Expect More M&As in Asia Pacific Region: WoodMac
With declining long-term production profiles, the three major national oil companies (NOCs) in southeast Asia - Malaysian Petronas, Indonesian Pertamina and Thai Pttep - will look to boost their domestic output, and at the same time, expand through international M&A, Wood Mackenzie Asia Pacific vice chair, Gavin Thompson wrote in a blog article published September 2.
“OK, the global upstream M&A market was exceptionally weak through the first half of the year, with the global deal flow hitting almost a 20-year low as both oil prices and equity markets deteriorated. But southeast Asian NOCs in particular seem undeterred and, following a recent tour through Bangkok, KL and Jakarta, I expect this to continue,” Thompson said.
Pttep, snapped up $2.9bn worth of assets this year while Petronas entered the LNG Canada project in 2018. The Indonesia state-run firm also made a $1.3bn entry into deepwater Brazil Campos basin. In fact, according to Thompson, southeast Asian and Chinese NOCs together made up around a third of global upstream M&A spend outside of North America in H1.
Like other Asian NOCs, Petronas, Pertamina and Pttep (3Ps), suffer from declining long-term production profiles. “While this in part reflects asset maturity at home, it's also a consequence of a collective shortfall in global business development activity since 2015. This is now changing as the 3Ps look to boost their domestic output, and at the same time, expand through international M&A. Understanding their strategies is now more important than ever,” he said.
Recent successful bids for production sharing contract (PSC) extensions have seen Pttep and Pertamina become increasingly dominant in their own backyard. Pttep's portfolio has been significantly boosted by its successful bid for operatorship of Bongkot and Erawan PSCs from Shell and Chevron respectively, increasing production by 35% by 2023.
In Indonesia, Pertamina is pursuing production growth, having taken ownership of 10 domestic PSCs since 2015, though production potential is highly dependent on the company's ability to select new technical and financial partners, and its project execution, Thompson said.
“In fact, it's likely that all 3Ps will look to farm-down positions and seek partners for technical and financial support. This is perhaps not surprising considering that we estimate Pertamina and Pttep to spend $32bn from 2019-2023 to maintain their domestic supply outlook,” he said.
Thompson expects Pttep to follow its acquisition of Murphy's Malaysian portfolio by acquiring the US independent's much smaller Vietnam position.
“I also expect to see other divestments in southeast Asia by US-focused players, such as Hess, ConocoPhillips and Chevron, seeking to redeploy capital towards lower-cost, higher-return opportunities elsewhere,” he said.