The energy transition is expected to be a major driver of the future of Australia’s upstream M&A, says Wood Mackenzie.
The double whammy of the oil price crash in March and impact from the coronavirus pandemic have sharpened upstream operators’ strategies and highlighted the need for portfolios to be robust through the cycles.
In Australia this means a lot of assets have already been put on the market – up to US$10 billion – and a lot more are on the way. Wood Mackenzie has identified three key drivers for this re-shaping of the corporate landscape.
In the short term, renewed emphasis on portfolio rationalisation and deleveraging balance sheets is pushing non-core assets onto the market. The third driver, the energy transition, is a longer-term factor, but it could have the most impact of them all.
Together, these three factors could propel a further US$17 billion of assets into Australia’s upstream M&A market, not including the US$10 billion of asset sales already announced.
Wood Mackenzie senior analyst David Low said: “The goals of most upstream operators are getting simpler: squeeze maximum value from existing operations, and divest mature, non-core, onstream low-margin and/or carbon-intensive assets where possible.”
The Australasia market is on the frontline of the biggest issues currently confronting the upstream industry, as it has a range of late-life, high carbon, and marginal assets, all struggling to attract capital.
The increased scrutiny on carbon emissions is transforming the upstream corporate landscape. The European majors have set the tone, with ambitions to restructure portfolios that are more resilient to future change, and with new business priorities and goals, including net-zero carbon ambitions.
Low said: “A lighter upstream carbon footprint is essential to achieving this goal. The majors’ Australasian portfolios are up to two times more carbon-intensive compared to their global average. If energy transition targets are to be hit, this means more upstream M&A activity in region.”