Oil Majors Offload Gulf of Mexico Fields to Hunt Bigger Finds
Big Oil is giving up looking for singles and doubles in the Gulf of Mexico: now it is home runs or bust.
Exxon Mobil and Royal Dutch Shell, the world’s two biggest oil companies, have put a slew of assets in the Gulf up for sale in recent weeks, while Brazil’s state-run Petrobras sold the bulk of its production in the region to mid-cap explorer Murphy Oil last week.
The majors are not leaving the Gulf altogether but they are shifting priorities. They are using oil’s climb to a four-year high above US$86 a barrel to offload older assets which are past their peaks to focus on bigger, more profitable discoveries, either in the deepest reaches of the Gulf or unexplored seas elsewhere in the world. The message is clear: Go big or go home.
“When oil was in the doldrums, companies were much happier to sit on assets which performed as expected,” said Oma Wilkie, a senior analyst at RS Energy Group. “But with Brent pushing US$80, they can hopefully get top dollar for assets that are OK but not the best in the portfolio.”
The sales come at a time when production from the Gulf has reached record levels — 1.85 million barrels a day — but has been dwarfed by the growth of onshore shale.
The region now makes up just 17 percent of US total production, down from 27 percent a decade ago.
Exxon, Shell and Petrobras may have all put ‘for sale’ signs up but their reasons for doing so are different.
Revamping Portfolios
For Exxon, cash is in high demand. The world’s biggest oil explorer by market value is ramping up spending on offshore plays such as Guyana and Brazil in a bid to revamp its struggling upstream division, where production has stagnated and returns lag those of peers.
Offloading older assets would boost the company’s average return on equity, a key metric for investors.
Exxon is “testing market interest” for several Gulf assets but “remains committed” to the region, where it also has refineries and chemical plants, the Irving-Texas based company said on the 3rd October.
Shell, which ranks alongside BP as the Gulf’s largest producer, has no plans to leave, having sanctioned giant new projects Appomattox in 2015 and Vito earlier this year. But it is in talks to sell US$1.3 billion of Gulf assets to Focus Oil, people familiar with the matter said last month.
Shell is looking to pay back debt from its purchase of BG Group in 2016 and invest in new projects such as a massive gas-export complex in Canada.
Shell spokeswoman Kim Windon declined to comment on asset sales. “Deep water is a growth priority for Shell,” she said. “Across the deep water sector in energy, we have an unmatched set of resource options from which to make competitive choices.”
Crushing Costs
Petrobras’s deal with Murphy was all about cash. The Rio de Janeiro-based explorer planned to sell US$21 billion in assets by the end of this year, but with less than three months to go and in the midst of a contentious presidential election cycle, the company is still well short of its goal.
The Murphy deal will generate cash and help the company share out investment costs, Petrobras said in a filing.
For buyers, the attraction of the Gulf is obvious. It provides reliable production, a vast pipeline network and ample access to shipping. Alongside Murphy, private equity-backed names such as LLOG Exploration, EnVen Energy and Ridgewood Energy have been cited as potential buyers.
Costs have fallen dramatically since the 2014-to-2016 downturn, making the Gulf more attractive to new entrants.
Rig rates have dropped by half while operators have figured out how to drill wells almost twice as fast as in 2014, according to Wood Mackenzie Ltd.
As such, explorers are moving deeper into the Gulf in the hunt for big new discoveries.
Some 25 rigs are under contract in the deepest waters compared with 12 in shallower seas, Evercore ISI said in a note last month. But to make big discoveries in the deep, it helps not to be weighed down by older assets elsewhere.
“It’s about selling assets which still have some meat on bone,” said Imran Khan, an analyst at Wood Mackenzie. “Then you can focus on your core portfolio.”
Source: Rigzone