Comment: The Attraction of the East

Australasia has become the big pull for two mid-sized upstream independents in recent weeks.

But as they seek out development opportunities and synergies in that region, the mid-caps are looking to divest from areas like Africa where projects are difficult to finance or finalise.

Austria’s OMV – one-such mid-sized player – has confirmed it is working on a deal to buy a 50% interest in Sapura Upstream from its Malaysian parent. The deal – expected to cost OMV some  $800mn – is not yet finalised, but would follow its $578mn deal to buy Shell’s New Zealand (NZ) upstream gas assets announced in March.

Sapura is co-developing gas fields offshore Sarawak in Malaysia and has Australia/NZ exploration acreage, making it a nice fit for OMV as it seeks reserves in growth Asia-Pacific or LNG markets. But in a Reuters interview before the Sapura partnership strategy was announced, OMV E&P chief Johann Pleininger revealed that its ‘Tunisian asset’ is up for sale.

That Tunisia asset is its €1bn ($1.1bn) Nawara gas development now three years behind schedule, assuming it produces first gas in 2019. The 0.9 bn m³/yr field could increase Tunisia’s gas production by 15% but has been plagued by strikes and unrest. So it’s no surprise OMV wants out – but less clear who might want in. OMV’s press team notes there’s ‘no final decision’ on its sale yet.

Smaller-cap Tunisia operator Serinus’s CEO Jeffrey Auld admitted to NGW in July: “I’ve got to tell you – anyone who could find a reasonable-value buyer for their assets in Tunisia, be it Shell or OMV, would sell. We’re no different.” He said a key labour union there aims to secure jobs but it doesn’t balance that against the investors’ need for a return which in turn can generate economic growth.

Shell is the biggest gas producer in Tunisia, acquired from BG, but its fields are viewed as non-core to the supermajor.

Africa is great news if you have exposure to Egypt’s offshore Nile Delta – where Eni recently achieved 2bn ft³/d production from its giant Zohr field a year ahead of schedule – or Mozambique where rival LNG projects (including Eni’s) are progressing, or Mauritania/Senegal - and in all these places, size matters. 

But if you’re Ophir Energy, it can be a frustrating place of which financiers are wary.

Ophir has missed several deadlines for securing finance for its $2bn Fortuna FLNG project offshore Equatorial Guinea and in May was told by the host government that a final investment decision must be signed by end-2018, or else it could lose the operatorship or have the project scrapped. The mid-cap had tantalised investors since late 2017 with hope that a financier, possibly one from China, was in the wings.

It never materialised, and on September 13 Ophir admitted its Fortuna rescue efforts are running "against the clock" and slashed the book value of its stake in the project by half to $300mn.

Ophir said it is seeking a buyer or partner for all or parts of its LNG assets – which also include a 20% stake in Shell-operated gas reserves offshore Tanzania, another African country with a truculent leadership – saying this new strategy aims to “unlock their potential value” and to “ensure that our shareholders share appropriately in any value subsequently realised."

The UK-based mid-cap will move its headquarters to Asia, following its recently completed $250mn acquisition of the producing assets from Santos, to focus on southeast Asian production where it already had some interests. The new Santos assets are in the growth markets of Vietnam, Indonesia, Malaysia, and in Bangladesh where that government is pushing hard to develop the gas market.

Their acquisition – thus creating a fresh adventure for Ophir – was one of the last acts of the former CEO Nick Cooper, who in his seven-year tenure grew Ophir and spun off multi-billion dollar stakes in Tanzanian gas assets, but for whom fortune finally ran out in May 2018.