Big Oil back to buying as outlook brightens

LONDON • The world's top oil companies are back in acquisition mode, targeting smaller exploration and development firms to boost oil and gas reserves rather than the mega- mergers that followed previous slumps in crude prices.

Since November, major oil companies have announced 11 deals worth more than US$500 million (S$714 million) each, with a combined value of US$31 billion, the clearest sign yet that oil executives are more confident a recovery is underway.

When crude prices collapsed in the second half of 2014, large oil firms slashed spending on exploration and production, and offloaded assets to reduce debt so they could cope with lower revenue from oil and gas sales.

But with crude reservoirs declining at a rate of 10 per cent a year in some cases, major oil firms are now looking to snap up assets and there are plenty of smaller firms burdened with debt looking to sell.

"You're seeing the majors sharpening their pencils after a long while and actually flipping around from disposals to acquisitions," said Mr Tony Durrant, chief executive of British energy firm Premier Oil, which is looking to sell several stakes in its North Sea operations.

Total acquisitions of oil and gas fields, known as upstream assets, tripled to US$31 billion in December from a month earlier, when the Organisation of the Petroleum Exporting Countries (Opec) agreed to cut output for the first time in eight years, according to data from consultancy Energy Market Square.

BP announced a string of investments in the last two months of last year, including a US$1 billion partnership with Kosmos Energy in Mauritania, as well as acquisitions in Abu Dhabi and Azerbaijan.

The British company also spent US$375 million on a 10 per cent stake in Eni's giant Zohr gas field in Egypt, while Russian oil giant Rosneft bought a 30 per cent stake of the same field for US$1.57 billion.

France's Total and Norway's Statoil bought into Brazil's lucrative sub-salt deepwater oil fields, while ExxonMobil bought assets in Papua New Guinea to meet growing Asian demand for liquefied natural gas.

The trend continued this month, with Total boosting its stake in Uganda's Lake Albert oil project by snapping up most of Tullow Oil's stake for US$900 million.

ExxonMobil and Noble Energy also struck deals worth nearly US$10 billion combined for a larger slice of the Permian Basin, the largest United States oil field.

More deals are likely this year as the large overhang of crude oil in the world that has weighed on the market since 2014 continues to clear and oil prices rise.

"When you can cut capital spending, three years later you see production decline and reserves depleting and you have one choice only and that is going after high quality resource," said Mr Sachin Oza, co-manager of the Guinness Global Oil and Gas Exploration Trust.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 20, 2017, with the headline 'Big Oil back to buying as outlook brightens'. Print Edition | Subscribe