A prolonged spell of low oil prices has bashed energy companies, especially the ones with weaker balance sheets. With crude becoming too cheap to drill profitably, a number of smaller, debt-laden entities have run into cash flow problems. They have sought to re-organize operations and lighten the debt burden by selling assets.
Among recent deals, Energy XXI Ltd. EXXI agreed to shed its Gulf pipeline system for $245 million in cash, while Rex Energy Corp. REXX got rid of 60% interest in its Keystone Clearwater Solutions in a $130 million transaction.
However, it’s not only the smaller, more-leveraged exploration outfits that have been busy housecleaning. Even the fairly defensive group of integrated majors – considered safe harbors with strong balance sheets and substantial dividends – are being forced to offload assets in order to survive the cataclysmic energy-price scenario.
Let’s take a look at some of the so-called ‘supermajors’ that have jettisoned non-core holdings in a bid to rein in capital spending.
Chevron Corp. CVX was in the news last week after it sold 40% stakes in two Nigerian shallow water oil blocks, just days after completing the divestment of its entire stake in Vietnamese properties – comprising both upstream and midstream assets. Earlier in the year, Chevron concluded the sale of its entire stake in Caltex Australia Ltd., while also selling its downstream operations in New Zealand.
Investors can expect sizable asset divestments from the San Ramon, CA-based company in the upcoming months as well, with Chevron looking to raise cash while covering its dividend. In fact, the integrated major – which unloaded $6 billion worth of assets in 2014 – is planning to divest $15 billion worth assets through 2017, 50% higher than the prior target of $10 billion.
Even the mighty Exxon Mobil Corp. XOM is selling. Last month, the largest U.S. oil company by market value agreed to offload the Chalmette refinery near New Orleans for $322 million.
But Europe’s largest oil company Royal Dutch Shell plc RDS.A is expected to make some of the biggest announcements, as it tries to create a leaner structure following the $70 billion acquisition of BG Group. In fact, The Hague-based group will look to liquidate $30 billion worth of assets once the megadeal is finalized.
So far in 2015, Shell has sold properties of around $2 billion, mostly in troubled Nigeria. It’s part of the company’s efforts strengthen its financial position and earn considerable cash flow for the shareholders in the years to come.
U.S. energy firm ConocoPhillips COP has also pledged to do away with non-core assets worth $2.5 billion, as it focuses on controlling costs amid plummeting oil prices.
Finally, the likes of big independents such as Anadarko Petroleum Corp. APC and Marathon Petroleum Corp. MRO – both impacted by lower oil price realizations – are in line to dispose $500 million in assets each.
To conclude, the freefall in oil prices have resulted in less cash flow for upstream explorers, leaving debt laden ones vulnerable. They primarily depend on asset sales to ride out the slump. However, as is clear from our analysis, even the integrated supermajors (or the so called ‘Big Oil’) have been increasingly turning to asset sales to weather the storm.
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