Oil Slide Means ‘Almost Everything’ for Sale as Deals Accelerate

Why Everything's Up for Sale in the Oil Industry
  • More than $200 billion of hydrocarbon assets available: IHS
  • Oil and natural gas deals to increase this year and next

More than $200 billion worth of oil and natural gas assets are for sale globally as companies come under renewed financial pressure from the prolonged commodity price rout, according to IHS Inc.

There are about 400 buying opportunities as of September, IHS Chief Upstream Strategist Bob Fryklund said in an interview. Deals will accelerate later this year and into 2016 as companies sell assets to meet debt requirements, he said. West Texas Intermediate crude has averaged about $51 a barrel this year, more than 40 percent below the five-year mean.

Low prices have slashed profits and as of the second quarter about one-sixth of North American major independent crude and gas producers faced debt payments that are more than 20 percent of their revenue. Companies have announced $181.1 billion of oil and gas acquisitions this year, the most in more than a decade, compared with $167.1 billion the same period in 2014, data compiled by Bloomberg show.

“Basically almost everything is for sale,” Fryklund said Oct. 8 in Tokyo. “Low cycles are when a lot of these companies can rebalance their portfolios. In theory, this is when you upgrade your existing portfolio.”

Buying Opportunities

Companies with strong balance sheets are seeking buying opportunities, said Fryklund, citing Perth, Australia-based Woodside Petroleum Ltd.’s $8 billion offer for explorer Oil Search Ltd. and Suncor Energy Ltd.’s $3.3 billion bid for Canadian Oil Sands Ltd. Both targets rejected initial offers.

California Resources Corp., the Occidental Petroleum Corp. spinoff, said on Tuesday that it’s considering selling stakes in oil and natural gas fields, pipelines and processing plants to pay down a $6.5 billion debt burden that’s more than four times larger than its market value.

Clayton Williams Energy Inc., an oil and gas driller run by Texas wildcatter Clayton “Claytie” Williams Jr., is exploring a sale, according to people familiar with the matter. It’s working with a financial adviser to solicit offers from potential buyers, though it ultimately may decide to remain independent.

Default Risk

As of August, one out of every eight junk-rated oil companies was in danger of defaulting, according to Moody’s Corp. WTI plunged below $40 a barrel in August to the lowest price in six years. The grade slipped 2 cents to $46.64 a barrel Wednesday on the New York Mercantile Exchange.

Next year the U.S. benchmark may trade around $55, said Fryklund. It will take several years for supply and demand to rebalance and prices may rise to about $70 a barrel by 2018, he said.

“These down cycles are really great for defining the winners for the next cycles,” said Fryklund. “The ones that have cash right now, the ones that have good financials are seeing lots of opportunities.”

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