By Selina Williams
LONDON--Europe's biggest independent oil companies are flush
with energy assets, but battered by the collapse of crude
prices.
Investors are now betting on which one could be the next big
acquisition target, following Royal Dutch Shell PLC's deal earlier
this month to buy BG Group PLC for $70 billion.
Many analysts have been predicting a wave of deals in the wake
of that blockbuster and after last year's sharp fall in the price
of oil. Europe's bevy of exploration and production companies sits
at the top of the list of potential targets.
Those include Tullow Oil PLC, the U.K.'s largest independent oil
explorer; Genel Energy PLC, which produces crude in Kurdistan; and
Sweden's Lundin Petroleum AB, which has a stake in a huge new North
Sea development.
Investors are expecting deals in the U.S. as well. Possible prey
include some of the relatively small but highly leveraged shale
oil-and-gas producers that have played a key role in quickly
raising U.S. production, a big factor in the current price
weakness. But analysts caution that the gap between buyers' and
sellers' expectations on price may still be too wide to immediately
spark a big wave of deal-making there.
In Europe, share prices have soared amid near-daily speculation
among analysts and investors about who might be next. Tullow stock,
for instance, is up around 40% since the Shell offer, significantly
outperforming the index of the FTSE's top 10 oil and gas companies
over the same period.
"Companies that are unloved by the market but big in strategic
resource themes--U.S. tight oil, East Africa liquefied-natural gas,
deep water or frontier exploration--will be the focus of their
attention," said oil and gas consultancy Wood Mackenzie in a
note.
Energy acquisitions were expected to pick up after oil prices
dropped from a high of $115 a barrel for Brent crude, the global
benchmark, last summer to a low of $45 in January. Few deals were
made, though, as the market's continued volatility made it hard for
buyers and sellers to value assets and agree on a price.
Shell's offer for BG sent a jolt through the industry,
triggering speculation over what might be next. Possible acquirers
include Exxon Mobil Corp., which has expressed interest in deal
making this year. State-run oil companies in Asia, like China's
Cnooc Ltd. and India's Oil & Natural Gas Corp., may also see
opportunity.
Exxon declined to comment on the subject. Chairman and Chief
Executive Rex Tillerson told analysts in March: "No question, there
are some good opportunities in front of us right now." Cnooc
declined to comment. A spokesman for ONGC said its international
arm, ONGC Videsh, was always looking at opportunities, but declined
to give any details.
Goldman Sachs said in a recent report that big companies could
buy smaller explorers and scrap their own expensive projects. A
potential 5 million to 10 million barrels a day of low-cost
projects could move from small companies to the majors and
state-run oil companies, the bank said.
Obstacles remain to any new deals--including a big question mark
over whether some of the largest companies are willing to make a
move. Executives at BP PLC of the U.K. and Total SA of France said
last week that acquisitions may not be in the cards. Both had
borrowed money in recent weeks, fueling speculation they were on
the hunt.
As for potential prey, investors are betting Tullow could be
next. Its assets include an already-producing Ghana oil field, a
second one starting up next year and some undeveloped oil
discoveries onshore in Kenya and Uganda. The company has said that
pumping oil from the two Ghana developments will cost around $8 a
barrel--the kind of cheap production that would be tempting for a
bigger oil company trying to boost production and save money while
oil prices are around $60 a barrel.
Although Tullow's share price has rebounded sharply since the
Shell announcement, the company's current market capitalization of
about $5.44 billion is still less than a quarter of its $21.8
billion stock-market value at its peak in 2012.
Top management has been publicly opposed to a sale. Tullow
founder and Chief Executive Aidan Heavey has said the company isn't
for sale. He declined to comment for this article.
Genel CEO Tony Hayward, the former boss of BP, told investors
Tuesday that the company was looking at acquisition opportunities
itself.
"We're actively engaged both in getting together with larger
companies and smaller companies in Kurdistan," Mr. Hayward said.
"Whether anything will come of it only time will tell," he
said.
Genel's production costs are low--it costs the company around $2
a barrel to pump oil from its Kurdish fields. But it still hasn't
been fully paid by the regional government for its oil exports and
last year reported a net loss.
Shares in Sweden's Lundin Petroleum and Det Norske ASA have also
risen since the Shell-BG deal. Both companies have stakes in Johan
Sverdrup, a huge oil field in Norway's North Sea, which is expected
to start producing in 2019. Statoil ASA, which operates the field,
has said the field would be profitable at an oil price above $40 a
barrel. Both companies declined to comment.
Write to Selina Williams at selina.williams@wsj.com
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