By Shariq Khan, Sabrina Valle and Arathy Somasekhar
(Reuters) – U.S. oil and gas companies may struggle to sell about $27 billion in assets to fund investor payments over the next few years as the biggest wave of energy megamergers in 25 years approaches. the end of regulatory reviews.
Share buybacks and dividends are needed to attract investors to a sector that many have avoided due to volatile returns and pressure to decarbonize portfolios. Energy stocks represent just 4.1% by weight of the S&P 500, a third of their 2011 share, as investments in technology and health care have taken off.
But finding new owners for these properties likely won’t be quick or easy, bankers and analysts warn. There are fewer institutional and European buyers interested in oil, and there is a lack of liquidity to finance these transactions. Private equity firms that once bought up the castoffs of Big Oil have turned their attention to energy transition, social impact and renewable investments.
The scale of mergers is unprecedented, with $180 billion coming from six deals since October. Driven by the rush to increase oil reserves that can be exploited in the future, most of these deals are expected to close this year and will trigger an explosion of oil wells, pipelines, offshore fields and clusters of infrastructure in the market. The lack of ready buyers suggests sales will take time and could turn into asset swaps rather than cash sales.
Three acquirers – Chevron, ConocoPhillips and Occidental Petroleum – have committed to raising between $16 billion and $23 billion combined through post-closing sales. Exxon Mobil, the lead dealmaker, did not disclose a divestment target. But it has raised $4 billion annually in sales proceeds since 2021.
In addition to fewer private equity and international buyers, increased regulatory scrutiny has slowed the launch of commercialization. Some investment bankers say divestitures could continue into next year.
ARRIVE ON THE MARKET
Exxon, which bought Pioneer Natural Resources for $60 billion in May, wants to sell a collection of conventional oil and gas properties in the Permian Basin, to focus on higher-growth assets, a spokesperson confirmed.
Conoco is set to sell the western Oklahoma gas properties acquired in its $22.5 billion Marathon Oil deal, and Chevron will likely place some of Hess’ offshore assets in Asia alongside of its Canadian and U.S. gas projects currently on the block, people familiar with the matter said. speaking on condition of anonymity because regulatory reviews are underway.
Occidental has been preparing a sale of West Texas shale assets that could raise $1 billion, and could add assets offshore in the Gulf of Mexico and the Middle East once its acquisition of CrownRock is completed, analysts said.
Exxon confirmed that it is exploring the sale of certain conventional oil assets in West Texas and New Mexico, “consistent with our strategy of continually evaluating our portfolio.” It has not set a new asset sales target since the Pioneer deal.
Conoco and Occidental declined to comment on their asset sale targets.
A Chevron spokesperson said after Hess closed “we are going to add some assets that will be very attractive” to other companies. This could generate between $10 billion and $15 billion in pre-tax proceeds through 2028.
OBSTACLES REMAIN
“These are not the best assets in the sector,” said Luis Rhi, portfolio manager at asset management firm Barrow Hanley Global Investors, who believes companies can afford to sit on their hands until that the asset market improves.
“There is a real mismatch between the assets available and the dollars raised to buy those assets,” David Krieger, co-director of Houston energy investment firm Covalence Investment Partners. “The dry powder for investing in oil and gas is a fraction of what it used to be,” he said.
European oil majors, burned by their past forays into U.S. shale, are unlikely to come back, said Brian Williams, managing director at investment bank Carl Marks Advisors. They “finished their studies” and have largely left American shale, he said.
Small, private equity-backed companies lack the capital for these deals, energy advisers say. In 2023, only 78% of announced oil deals cost less than $1 billion, compared to 94% in 2019, according to mergers and acquisitions consultancy Petrie Partners.
“There aren’t many acquisitions under $1 billion,” said Todd Dittmann, who has been investing in energy for several decades, most recently for Angelo Gordon & Co.
“There is an exit problem in the private equity sector in the energy sector and partners are not happy with it,” he said.
WHO STAYS?
Closely held oil companies, including Hilcorp, which specializes in buying mature fields, smaller publicly traded oil producers and investors from Asia and the Middle East, are best positioned. Japanese companies have recently shown more interest in U.S. natural gas, bankers say.
Hilcorp, founded by billionaire Jeffery Hildebrand, is “chomping at the bit” to gain insight into Big Oil’s losses, a person close to the company said.
Elsewhere, “we continue to see interest from parts of the world outside of Europe – Asia, the Middle East and other regions – where there is a desire to get involved and deploy capital,” he said. said Ernst & Young Strategy and Development Partner Bruce On. transaction group.
Many properties in the major U.S. shale play will be divested or held to preserve cash flow, said Andrew Dittmar, director of mergers and acquisitions at energy analytics firm Enverus.
“There’s going to be a lot of ammunition for trade and commerce” in West Texas and New Mexico, he said.
(Reporting by Shariq Khan, Sabrina Valle and Arathy Somasekhar; additional reporting and writing by Gary McWilliams; editing by Anna Driver)
