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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Showing posts with label BG. Show all posts
Showing posts with label BG. Show all posts

Tuesday 12 January 2016

PTTEP may pre-empt BG Bongkot process


On 12th January, it was reported that PTTEP, Thailand’s state owned oil company, is keen to acquire BG’s stake in Bongkot. The Bongkot area is located in the Malay Basin in the Gulf of Thailand and consists of various gas accumulations. It is currently owned by PTTEP (44.45% operator), Total (33.33%) and BG (22.22%). PTTEP’s potential desire to acquire this asset is in line with the strategy of Asian NOCs’ of security of supply. For BG, the disposal represents an exit of a non-core asset which supplies gas only to a domestic market and a tidy-up of the portfolio ahead of its merger with Shell.

Southeast Asia M&A environment
The Southeast Asian M&A market has historically accounted for a small portion of global M&A activity (c.7% by deal value and volume between 2009 – 2014); this is largely due to the relative sporadicity of assets that come to market. High quality assets that become available generally garner strong interest from regional players seeking to consolidate around existing positions and competencies in a part of the world which has experienced strong energy demand growth over the last decade (c.3.5% p.a. since 2000 according to the IEA).

The region is dominated by majors, select large-cap E&Ps and regional NOCs and independents. A number of North American players have recently made divestments in the region as part of wider international retrenchment plans (e.g. Hess, ConocoPhillips) – asset sales have generally been met with strong interest. Recent international new entrants include Ophir Energy (acquired Salamander Energy, RBC acted as a joint financial advisor to Ophir) and CEPSA (acquired Coastal Energy).

In the current oil price environment, gas assets with long term gas sales agreements are viewed as particularly attractive, although may not fit the strategy of players (particularly NOCs) seeking oil-weighted production exposure and more flexible supply or off-take. Although oil-weighted assets are a clearly stated preference, assets with strong production cash flows, such as BG Bongkot are also of interest irrespective of the oil/gas weighting.

Thailand is seen as an attractive area for upstream investment, despite the high level of government take. The country is a net importer of hydrocarbons with the domestic supply shortfall expected to increase as a result of continued economic growth. Economic growth supported by government spending on large infrastructure projects and improvement in political stability, whilst gas demand growth driven by switch to gas-fired power plants. The basins are established and proven with further exploration potential and licensing rounds are held regularly.

BG Bongkot sale process
Feedback from various industry players on the BG Bongkot sale process indicates that there is select interest. It is understood that the Chinese NOCs have entered the process, however the opportunity has only attracted weak interest internally; their ability to be competitive in a time critical auction situation is also questionable given increased internal procedures now required following corruption probes. Other regional players, including local NOCs, see limited strategic rationale in acquiring a domestic supply asset and some have limited financial capacity; Indonesian focused players see more compelling opportunities in their home market which are currently live or upcoming (e.g. ConocoPhillips’ interest in South Natuna Sea Block B).

PTTEP’s pre-emption has already been flagged as a key concern by a number of potentially interested parties which is likely to have discouraged some companies from participating in the process. PTTEP’s pre-emption is a key risk given its active strategy to secure supply in the region (as demonstrated by recent acquisitions of Hess’ assets in Thailand and Indonesia) and its strong balance sheet position. PTTEP pursue an active M&A strategy with 10 acquisitions made globally since 2010 and with a total disclosed deal value of ~$6bn. The state company generally acquires acreage in Thailand through licence awards, but will consider M&A for strategic assets that come to market; in 2014, PTTEP acquired Hess’ 35% in Sinphahorm and 15% in Pailin gas fields in which PTTEP was an existing partner in both.