Some of the biggest energy companies in the world are offloading their assets to keep up with the drop in demand. The oil and gas industry has been one of the hardest hit during the pandemic, leading to unprecedented drops in prices worldwide. If the recent trends are anything to go by, it seems that the industry is past its high-growth era. The biggest companies in oil and gas are expected to sell $110 billion worth of assets.
While burgeoning debt and the demand to reduce carbon footprint are the main reasons, the uncertainty over demand for oil and price have only exasperated the problem for the companies. The major oil players, including, ExxonMobil, BP, Shell, Total, Eni, Chevron, ConocoPhillips, and Equinor are planning to divest resources that could be worth 68 billion barrels of oil, according to the Norwegian consultancy, Rystad Energy.
Exxon has shed a massive $17 – $10 billion of its assets to reflect the change in economics for the entire sector. The move is in line with a rationalization effort seen throughout the industry. Exxon will be focusing on select regions. The company has stated that its focus will be on the upstreams in Brazil, Guyana, and the Permian.
BP too is on course to divest $25 billion in the near future. Shell is not far behind, with plans to sell assets worth $5 billion every year. Rystad estimates the big oil companies may need to exit 203 country positions in 60 countries. They will be focusing on countries where it is cheaper and easier to produce oil. Industry leaders also state that such disposals could bring down asset valuations.
According to Total CEO Patrick Pouyanne, “This is not a very good time to sell assets.” Others have a positive outlook on the long-term. Reduction in investments could lead to supply contraction that could firm up prices in the future, says Garrett Soden, CEO of Africa Energy.
While the drop in demand and prices may be temporary, the move towards clean energy in the form of wind and solar power, and electric vehicles, is likely to be permanent. As economies the world over start taking concrete measures to enable energy transition to non-fossil sources, the big companies are left with no option but to scale down their expansion plans.
The theme for the industry is capital discipline, and prioritization of legacy assets for lower costs, as experts concurred at the EMEARC energy summit from Wood Mackenzie. There is a move towards cheaper offshore production methods and away from carbon-intensive oil sand production. There is a systemic move towards portfolio optimization that could result in companies swapping assets. The asset disposal will increase cash flow for the companies, significant in a year that witnessed the lowest oil prices since the crash of 1999.
This will also give opportunities for smaller players to acquire assets at lower prices. According to analysts at Peel Hunt, companies like Serica Energy, Cairn Energy, and Jadestone Energy could benefit from this.