2023 M&A opportunities in Australasia – Part 2 – Oil assets

(Originally published on January 6, 2023)

In this article, I will take a look at some of the oil weighted assets on the market in Australia. There are a number of mid-to-late life oil assets in Western Australia that have been either put on the market or discussed as potential divestments. These are fashionable assets to divest as a divestment would help the Energy Transition narratives of the seller by shifting their portfolio away from oil.

Producing oil assets

There are three companies looking to divest from producing assets. These assets are all producing oil into an FPSO.

• In December 2019, it was reported that INPEX were looking to offload some of their oil assets offshore Western Australia. This would include the Van Gogh and Coniston-Novara (INPEX 47.5%) fields that tie-into the Ningaloo Vision FPSO as well as the Ravensworth field (INPEX 28.5%) that ties-into the Pyrenees FPSO.
• In April 2021, it was announced that Santos are considering divesting two of their producing oil assets.  including the Van Gogh and Coniston-Novara (Santos 52.5%) asset that ties-back to the Ningaloo Vision FPSO and the Pyrenees asset (Santos 28.6%) and Ravensworth asset (Santos 31.5%) that that both tie-back to the Pyrenees Venture FPSO.
• In April 2022, it was reported that Mitsui had started to look for potential buyers for a number of assets in Australia. The largest of these being Greater Enfield (Mitsui 40%) that ties-back to the Ngujima-Yin FPSO. It was also reported that the undeveloped Toro and Ragnar gas fields would be included. Jefferies are reported to have been hired to run the sales process.

In addition, there are two companies looking at their options in the Bedout sub-basin, where recent discoveries, particularly Dorado, have created a lot of excitement. However, in August 2022, it was announced that FID had been delayed and would not occur in 2022, with the primary concern reported to be cost risk around the FPSO. Both partners in this asset are considering selling some of their stakes.

• In April 2021, Santos announced that they were looking to farm-down their interest in the Roebuck basin. In particular, this would cover the Dorado field, as well as nearby acreage. Santos currently holds an 80% participating interest in these assets and would like to divest 20-30%.
• Carnarvon Energy are Santos’ partner in these assets holding 20% participating interest. In May 2022, it was reported that they were looking to either sell-down or farm-out as part of a number of options being considered to secure funding for the development of Dorado.

To provide a valuation for these three assets, I have undertaken DCF analysis. The basis of my valuation is the published company data and my own estimates. I have assumed a 2023 Brent price of $80/bbl, and kept this flat in real terms.

These valuations are as of 1st January 2023. A couple of notes below:

• For all of the producing assets, there is generally some contingent resource that could offer incremental value. However, I have not included for this.
• For Van Gogh / Coniston-Novara, production is expected to cease after 2025. There is some positive cashflow until then, but the negative valuation is driven by the decommissioning liabilities.
• For Pyrenees and Ravensworth, these are essentially a single project, but I have estimated a split based on an estimate of the reserves for the individual fields given that the rights holdings differ between the two permits involved.
• For Dorado, I have included three elements: the initial Dorado oil development, the Dorado gas development, and the Pavo tie-back development. The resources here should be classified as 2C as none of the developments have been approved.

Potential buyers

The potential buyer pool looks very limited, with an additional complication coming in the form of the introduction of trailing liabilities.

This was introduced after the collapse of Northern Oil & Gas Australia (NOGA) in 2020, who had acquired the Laminaria-Corallina asset from Woodside and Talisman in 2016 but ran into financial challenges. Subsequently, the cost for decommissioning the Laminaria-Corallina field, including the Northern Endeavour FPSO, has fallen on the taxpayer (even if this is being recovered by an industry production levy).

Given this concern, Jadestone had to pay over $40 million towards future liability as a part of the CWLH deal (see 2022 recap), which was far from ideal for them.

• Having said this, Jadestone Energy are likely to be keen to continue their acquisitive growth, providing they can raise the capital. However, they will likely need to wait for their issues at Montara to be resolved and, in addition, may also prefer assets that provide a bit more diversification in their portfolio.
• Could we see interest from private equity, with someone like Trident Energy entering? They were looking at assets in Malaysia so clearly have expansion goals. However, they would want assets in mid-life rather than late-life, which only really leaves Greater Enfield from the list.
• Would some of the trading houses, such as Trafigura or Glencore show interest in entering these projects, either through partnerships or direct equity. The goal would be owning the produced barrels and late-life is unlikely to fit. Therefore, Dorado would seem to be the most likely option here, or maybe Greater Enfield.

And that is where my list of potential buyers grinds to a halt but drop me a message if you feel the list should be longer or if I'm missing opportunities.