Chevron Dealing, But Play-By-Play A Secret For Now

As lower commodity prices chomp away at profit potential, Chevron Corp. (NYSE: CVX) continues efforts to shed assets in hopes of bringing in between $5 billion to $10 billion more by year-end 2017.

“We will divest assets that no longer have a strategic fit or do not compete for capital with our other investment alternatives,” Chevron CEO John Watson said during a recent conference call. “In all cases, we will only sell assets where we can realize fair value.”

Watson noted that the company is pursuing additional opportunities which will be disclosed “when commercial sensitivities permit.”

But the company’s ongoing divestment program does not mean executives’ eyes are closed when it comes to growing parts of its portfolio.

“There are opportunities that could present themselves in the current market, so we’ll be mindful of that,” Watson said. “We’re not particularly transaction-driven at any period of time,” nor has M&A activity been a “particular priority for us. But we are mindful of the opportunities that are out there.”

The company bought equity interests and operatorship in deepwater assets in the Gila and Tiber Fields in 2015.

Chevron’s deals in progress include certain upstream assets in the Gulf of Mexico such as pipelines, as well as downstream facilities in New Zealand and South Africa, its refinery in Hawaii and West Canadian gas storage facilities, according to a Jan. 29 presentation by Chevron executives following the release of its fourth-quarter 2015 earnings.

The company also has acreage for sale in the Marcellus and Utica shale plays as well as Florida’s Pre-Punta Gorda Dolomite and the Permian basins among other areas, according to EnergyNet.

Although M&A and A&D activity is a normal part of business for oil and gas companies, including Chevron, such activity has been down lately. Today’s environment could be called a buyer’s market as the cash-generating appeal of such deals tempts cash-strapped businesses to part with property to make financial ends meet. But uncertainty about the when the downturn will end sparked fear among sellers in 2015 that they would sell assets at large discounts. Potential buyers were stifled by the potential for overpaying for acreage if the downturn intensifies.

Downturn Opens Door To Exploration, M&A Opportunities

Some say that could change this year.

Moving On: Why A&D Activity Will Increase In 2016

Chevron is driven by its deepwater assets, LNG projects and, to a lesser extent U.S. unconventional plays, said Roger Read, senior analyst for Wells Fargo Securities. However, the company “faces several years of deficit spending unless oil prices substantially recover to pre-mid-2014 levels,” Read said.

Watson acknowledged to analysts that he believes now is a terrible market for selling assets, especially oil-related ones, and acknowledged that there will be some tough-to-execute opportunities. But he pointed out that the company has received good values on assets sold in the past.

Deals sealed in 2015 included sales of the company’s:

• 50 percent stake in refiner Caltex Australia for $3.6 billion;
• Vietnam subsidiaries—including Chevron Vietnam (Block B) Ltd., Chevron Vietnam (Block 52) Ltd. and Chevron Southwest Vietnam Pipeline Co. Ltd.—and pipeline assets to Petrovietnam.
• 40 percent stakes in Nigeria’s shallow-water oil mining leases (OML) 83 and 85 to First Exploration & Petroleum Development Co. and OML 86 and 88. All of the leases are located in the Niger Delta.

In 2015, Chevron recorded $6 billion in asset sale proceeds, bringing the total since 2014 through December 2015 to about $11.5 billion in cash.

Water Works

Chevron is not the only company that is keeping M&A opportunities on their radar, though they are playing to their strengths.

Chevron, which will spend about $25 billion in 2016 capex, is intensifying its focus in the Permian while canceling the Gulf of Mexico’s Buckskin/ Mocassin projects.

Fieldwood Energy LLC, on the other hand, will keep to the shallows.

Fieldwood CEO Matt McCarroll said the company is looking at farm-out opportunities with Pemex. McCarroll told Hart Energy the company is on the lookout for additional shallow-water acreage that Mexico’s national hydrocarbons commission may offer. The Houston-based company, backed by private equity firm Riverstone Holdings LLC, officially entered Mexico on Jan. 7 when its Mexican subsidiary signed a production-sharing contract for Area 4, securing development rights for the Ichalkil and Pokoch fields which could hold up to 250 million barrels of oil.

Long-Term Opportunity: Fieldwood Energy CEO Talks Mexico, GoM

In the U.S., McCarroll said the company can be more proactive in looking at acquisition opportunities, both public and private, compared to in Mexico where companies are essentially reacting to what is made available by the government.

“Since we started Fieldwood in 2013 we’ve been very clear that we are a consolidator of offshore interest. We are looking to acquire,” McCarroll said. However, “In this price environment it is more difficult for a number of reasons: The people who own assets and might be interested in selling don’t want to sell at current oil and gas prices. There is limited capital available in order to fund the transaction.”

M&A has been limited, he added.

“People have been talking about distressed sales that are going to come around and potential bankruptcies and what have you,” McCarroll said. “We hope to be on the acquiring side of those opportunities when and if they come. It’s really not started to happen in our view.”

Deloitte’s year-end 2015 report on oil and gas M&A activity showed the lowest upstream deal count since 2012. The count—which included the upstream, oilfield services, midstream and downstream sectors—dropped 53% from 709 in 2014 to 379 in 2015.

Velda Addison can be reached at vaddison@hartenergy.com.