Analysis – A mountain of asset sales looms after the era of oil megamergers

By Shariq Khan, Sabrina Valle and Arathy Somasekhar

(Reuters) – U.S. oil and gas companies could face an uphill struggle to sell about $27 billion in assets to finance investor payouts in the coming years as the biggest wave of energy megamergers in 25 years nears the end of regulatory reviews.

Share buybacks and dividends are necessary to attract investors back into an industry that many have shunned due to volatile returns and pressure to decarbonize portfolios. Energy stocks represent just 4.1% by weight of the S&P 500, a third of their 2011 share, as investments in technology and healthcare have soared.

But finding new owners for these properties is unlikely to be quick or easy, bankers and analysts warn. There are fewer interested institutional and European oil buyers and there is a lack of money available to finance these deals. Private equity firms that once bought Big Oil’s waste have turned to energy transition, social impact and renewable investments.

The scale of the mergers is unprecedented, with $180 billion coming from six deals since October. Driven by a rush to add oil reserves that can be exploited in the future, most of these deals are expected to be completed this year and will trigger an explosion of oil wells, pipelines, offshore fields and infrastructure packages onto the market. . The lack of ready buyers suggests the sales will take time and could turn into asset swaps rather than cash sales.

Three acquirers – Chevron, ConocoPhillips and Occidental Petroleum – have committed to raising between $16 billion and $23 billion combined from post-closing sales. Exxon Mobil, the lead negotiator, did not disclose a divestment target. But it has raked in $4 billion a year in sales revenue since 2021.

In addition to fewer international and private equity buyers, more intense regulatory reviews have slowed marketing takeoff. Some investment bankers believe divestments could occur next year.

COMING TO THE MARKET

Exxon, which bought Pioneer Natural Resources for $60 billion in May, plans to sell a collection of conventional oil and gas properties across the Permian Basin to focus on higher-growth assets, a spokesperson confirmed. .

Conoco is set to sell gas properties in Western Oklahoma acquired in its $22.5 billion Marathon Oil deal, and Chevron will likely place some of Hess’ offshore assets in Asia alongside its Canadian and northern gas packages. -Americans now on the bloc, people familiar with the matter said. on condition of anonymity because regulatory reviews are ongoing.

Occidental has prepared a sale of shale assets in West Texas that could bring in $1 billion and could add offshore assets in the Gulf of Mexico and the Middle East once its acquisition of CrownRock closes, analysts say.

The story continues

Exxon confirmed it is exploring the sale of select conventional petroleum assets in West Texas and New Mexico “consistent with our strategy of continually evaluating our portfolio.” It has not set a new asset sales target since the Pioneer deal.

Conoco and Occidental declined to comment on their asset sales targets.

A Chevron spokesman said after the Hess closing “we will add some assets that will be highly attractive” to other companies. It could generate between $10 billion and $15 billion in pretax income by 2028.

OBSTACLES REMAIN

“These are not the best assets in the sector,” said Luis Rhi, portfolio manager at asset management firm Barrow Hanley Global Investors, who believes companies can afford to wait until asset markets improve.

“There is a real disconnect between the assets available and the dollars raised to purchase those assets,” David Krieger, managing partner at Houston-based energy investment firm Covalence Investment Partners. “Dry powder for oil and gas investments is a fraction of what it used to be,” he said.

European oil majors, devastated by previous forays into U.S. shale, are unlikely to return, said Brian Williams, managing director at investment bank Carl Marks Advisors. They have “completed their education” and largely abandoned U.S. shale, he said.

Small companies backed by private equity don’t have the capital for these businesses, energy consultants say. In 2023, just 78% of announced oil deals cost less than $1 billion, compared to 94% in 2019, according to mergers and acquisitions advisory firm Petrie Partners.

“There aren’t many sub-$1 billion acquisitions happening,” said Todd Dittmann, who has been investing in energy for several decades, most recently for Angelo Gordon & Co.

“There is an exit problem in private energy capital and partners are not happy about it,” he said.

WHO LEFT?

Privately held oil companies, including Hilcorp, which specializes in buying mature fields, small publicly traded oil producers and Asian and Middle Eastern investors are best positioned. Japanese companies have recently shown more interest in U.S. natural gas, bankers say.

Hilcorp, founded by billionaire Jeffery Hildebrand, “is eager” to take a look at Big Oil’s waste, said a person familiar with the company.

Elsewhere, “We continue to see interest from parts of the globe outside of Europe – Asia, the Middle East and other areas – where there is a willingness to get involved and mobilize capital,” said Bruce On, partner in the strategy and transactions group.

Many properties in the top U.S. shale field will be traded or held for their cash flow, said Andrew Dittmar, director of mergers and acquisitions at energy analytics firm Enverus.

“There will be a lot of ammunition for barter and negotiation” in West Texas and New Mexico, he said.

(Reporting by Shariq Khan, Sabrina Valle and Arathy Somasekhar; additional reporting and writing by Gary McWilliams; editing by Anna Driver)