Majors and US independents leave southeast Asian gap
A rush to US shale has left opportunities for others in areas left behind
US independent Murphy Oil became in March the latest US independent to exit Asia in preference for concentrating on US shale and America's deep-water assets. The firm will sell its Malaysian production and reserves to Thailand's state oil firm PTTEP for over $2bn.
Murphy plans "to continue its current oil-weighted strategy in both the Eagle Ford shale and the Gulf of Mexico, while maintaining its focused exploration plan". Thus $750mn of the proceeds of its PTTEP deal will be earmarked for US oil-weighted opportunities through potential acquisitions and/or the funding of both deep-water projects and US onshore opportunities, the firm says.
"Murphy had been keen to sell their assets for quite some time," says Parul Chopra, vice-president, head of research, India at consultancy Rystad. "It had divested a 30pc interest in the same assets for $2bn in 2014 and now will completely exit with the sale to PTTEP."
The trend of retrenching "for companies who own US shale acreage and need more cash to invest in their shale operations has been visible for a few years", says Chopra. In 2013, Newfield, prior to its own acquisition by Canada's Encana, sold its assets to Malaysia's Sapura for $900mn to focus on the US onshore operations. US independent Hess also divested its assets in Thailand and Indonesia to national oil company (NOC) buyers in 2013 and 2014 to focus more on its US operations, as did Anadarko in 2014 for its China assets, Chopra notes.
Hess was reported to be considering selling its remaining southeast Asian assets last year, although it denied any such intentions. But even if Hess is staying, Andrew Harwood, research director at consultancy Wood Mackenzie, expects "further exits by US-focused operators to redeploy capital elsewhere", as well as "portfolio rationalisation from the majors".
"Larger players will still have an interest in high-impact exploration opportunities that offer materiality, favourable economics or a clear path to commercialisation. But, with a tight rein being kept on exploration and capital budgets, 'less glamourous' regions will need to work harder to attract investment," says Harwood.
NOC PTTEP was also the buyer last year when Shell decided to offload its stake on Thailand's Bongkot field for $750mn, in an example of majors selling out of assets. "On the buyer side, NOCs in Southeast Asia have been keen on acquiring assets similar to those in this deal," says Chopra.
Gap for operators
"We would expect regional players to be the key buyers of assets and portfolios," says Harwood, either NOCs or smaller Asia-focused international oil companies (IOCs), such as Indonesia's Medco, which is in the process of buying London-listed Ophir Energy. "The Medco and PTTEP deals reflect regional players taking on portfolios that 5-10 years ago might have been snapped up by the larger IOCs. There is a gap for other large and mid-tier operators to move into, as the majors and US-focused IOCs look elsewhere for greater materiality, faster payback or higher returns," he continues.
"Both [PTTEP and Medco] are looking to grow, but they are coming at it from different angles. PTTEP is targeting long-term growth from projects in Mozambique, Mexico and Brazil, to offset longer-term domestic declines, but it also needs to boost medium-term output-growing in southeast Asia will give its immediate production profile a boost. Medco, on the other hand, is looking to grow and reduce its reliance on Indonesia, by stepping in the gap left by some of the bigger players," says Harwood.
The Ophir purchase would give Medco access to Thailand, Vietnam and Malaysia assets as well as boosting its position in its home Indonesian market. Ophir has "decent assets with a bit of running room," says David Round, director, oil and gas equity research at financial services firm BMO Capital Markets. "It will give Medco a production lift, which is important; these are proven quality southeast Asian assets."
"The assets are good, they are materially cash generative," concurs Taro Kiley, oil and gas equity research analyst at financial services firm GMP Firstenergy. "In terms of size, it is adding 30,000bl/d of production, so there is definitely an element of scalability [for Medco]."
Ophir had refocused its strategy away from Africa towards Asia with its 2018 deal to acquire assets from Australia's Santos, says Kiley and "had been looking for a buyer for a while", not least because it wanted permanent leadership to replace an interim management team. The cancellation of Ophir's Block R licence in Equatorial Guinea, which contained the proposed Fortuna floating LNG project, may have been a factor in the timing of the deal, although Kiley notes that the first Medco was made a few months before that was finally confirmed.
"It might have been a factor in getting the revised offer accepted, as Ophir management finally had to recognise that the asset had no value," he suggests. "It all came down to price," says Round on Medco's motivation to do the deal. "It is good, well-known assets at the right price."
Round also expects more deals in southeast Asia, given the number of companies in the international E&P space who are significantly better capitalised than they have been for some years, particularly as many of their development pipelines are sparse due to under-investment in exploration during the oil price downturn. "There will be more consolidation and more deals-the North Sea might be a good example of what to expect elsewhere, with new money coming in to replace exiting players," he says.
Kiley agrees, citing the Singapore-headquartered Jadestone Energy as a good example of a firm that has looked, through acquisitions, to take advantage of bigger actors leaving the southeast Asian scene-moving from being a pure exploration story three years ago to more of a production and development story in Vietnam and Indonesia, as well as in Australia.
"They are constantly looking for new deals," says Kiley. The firm itself says it "plans to build its asset portfolio through the acquisition of producing assets where there are significant opportunities for operating efficiencies, costs reduction and increased production through further investment".
The key thing for Jadestone is that its management team has "expertise and experience" in the region, says Kiley. Wood Mackenzie's Harwood makes a similar point. "Operating in southeast Asia requires familiarity with the business environment and an understanding of the risks and rewards on offer," he says.
"There is a still a lot for smaller players to go after in southeast Asia, particularly for operators with specific capabilities around low-cost development, late-life assets, enhanced oil recovery or deep-water exploration and development," Harwood continues. "As the NOCs increasingly bulk up, there should be more opportunities for smaller players to partner up and build meaningful positions."