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Independents seize Southeast Asia M&A initiative

As the majors exit, ambitious small and mid-sized entrants are challenging NOCs' dominance in the asset purchase market

Philippine conglomerate Udenna’s purchase of a 45pc stake in Chevron’s offshore Malampaya field on 13 November may signal that a shift is underway in the regional M&A scene, as majors with an eye on divestment offload Southeast Asian assets.

The entry of Davao City-based Udenna— with interests from retail petroleum and infrastructure to tourism and fast food—into the $4.5bn Malampaya project suggests that national oil companies (NOCs) face competition for deals resulting from the vast disposal programmes of majors refocusing on US deepwater and shale.

The executive chairman of Malaysia’s Dialog Group, Ngau Boon Keat, said in November that his oil and gas services firm was mulling the acquisition of mature fields in his country operated by ExxonMobil. “Old fields are not so interesting to them [US majors], they are very interesting to us”, he told a press conference.

Brad Roach, partner and head of Gibson Dunn’s oil and gas practice in Asia, sees it as an emerging trend. “Over time we will see more emerging domestic E&P companies and cashed-up local conglomerates taking part in regional sales as they expand and take advantage of majors’ exits.”

NOC advantages

NOCs in the region have historically had a number of competitive advantages for southeast Asian purchases as they enjoy access to more capital, a longer time horizon and often less demanding stakeholders than, say, private equity (PE) backed ventures.

Chevron’s other major divestment deals in the past five years—it has a 2018-20 inclusive divestment target of $10bn—were with NOCs. For example, it has agreed to hand over the Rokan field in Indonesia’s East Kalimantan to Pertamina when the production sharing contract (PSC) expires in 2021 (see page 60), and the Erawan and Bongkot fields in Thailand to its NOC PTTEP by 2022.

Private equity has failed to gain a foothold in the region’s upstream

“Buyers of Asian assets will need to have experience if they want to derive more value out of mature fields or develop new resources, so it makes sense for an experienced NOC, mid-sized E&P or independent player to take part,” says Parul Chopra, an analyst at Rystad Energy. One notalble regional deal was US independent Murphy Oil divesting its $2.1bn Malaysian portfolio in March to a subsidiary of PTTEP.

Despite Dialog Group’s ambitions, analysts say regional NOCs will likely lead the pack for ExxonMobil’s planned $3bn sale by 2021 of 35 Malaysia offshore oil and gas platforms, due to national energy security—the operations produce 15pc of Malaysia’s 600,000bl/d crude oil and 50pc of its 2bn ft³/d natural gas.

“The list of potential candidates that can afford such a large portfolio is fairly limited. Then there is the issue of Petronas’ approval, given that these are strategic legacy assets,” says Roach, who led the Gibson Dunn team that advised Murphy on the divestment to PTTEP. He notes geopolitical issues are becoming increasingly important as governments are encouraging NOCs to invest “closer to home” to meet growing domestic requirements.

Failure to launch

This lopsided playing field has dented PE’s ability to gain a foothold in the region’s upstream, in contrast to its successes in the North Sea, Africa and the US, despite concerted efforts.

$10bn Chevron’s divestment target by 2020

Singapore-based upstream oil and gas company KrisEnergy—co-founded by First Reserve, which sold its interest in April 2018—filed for a six-month moratorium in August while it restructures debt of $476.8mn. In 2016, Blackstone Group had to scrap a regional energy venture after it could not find attractive deals. Mandala Energy, a southeast Asia-focused oil and gas company backed by KKR, has not expanded in Indonesia beyond its 2015 Lemang PSC.

“Private equity in Asia has not seen the same traction as elsewhere, and this is likely [to continue] because while there seems to be a lot of regional opportunities, those that meet these firms’ criteria on key aspects such as rate of return, within the desired timeframe, are few and far between,” says Roach.  

Rystad’s Chopra says that regulation needs to evolve if smaller players are to increase their investments, adding that progress would be a “win-win” situation for governments and new entrants. “Projects that can offer good return on a four to eight-year timeline, [as well as] ones that are not moving forward due to lack of capital or are too small for NOCs, are the projects that PE firms could invest in. Equal opportunity and encouragement by local regulators are much needed for PE firms to come in and make investments in the region.”

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