Oil and gas companies under pressure from low crude prices and from the banks that hold their debt are increasingly being forced to sell assets to private equity investors, who have raised billions of dollars to snap up bargains in the sector.
Smaller energy companies are under the greatest pressure to sell assets as their revenue dwindles and debt levels rise, including Britain’s First Oil Expro and EnQuest, according to industry sources and analysts.
First Oil is already running a process to sell North Sea assets, including a stake in the Kraken field, with several private equity funds interested, two banking sources said. EnQuest meanwhile said in December that was also seeking to sell stakes in several North Sea fields, including Heather/Broom.
First Oil and EnQuest declined to comment on their financial positions or any possible deals.
Mike Powell, head of oil and gas for EMEA at Barclays, said banks that hold the debt of energy companies were increasingly pressing for asset sales, as cuts to costs and jobs had failed to stem losses.
“As more borrowers have been affected, it’s gone from a case-by-case discussion to something that is more systemic,” he said. “Instead of banks being passive and allowing companies to work on tactical opportunities, now they’re being a bit more forceful in trying to establish an agenda.”
The majors are also feeling the strain from the plunge of oil prices to near 12-year lows over the past 20 months. Credit rating agency Moody’s put 175 oil, gas and mining companies on review for a downgrade last month, including Royal Dutch Shell and France’s Total.
Shell has said it will sell assets totalling $30 billion over the next three years following its takeover of BG Group , for example, while BP expects $3-5 billion of divestments in 2016.
While some big companies have tried to offload lower-quality assets in the past year, a lack of buyers and the financial pressure means they are now having to consider selling more valuable ones.
The assets most likely to come on the block next are in the area of midstream – transportation and storage – infrastructure, bankers said, including pipelines and terminals, where valuations have held up better than elsewhere in the industry.
“No one is buying the worst stuff,” one London-based banker said. “They will have to get their heads round the fact they’ll have to sell things that are a) valuable and b) they don’t necessarily want to sell.”
Private equity investors betting on a recovery in oil prices are stepping in. Funds are talking to Shell and BP in an effort to secure deals, two banking sources said. It was unclear which assets were involved.
Shell and BP declined to comment.
Private equity investors have started buying. In Norway, for example, Russian billionaire Mikhail Fridman’s LetterOne fund bought the oil and gas assets of Germany’s E.ON for $1.6 billion late last year, while a unit of private equity-backed Sequa Petroleum bought a 15-percent stake in Total’s Gina Krog oilfield for around $160 million....MORE