“Dice are rolling, the knives are out …”
In this week’s blog, we’re highlighting two more “sharks in the water”—companies with solid balance sheets, long-term growth strategies, and cash to spend on acquisitions from stressed rivals during these stressful times. In Part 2 of this series, we highlighted Total, which we see as an apex predator—a great white among the sharks—likely eyeing Latin America, Africa, and possibly central Europe for opportunistic expansion. This week we turn our attention to supermajors ExxonMobil and Eni.
With Guyana-Suriname now firmly established as a world-class, likely multi-billion-barrel oil discovery, ExxonMobil will be peering into the future and considering where to place its next bets. Will its crystal ball portend a world in which oil demand has suffered a permanent decrease due to pandemic-related economic slowdown and concomitant opportunistic government policy lurches favoring renewable energy sources? This might incline ExxonMobil toward further expansion of its global natural gas and LNG business. Or will the crystal ball reveal a return to business as usual, with all energy sources—and thus all hydrocarbon phases—on the table? In either case, the supermajor will be prowling the globe, freshly armed with the whopping $17 billion it raised in March and April and signaled could be used for acquisitions.
We believe that ExxonMobil, although perhaps not thinking green quite as publicly as BP CEO Bernard Looney, sees a strong future in natural gas projects. One example is the company’s far-sighted effort to establish a system of transportation infrastructure to expand gas access in India. Dubbed “virtual pipelines,” the systems will deliver LNG by road, rail, and waterways to areas not connected by physical pipelines. This forward-looking gas focus would seem to be contradicted by ExxonMobil’s proven reserves, which totaled 24.3 billion oil-equivalent barrels at the end of 2018, with liquids representing 64%—up from 57% from the prior year thanks largely to Guyana, Brazil, and the Permian Basin (Texas). However, we see no signs that the company will work overly hard to shift the commodity mix of its exploration portfolio; it is more likely allowing the sale of older oil assets to shift overall reserves back toward natural gas.
ExxonMobil is actively marketing its production assets in west Malaysia, but it was awarded three deepwater blocks in east Malaysia’s Sabah in late 2017 and early 2018. One of these blocks is directly adjacent to Total’s Tepat 1 well and the others extend northeast from there (Figure 6). Rumor has it ExxonMobil is still actively looking to expand in east Malaysia, presumably in Sabah and Sarawak. The recent installation of a new upstream business development leader in Singapore adds further intrigue to these rumors.
Barring a significant course change, ExxonMobil’s position in the Australia upstream sector is likely to continue diminishing. The firm’s last acquisition came three years ago when it picked up all of Liberty Petroleum’s interest in the 2,062-square-kilometer Block VIC/P70 in the Gippsland Basin. ExxonMobil’s 50% interest in its BHP-operated Gippsland assets is now for sale. Given this backdrop, it seems unlikely the company would have put bids in on the most recent Australia Offshore Petroleum Acreage Release. Neighboring Papua New Guinea, although certainly a significant ExxonMobil asset, also seems an unlikely locale for growth.
Carefully placing its bets in the Middle East, ExxonMobil did not garner acreage in recent bid rounds in Lebanon, Israel, Iraq, Oman, and the UAE. It did, however, expand in the Eastern Mediterranean by picking up blocks in Egypt that complement its offshore Cyprus acreage. And like its supermajor brethren, ExxonMobil will certainly be interested in Qatar’s choice of partners for its expansion of the North Field mega-project.
In late 2019, ExxonMobil announced plans to sell west-central African assets as part of a sweeping global $25 billion divestment effort, with producing acreage in Chad, Equatorial Guinea, and Nigeria specifically fingered for reductions. However, ExxonMobil had steadily and relentlessly expanded its offshore Africa footprint over the last three years in Angola, Egypt, Ghana, Mauritania, Mozambique, Namibia, and in the São Tomé and Príncipe-Nigeria Joint Development Zone (with Total). In our opinion, the divestment effort’s focus on mostly older and onshore properties leaves plenty of the continent ripe for the exploration giant’s attention.
Finally, at the top of its shopping list in the Latin America/Caribbean neighborhood is Trinidad and Tobago, where ExxonMobil will be looking hard at the planned Q3 2020 deepwater bidding round, which holds the potential of oil and should appeal due to its potential scale and proximity to the supermajor’s Guyana assets.
As for Eni, natural gas is the only aspect of its giant Perla field that might still be appealing at this point. Offshore Venezuela and touted 10 years ago as evidence of Eni’s return to world-class explorer status, Perla’s shine has been badly tarnished by its financially beleaguered host country resorting to payment in kind for production from the field, with oil cargos making their way slowly to Europe instead of dollars flowing quickly into corporate coffers. Coupled with the seemingly never-ending turmoil in Venezuela’s economy and government and the ensuing chronic uncertainty in fiscal terms, surely Eni must be wondering where it can plant a flag in a less challenging Latin American asset.
One option in this vein might be the Walton Morant license, offshore Jamaica, where operator Tullow and partner United Oil & Gas are said to continue seeking partners for an exploration well on their Colibri prospect (Figure 7). But an outright divestment of the asset seems more likely as Tullow is facing a July 2020 relinquishment of the blocks. Embattled Tullow is reported to have completely written off the acreage following a portfolio review that prioritized free cash flow and debt reduction, hence near-field opportunities in proven basins and earlier farm-downs of working interest in frontier exploration areas. This sounds like a large and tasty—but injured—target for shark-minded exploration management, although the Eni board room and investors may feel somewhat more cautious and prefer smaller fry.
If Eni wants to expand exploration in Europe, it will have to look outside Italy, which has imposed a moratorium that will likely result in a reduction of company acreage there. A logical alternative for growth would be to continue leveraging its Mediterranean carbonate expertise and success, as it has already done by securing acreage in Montenegro and Albania. In the North Sea, Eni is pursuing growth through Vår Energi, its Norwegian JV with HitecVision, which is understood to be seeking expansion into the U.K. Continental Shelf.
As for Africa, Eni maintains stakes in two giant gas projects: Zohr in Egypt and Rovuma Offshore in Mozambique. We would not be surprised to see the company make more strategic gas acquisitions via the future Angola bid rounds, the Mozambique sixth bid round, and possibly the next Ghana and Senegal bid rounds. But the elephant in the room is the MSGBC Basin, where Eni is arguably the largest company with no current upstream footprint (Figure 8). Considerable operated- and non-operated interest has been available, currently or over the past year, from numerous operators, including Shell (Mauritania C-10, C-19), Kosmos (six blocks in Mauritania and Senegal), Total (Senegal UDO-North), TAOL (Senegal Djiffere Offshore), FAR (Gambia A-2, A-5), Svenska (Guinea-Bissau 2, 4A, 5A), Geopartners (Guinea-Bissau 4B), and Supernova (Guinea-Bissau 7B, 7C).
Here, at the end of each Sharks blog installment, we open it up to you. What do you think? Whom would you see as the predators if a feeding frenzy ensues? What have we missed or gotten wrong, in your opinion? Fancy a look at our just-released Q1 activity maps? Our team of 27 international scouts, boasting more than 400 combined years of experience, are willing and eager to engage with current—and future—customers on these topics and more!
Stay tuned for the next installations of Sharks in the Water, in which we’ll give you our take on the large independent E&Ps with large dorsal fins and publish our thoughts on who takes out mortally wounded Tullow in the very near future.
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- Sharks in the Water—Part 3 - June 9, 2020