Over US$200b oil and natural gas assets up for sale globally from prolonged commodity rout

Natural gas flares are seen at an oil pump site outside of Williston, North Dakota.
Natural gas flares are seen at an oil pump site outside of Williston, North Dakota. PHOTO: REUTERS

TOKYO (BLOOMBERG) - More than US$200 billion (S$278.8 billion) worth of oil and natural gas assets are for sale globally as companies come under renewed financial pressure from the prolonged commodity price rout, according to IHS Inc.

There are about 400 buying opportunities as of September, IHS Chief Upstream Strategist Bob Fryklund said in an Oct 8 interview. Deals will accelerate later this year and into 2016 as companies sell assets to meet debt requirements, he said. West Texas Intermediate crude has averaged about US$51 a barrel this year, more than 40 per cent below the five-year mean.

Low prices have slashed profits and as of the second quarter about one-sixth of North American major independent crude and gas producers faced debt payments that are more than 20 per cent of their revenue. Companies have announced US$181.1 billion of oil and gas acquisitions this year, the most in more than a decade, compared with US$167.1 billion the same period in 2014, data compiled by Bloomberg show.

"Basically almost everything is for sale," Mr Fryklund said. "Low cycles are when a lot of these companies can rebalance their portfolios. In theory, this is when you upgrade your existing portfolio."

Companies with strong balance sheets are seeking buying opportunities, said Mr Fryklund, citing Australia-based Woodside Petroleum's US$8 billion offer for explorer Oil Search Ltd. and Suncor Energy's US$3.3 billion bid for Canadian Oil Sands. Both targets rejected initial offers.

As of August, one out of every eight junk-rated oil companies was in danger of defaulting, according to Moody's Corp. WTI plunged below US$40 a barrel in August, to the lowest price in six years. The grade added 0.3 per cent to US$46.81 a barrel on the New York Mercantile Exchange at 11:36 am in Tokyo.

Next year the US benchmark may trade around US$55, said Mr Fryklund. It will take several years for supply and demand to rebalance and prices may rise to about US$70 a barrel by 2018, he said.

"These down cycles are really great for defining the winners for the next cycles," said Fryklund. "The ones that have cash right now, the ones that have good financials are seeing lots of opportunities."