The near-$200bn of shale deals seen in the past year are likely to be followed by asset sales as producers seek to reshuffle their portfolios.
Such divestments will be led by public companies, in a reversal of recent years when private operators dominated the market. But sellers may take their time, as higher oil prices have bolstered balance sheets. And with shale inventory at a premium, they will want to be certain before agreeing to sales. "They're taking a long-time horizon view of this," consultancy Enverus principal analyst Andrew Dittmar says. "They don't want to give up any assets that it turns out they will need 5-10 years down the road."
As a result, sellers will more likely than not be keen to hold out for the right price, even as they seek to reduce debt taken on to pay for recent acquisitions, such as in the case of US firm Occidental Petroleum's $12bn takeover of Permian basin-focused CrownRock. "I wouldn't expect to see any great deals from a buyer's perspective," Dittmar says. The timeline for transactions will also be delayed as the US anti-trust regulator casts an increasingly watchful eye over oil deals, prolonging the approvals process.
The biggest oil companies — such as ExxonMobil, which recently completed its $64.5bn takeover of Pioneer Natural Resources — are constantly reviewing their portfolios with a view to pruning less desirable assets. "Obviously, where we are with oil, where we are with refining spreads, they don't need the cash," bank Moelis global head of energy and clean technology Stephen Trauber says. "The biggest problem they have today is what to do with all their cash. But that doesn't mean they're not going to optimise their portfolio," Trauber said at Hart Energy's SUPER DUG conference in Fort Worth, Texas, last month.
After announcing last year's blockbuster $53bn deal for US independent Hess, Chevron unveiled $10bn-15bn of planned asset sales. The firm exited Myanmar earlier this year, and it plans to depart Congo (Brazzaville). It is also marketing its Duvernay shale position in western Canada, described by chief executive Mike Wirth as a "nice asset, which has some growth opportunities, but it may be a better fit for others". Chevron also paused development plans in the Haynesville basin of east Texas and northern Louisiana last year, with a view to selling up.
‘We do have options'
Leading US independent ConocoPhillips has set a target of around $2bn in asset sales over the next few years, once its $17.1bn acquisition of Marathon Oil closes. "It's the right thing to do — especially for those uncompetitive assets," chief executive Ryan Lance says. And Occidental plans to sell as much as $6bn of non-core assets within 18 months of the CrownRock deal closing. "The interest is there and it's very high interest," chief executive Vicki Hollub says. "But it all comes down to valuation and that's going to make the difference for us, because we do have options." Smaller producers may also be gearing up to take advantage of the flood of asset sales that are about to hit the market. US independent Matador Resources is not necessarily looking for a big deal as opposed to a good fit. "We do a lot of brick-by-brick acquisitions for that reason — they are small, there's less risk," chief executive Joe Foran says. "It's interesting to see the M&A, but I think it may be interesting to see the rationalisation that may follow."
Private equity is expected to take a back seat given the large number of exits in recent years that have diminished its role in shale. "A lot of privates are getting bought up and they're not getting re-funded, and so there's just going to be a lot fewer of them in the future," private equity firm Quantum Capital Group chief executive Wil VanLoh says.
