By Sarah McFarlane, Ben Dummett and Benoit Faucon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 5, 2020).
Before Covid-19 and the oil-price rout, most of the world's
biggest energy companies had planned to sell billions in assets to
help pay down debt and maintain dividends. Now, those divestment
programs are in jeopardy.
Since the start of the year, BP PLC, Exxon Mobil Corp. and
Occidental Petroleum Corp. have had major asset sales restructured
or delayed indefinitely as coronavirus lockdown restrictions
decimated energy demand and oil prices fell by two-thirds.
Oil companies have moved to slash costs and spending as prices
have plunged. In the most extreme cases, some have cut dividends.
Many leadership teams in the industry had previously seen asset
sales as a way to strengthen finances but their options are
narrowing as buyers focus on conserving cash and banks rein-in deal
financing as the possibility of a global recession becomes more
likely.
"There's massive uncertainty on what the world's going to look
like post this virus and what it means for oil and gas prices, so
buyers will be hesitant to commit capital," said Biraj Borkhataria,
co-head of European energy research at RBC Capital Markets.
The slide in oil prices is threatening the sector's most
extensive divestment program -- Exxon's plan to raise $25 billion
from asset sales by 2025.
The company has indefinitely postponed the sale of $2 billion in
oil and gas assets in the North Sea. Earlier this year, the company
hired advisers to launch the sales process but the effort has been
delayed due to market conditions, according to two people familiar
with the matter.
Exxon remains motivated to sell some of its assets but will have
to find interested buyers to do so, said Chief Executive Darren
Woods on Friday. "It's going to be harder to do that in an
environment like this, where people are strapped of cash, so I
would expect to see that divestment program slow," he said.
Exxon declined to comment on the delayed sale of its North Sea
assets.
Occidental's $8.8 billion deal to sell Anadarko's assets in
Africa to France's Total SA is facing obstacles in some countries,
placing at risk its ability to raise the full proceeds. Its sale of
oil and gas operations in Mozambique and South Africa have closed,
but the Algerian government has withheld approval of the asset sale
there, said two people familiar with the matter.
Occidental declined to comment and the Algerian oil ministry
didn't respond to a request for comment.
Total's plan to divest $5 billion through 2019 and 2020 has also
hit snags.
In July, Petrogas NEO U.K. Ltd., the exploration and production
arm of the Oman-based conglomerate MB Holding, agreed to purchase
Total's oil fields in the North Sea for $635 million. Now the deal
looks uncertain, according to two people familiar with the matter,
because Petrogas -- which joined with Norway-based private-equity
investor HitecVision for the deal -- has had difficulty financing
the purchase.
Total declined to comment on any of its deals. HitecVision also
declined to comment and Petrogas didn't respond to a request for
comment.
British energy giant BP said last week that the environment is
challenging but its plan to sell $15 billion of assets by mid-2021
is on track. Last month the company said it had renegotiated the
financial terms of its deal to sell its $5.6 billion Alaska
business to privately held Hilcorp Energy Co. in response to a
sharp sell off in crude prices and the difficult financing
environment.
Similarly, BP will likely need to consider agreeing to new terms
if it wants to complete its planned $625 million sale of North Sea
oil and gas fields to Premier Oil PLC following the sharp selloff
in Premier's stock price, according to people familiar with the
matter. Under current terms, Premier plans to raise $500 million
from issuing new shares to help fund the purchase, but the
company's value has slumped to about $308.7 million from more than
$1 billion since announcing the deal in January.
Premier Oil and BP declined to comment.
As oil prices stabilize, analysts say companies looking to raise
dividends or accelerate their transitions to lower carbon energy
will have to make hard decisions about whether to sell assets in a
buyer's market.
"The caliber of the pipeline of assets that were previously up
for sale will have to be significantly improved in order to attract
buyers," said Christyan Malek, JP Morgan's head of oil research for
Europe and the Middle East.
Shell said last week that it would reduce its dividend by 66% to
16 cents a share, its first cut since World War II -- and a sign of
the stress that the coronavirus pandemic is causing for major oil
companies. The company said it remains committed to selling more
than $10 billion of assets by the end of this year but indicated it
will be difficult.
"The environment is not very supportive to the full spectrum of
divestments we intended to make in the year," said Jessica Uhl,
Shell's chief financial officer.
--
Christopher M. Matthews
contributed to this article.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com, Ben Dummett
at ben.dummett@wsj.com and Benoit Faucon at
benoit.faucon@wsj.com
(END) Dow Jones Newswires
May 05, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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