By Sarah McFarlane, Ben Dummett and Benoit Faucon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 5, 2020).

Before Covid-19 and the oil-price rout, most of the world's biggest energy companies had planned to sell billions in assets to help pay down debt and maintain dividends. Now, those divestment programs are in jeopardy.

Since the start of the year, BP PLC, Exxon Mobil Corp. and Occidental Petroleum Corp. have had major asset sales restructured or delayed indefinitely as coronavirus lockdown restrictions decimated energy demand and oil prices fell by two-thirds.

Oil companies have moved to slash costs and spending as prices have plunged. In the most extreme cases, some have cut dividends. Many leadership teams in the industry had previously seen asset sales as a way to strengthen finances but their options are narrowing as buyers focus on conserving cash and banks rein-in deal financing as the possibility of a global recession becomes more likely.

"There's massive uncertainty on what the world's going to look like post this virus and what it means for oil and gas prices, so buyers will be hesitant to commit capital," said Biraj Borkhataria, co-head of European energy research at RBC Capital Markets.

The slide in oil prices is threatening the sector's most extensive divestment program -- Exxon's plan to raise $25 billion from asset sales by 2025.

The company has indefinitely postponed the sale of $2 billion in oil and gas assets in the North Sea. Earlier this year, the company hired advisers to launch the sales process but the effort has been delayed due to market conditions, according to two people familiar with the matter.

Exxon remains motivated to sell some of its assets but will have to find interested buyers to do so, said Chief Executive Darren Woods on Friday. "It's going to be harder to do that in an environment like this, where people are strapped of cash, so I would expect to see that divestment program slow," he said.

Exxon declined to comment on the delayed sale of its North Sea assets.

Occidental's $8.8 billion deal to sell Anadarko's assets in Africa to France's Total SA is facing obstacles in some countries, placing at risk its ability to raise the full proceeds. Its sale of oil and gas operations in Mozambique and South Africa have closed, but the Algerian government has withheld approval of the asset sale there, said two people familiar with the matter.

Occidental declined to comment and the Algerian oil ministry didn't respond to a request for comment.

Total's plan to divest $5 billion through 2019 and 2020 has also hit snags.

In July, Petrogas NEO U.K. Ltd., the exploration and production arm of the Oman-based conglomerate MB Holding, agreed to purchase Total's oil fields in the North Sea for $635 million. Now the deal looks uncertain, according to two people familiar with the matter, because Petrogas -- which joined with Norway-based private-equity investor HitecVision for the deal -- has had difficulty financing the purchase.

Total declined to comment on any of its deals. HitecVision also declined to comment and Petrogas didn't respond to a request for comment.

British energy giant BP said last week that the environment is challenging but its plan to sell $15 billion of assets by mid-2021 is on track. Last month the company said it had renegotiated the financial terms of its deal to sell its $5.6 billion Alaska business to privately held Hilcorp Energy Co. in response to a sharp sell off in crude prices and the difficult financing environment.

Similarly, BP will likely need to consider agreeing to new terms if it wants to complete its planned $625 million sale of North Sea oil and gas fields to Premier Oil PLC following the sharp selloff in Premier's stock price, according to people familiar with the matter. Under current terms, Premier plans to raise $500 million from issuing new shares to help fund the purchase, but the company's value has slumped to about $308.7 million from more than $1 billion since announcing the deal in January.

Premier Oil and BP declined to comment.

As oil prices stabilize, analysts say companies looking to raise dividends or accelerate their transitions to lower carbon energy will have to make hard decisions about whether to sell assets in a buyer's market.

"The caliber of the pipeline of assets that were previously up for sale will have to be significantly improved in order to attract buyers," said Christyan Malek, JP Morgan's head of oil research for Europe and the Middle East.

Shell said last week that it would reduce its dividend by 66% to 16 cents a share, its first cut since World War II -- and a sign of the stress that the coronavirus pandemic is causing for major oil companies. The company said it remains committed to selling more than $10 billion of assets by the end of this year but indicated it will be difficult.

"The environment is not very supportive to the full spectrum of divestments we intended to make in the year," said Jessica Uhl, Shell's chief financial officer.

--

Christopher M. Matthews

contributed to this article.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com, Ben Dummett at ben.dummett@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

 

(END) Dow Jones Newswires

May 05, 2020 02:47 ET (06:47 GMT)

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