ExxonMobil - finding a needle in a haystack

We met with ExxonMobil in the first week of December to catch up on what they have been up in 2015 on the M&A front. The low oil price has certainly prompted an internal flurry of screening for targets and the teams have been looking at “a lot of opportunities” with billions of dollars ready to be spent on acquisitions. Despite a desire to do something, finding the right opportunity is still like “finding a needle in a haystack”.

ExxonMobil’s corporate development team is split into two divisions – Upstream Ventures which look at deals up to USD20 billion and Corporate Strategic Planning which look at deals above USD20 billion. Acquisitions broadly fall into three categories which are generally independent of size:

• Bolt-ons – these are generally small acquisitions to supplement an existing position although larger acquisitions will be considered on a case-by-case basis 
• Expansions – these are to materially grow an existing position into a wider position; size is opportunity specific and considered on a case-by-case basis
• New entry – these are always sizeable acquisitions as they must have sufficient critical mass in order to establish a new position

Outside of North America, Africa and the Middle East are regions of keen interest and we discussed two themes around current market developments.

The Africa Oil farm-out to Maersk was viewed as interesting and ExxonMobil remarked that more innovative structures, such as the one adopted by Maersk, was likely needed to get deals which weren’t clear winners over the line in the current oil price environment. East Africa is an area which ExxonMobil’s technical team have evaluated before and they remain cautious on the prospectivity (noting that no-one outside of Tullow/Africa Oil has been successful in the region) and timing to first oil (given the export pipeline infrastructure is yet to be built).

On Kurdistan, ExxonMobil are comfortable with the region geologically but see very few opportunities of sufficient size to justify building up a full-scale presence. This likely limits the opportunities to a handful such as Genel and Gulf Keystone. Payments for exports by the Kurdistan Regional Government remain a key issue and ExxonMobil noted that any slippage of payments could severely depress project economics as well as delaying any development spending. The Kurdistan Regional Government have implemented payment schedule on multiple occasions in the past which subsequently collapsed and it yet remains to be seen whether the current payment plan, implemented in September 2015, can be sustained.

ExxonMobil will continue to scour the international E&P landscape for opportunities and believe that current environment is a good time to act, but finding the perfect opportunity remains a challenge.