrew Harwood, Asia Pacific research director at Wood Mackenzie told Energy Voice.
“Regional players are the most likely buyers, be it infrastructure funds in Australia, late-life players in Southeast Asia, or NOCs picking up assets in their own backyard. New private players may emerge but finding funds for upstream acquisitions will be tough given the current uncertainty around oil prices and the long-term demand,” added Harwood.
Significantly, infrastructure funds and private equity-backed entities such as Neptune, Trident and Chrysaor are stepping up their opportunity screening. Late-life asset specialists including Perenco, Jadestone and Hibiscus will be active, as will ambitious regional players like Indonesia-based Medco Energi.
Nevertheless, it is possible that the region will experience another lacklustre year of M&A activity. This would have serious implications for future investment in the region.
“It could mean higher production declines at mature projects, a lack of investment in new supply, and an acceleration of abandonment liabilities, many of which would end up in the hands of the region’s NOCs and governments,” said Harwood.
“An active M&A market is an indicator of the health of a region’s upstream sector and its ability to attract new investors – a lack of buyer interest should be a warning sign to regulators, and a spur to improve the conditions for oil and gas investment, or to start planning for alternative sources of energy and government revenue,” he added.
Last year was the quietest 12 months for upstream deals in the Asia Pacific region since the start of the 21st century. A paltry $500 million total upstream deal spend was recorded in the region with 110m boe in 2P reserves changing hands, data from Wood Mackenzie showed.