In four separate deals announced in one day – 9th March, the oil and gas sector is showing signs of the optimistic 2017 corporate and M&A outlook forecast at the start of the year.
Wood Mackenzie provided insight on the strategic implications of these four deals announced on the 9th March 2017:
- Deal#1: Shell sells down in the Canadian oil sands, to CNRL, for US$8.5 billion
- Deal #2: Shell and CNRL combine to buy Marathon’s oil sands interests for US$2.5 billion
- Deal #3: Marathon spends US$1.1 billion on Permian tight oil acreage
- Deal #4: ExxonMobil acquires a 25% stake in ENI’s Mozambique Area 4 LNG project for US$2.8 billion
"The nearly US$15 billion of upstream M&A transactions on the 9th March were driven by oil and gas companies moving lower down the oil cost curve and leveraging core competencies," says Tom Ellacott, senior vice president of corporate analysis research at Wood Mackenzie.
The strategic implications of the two announcements by Shell:
Shell's two agreements with Canadian Natural Resources (CNRL) and Marathon Oil underlines just how serious it is about re-shaping its portfolio around fewer, more advantaged geographies and resource themes.
• Moving down the oil cost curve and lowering carbon intensity: Shell will exit high cost barrels that will struggle to compete for capital in its portfolio with low breakeven oil opportunities in pre-salt Brazil, the Gulf of Mexico and Permian tight oil. The deal will also reduce Shell’s exposure to what are among its most carbon-intensive oil developments, elevating its core integrated gas “cash engine” within the portfolio.
• Deleveraging progress: the net cash consideration of US$4.15 billion will reduce Shell’s gearing by one percentage point. But Shell will lose nearly 160 kb/d of long-life oil price leveraged production assuming a complete exit (entitlement basis, 4% of total 2017 volumes). Shell is fast closing in on its disposal target. Wood Mackenzie estimates that US$19.4 billion of deals have been announced to date. This includes US$13 billion from upstream, even though the upstream asset market has been challenging. Future disposal candidates include non-core country exits; at least five could be on the cards. The company may hit its target well before the end of 2018.
Shell is fast closing in on its disposal target. Wood Mackenzie estimates that US$19.4 billion of deals have been announced to date. This includes US$13 billion from upstream, even though the upstream asset market has been challenging. Future disposal candidates include non-core country exits; at least five could be on the cards. The company may hit its target well before the end of 2018.
Implications of ExxonMobil's 25 per cent stake in ENI’s Mozambique Area 4 LNG project for US$2.8 billion
What does this deal mean for Eni?
This is a welcome deal for ENI and marks another historic milestone.
Having recently sold a 40 per cent interest in its giant Zohr field offshore Egypt, combined asset sales over the last three months are now US$5 billion. The deal demonstrates the value that ENI has created from its top performing exploration-led growth strategy in recent years.
Eni will reduce expenditure on its largest project over the next decade but will maintain a large equity interest in this long-life asset, to fulfil its ambition of becoming a more integrated and global LNG player by 2025.
The deal brings ExxonMobil’s financial backing, proven LNG project execution track record and marketing expertise to strengthen the onshore project as the partners look to achieve sanction in the next two years.
ExxonMobil will operate the onshore LNG project while Eni will continue to operate Coral FLNG and the upstream development.
What does this deal mean for ExxonMobil?
This is ExxonMobil’s third bottom-of-the-cycle acquisition, bringing the total to almost US$11 billion. The company has struck a good balance between:
1. accessing low breakeven tight oil (US$5.6 billion Delaware acquisition) and
2. responding to Shell’s position as the leading LNG player, first through the InterOil deal and now by entry into Mozambique.
This transaction will add a further 585 mmcfd of long-life production from the middle of next decade, further strengthening a leading long-term outlook. It also increases the weighting of gas in the longer-term production outlook (oil:gas ratio falling from 60 per cent currently to 50% by 2030).