A new report by Wood Mackenzie has stated that with the four separate deals announced in one day – March 9, 2017, the oil and gas sector is showing signs of the optimistic 2017 corporate Mergers and Acquisition (M&A) outlook forecast at the start of the year.
Wood Mackenzie’s latest analysis provided insight on the strategic implications of these four deals, which include: the sale of Canadian oil sands to Canadian Natural Resources (CNRL) for $5 billion by Shell; the acquisition of Marathon’s oil sands interests for $2.5 billion by Shell and CNRL; the investment of $1.1 billion on Permian tight oil acreage by Marathon Oil and the acquisition of 25 per cent stake in ENI’s Mozambique Area 4 LNG project for $2.8 billion by ExxonMobil.
“The nearly $15 billion of upstream M&A transactions on the March 9, were driven by oil and gas companies moving lower down the oil cost curve and leveraging core competencies,” said Senior Vice President of Corporate Analysis Research at Wood Mackenzie, Tom Ellacott.
Providing the strategic implications of the deals, Wood Mackenzie said Shell’s two agreements with Canadian Natural Resources (CNRL) and Marathon Oil underlined how serious it was about re-shaping its portfolio around fewer, more advantaged geographies and resource themes.
According to the report, the deal will help Shell move down the oil cost curve and lower carbon intensity as it will reduce Shell’s exposure to what are among its most carbon-intensive oil developments, elevating its core integrated gas “cash engine” within the portfolio.
Shell will exit high cost barrels that will struggle to compete for capital in its portfolio with low breakeven oil opportunities in pre-salt Brazil, the Gulf of Mexico and Permian tight oil, the report said.
The report also noted that the net cash consideration of $4.15 billion will reduce Shell’s gearing by one percentage point.
It however, added that Shell will lose nearly 160, 000 barrels per day of long-life oil price leveraged production assuming a complete exit (entitlement basis, four per cent of total 2017 volumes).
“Shell is fast closing in on its disposal target. Wood Mackenzie estimates that $19.4 billion of deals have been announced to date. This includes $13 billion from upstream, even though the upstream asset market has been challenging.
Future disposal candidates include non-core country exits; at least five could be on the cards. The company may hit its target well before the end of 2018,” the report said.
On the implications of ExxonMobil’s 25 per cent stake in ENI Mozambique, Wood Mackenzie noted that having recently sold a 40 per cent interest in its giant Zohr field offshore Egypt, ENI’s combined asset sales over the last three months are now $5 billion.
“The deal demonstrates the value that ENI has created from its top performing exploration-led growth strategy in recent years. Eni will reduce expenditure on its largest project over the next decade but will maintain a large equity interest in this long-life asset, to fulfil its ambition of becoming a more integrated and global LNG player by 2025,” the report said.
According to Wood Mackenzie, the deal brings ExxonMobil’s financial backing, proven LNG project execution track record and marketing expertise to strengthen the onshore project as the partners look to achieve sanction in the next two years.