Oil Mergers, Acquisitions Market Bound For Renaissance
December 02 2009 - 5:36PM
Dow Jones News
The global freeze on oil- and gas-company mergers and
acquisitions is beginning to thaw.
International oil companies such as ConocoPhillips (COP), Devon
Energy Corp. (DVN) and Chevron Corp. (CVX) are putting billions of
dollars of assets on the table--and there are plenty of prospective
buyers, particularly among state-ownedoil companies from
resource-hungry Asian countries, investment bankers and transaction
lawyers say. One continent--Africa--is also emerging as a hot spot
for rivalries between western and Asian oil companies competing for
a toehold in one of the last remaining energy frontiers open to
foreign investment.
Investment bankers are expecting transactions to heat up in the
next year, underscoring the fact that giant energy companies are
still betting on the medium-term growth of the world economy while
smaller ones need to unload expensive assets that they can't
develop.
"The market has been starved for supply for several years," said
Adam Waterous, head of Scotia Waterous, the oil and gas merger
& acquisitions division of Scotia Capital. Waterous, who is
advising Devon on its sale of Gulf of Mexico assets, said that
there are "several very well financed companies hungry to make
acquisitions."
Several factors underpin this renaissance: Energy prices are
less volatile than they were a year ago, when the unfolding
recession made crude and natural gas markets plummet and buyers and
sellers couldn't agree on the value of assets. "At the beginning of
the year, everyone was waiting for the market to settle," said
Robin Fredrickson, a partner specializing in oil and gas
transactions at Vinson & Elkins, a Houston-based law firm. Now
that energy prices seem firmer, "things can be bought and sold,"
she said.
At the same time, oil companies that drew
upenormouscapital-expenditure budgets when energy prices boomed are
now retrenching, focusing on projects they can easily develop at
lower oil and gas prices.
Debt-ridden ConocoPhillips said in October it was selling $10
billion in assets in order to put its financial house in order.
Devon Energy said last month that it aims to raise net proceeds of
about $4.5 billion-$7.5 billion by selling all its U.S. Gulf of
Mexico and international assets. Chevron, the second-largest U.S.
oil major, is seeking partners for a multi-billion-dollar gas
project in Indonesia, despite having one of the strongest balance
sheets in the business.
The sellers are confident that they'll be able to find buyers
for rare, capital-intensive assets, particularly among companies
from China, India and South Korea. "We see that, in general, Asian
buyers are continuing to be aggressive in their pursuit of natural
resources," said Michael Hill, Managing Director and Co-Head of the
Global Natural Resources Group at Deutsche Bank AG (DB), who is
also advising Devon Energy on its asset sale.
The interest is evident in Africa, one of the world's more
promising oil provinces. Anadarko Petroleum Corp. (APC) Chief
Executive James Hackett, whose company has a large presence in West
Africa, said in an interview that "most of the companies that you
can name, either international companies or national oil companies,
are interested."
Exxon Mobil Corp. (XOM) has agreed to buy a stake in Ghana's
Jubilee oilfield for $4 billion but is facing competing interests
from BP PLC (BP) and Chinese national oil company China National
Offshore Oil Corp (Cnooc). Also, Exxon and Total SA (TOT) are in
talks to buy acreage in Uganda from Dominion Petroleum (DPL.LN),
people familiar with the matter told Dow Jones Newswires
recently.
Cnooc has become much more aggressive in its hunt for resources.
In 2005, the company dropped out of a bid to acquire Unocal, a U.S.
company with major assets in the Gulf of Mexico that was eventually
bought by Chevron. But last month Cnooc acquired a small U.S. Gulf
stake from Statoil ASA (STO). Asian companies, once slowed down by
bureaucracy, have also learned to jump on deals more quickly, said
Waterous, of Scotia Waterous.
Brazil, with its recently discovered offshore oil and gas
bounty, is also attractive to international companies--but a recent
hydrocarbons law gives the national oil company, Petroleo
Brasileiro S.A (PBR), the commanding role in future developments.
That's why assets already in development could be attractive to
prospective buyers; Anadarko's Hackett confirmed last Monday that
the company would look at Devon's stake in the Itaipu prospect,
where Anadarko already has a 33% interest.
-By Angel Gonzalez and Isabel Ordonez, Dow Jones
Newswires;713-547-9214;angel.gonzalez@dowjones.com,
isabel.ordonez@dowjones.com
(James Herron and Benoit Faucon contributed to this story)
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