2023 M&A opportunities in Australasia – Part 3 – What could be put on the market?

(Originally published on January 10, 2023)

There are a number of interesting trends that could drive M&A in the region in 2023. Following the mega mergers in 2021, it is likely that some portfolio rationalization may be considered.

Woodside / BHP Petroleum portfolio rationalization

With the completion of the Woodside Energy / BHP Petroleum merger in June, there is likely to be some portfolio rationalization.

• One of the biggest questions will be around the Bass Strait assets, particularly as BHP had stated that they would be looking to divest these assets back in mid-2020. However, the introduction of trailing liabilities may see both Woodside Energy and ExxonMobil continue to hold these assets.
• The mid to late-life oil projects offshore WA may also be considered. With the both Woodside and BHP Petroleum having legacy assets here including Greater Enfield, Pyrenees and CWLH.

Santos / Oil Search portfolio rationalization

The Santos / Oil Search merger was completed in December 2021, with Santos since indicating that they would be looking to divest $2-3billion of assets. I mentioned some known asset opportunities in a previous post but additional options could include:

• Following the merger with Oil Search, Santos become the largest partner in the PNG LNG project with a 42.5% stake. A deal to sell a 5% stake has already been announced but a further sell-down would not be unexpected.
• Santos took FID at their Pikka asset in Alaska in August 2022. However, it is the only asset in their portfolio outside of Australia and PNG, making it an obvious option to consider for divestment during any rationalization exercise.
• In 2021, TotalEnergies completed a deal with GIP where the latter took a stake in the downstream facilities at Gladstone LNG. A deal of this nature may be of interest to Santos and there is certainly an appetite from infrastructure investors.

WA oil assets

There are a number of WA oil assets on the market, which I covered in part 2. It could be expected that other assets in this class could enter the market, with one obvious one.

• 2022 saw Jadestone Energy acquire BP’s interest in the CWLH oil fields associated with the NWS development. The remaining partners at CWLH would likely have some appetite to divest their stakes.

Integrated gas-to-LNG opportunities

There have been a number of transactions in this space, and I don’t see why this won’t continue into 2023. There are two main areas we could see:

• Tokyo gas selling their interest in a number of projects to EIG could be a sign that other Japanese companies with similar small stakes in Australian projects my follow. This could include JERA (Ichthys, Gorgon, Wheatstone, Barossa), Osaka Gas (Gorgon, Crux, Ichthys), Kansai Electric (Pluto, Ichthys), Toho Gas (Ichthys), and Kyushu Electric (Wheatstone). It seems less likely that they would sell a stake from the INPEX operated Ichthys project, but the majority of the other assets could be an option.

LNG plants - Tolling

In mid-2020, Chevron announced its intention to divest their 1/6th interest in NWS LNG. However, in early-2022, they announced that they had not received any acceptable offers and had therefore cancelled the sales process. I have not heard who the interested parties were but it is likely that they would have included infrastructure investors.

Despite the NWS LNG sale not materialising, there have been plenty of recent transaction in this space, particularly with infrastructure investors such as GIP taking stakes in some of the common facilities. This may be something that we see continue into 2023.

Perth basin gas players

In a previous article, I discussed the M&A being seen in the Perth basin and it seems like a serious consolidation process is underway. We can certainly expect to see more M&A between the players, with companies such as Hancock Energy and MinRes showing a real appetite, potentially to hedge against increasing gas prices, with gas being critical to their mining operations.

Once the fun with Warrego Energy and Norwest Energy is complete, we could see further transactions involving Strike Energy, Hancock Energy, MinRes and Talon Energy. Would a larger player potentially swoop in and take the lot?

East coast gas players

The state of the east coast gas market, and the recent government intervention in the market, deserves an article by themselves and I will put something out later in the week.

To summarise, the general narrative for East coast gas players is that, as domestic existing production declines, there will be a need for new gas supplies and even LNG imports. Given this, domestic gas prices are expected to rise, both increasing the profits from existing developments and enabling the development of new fields.

The POSCO International/Hancock Energy acquisition of Senex Energy will have been supported by this price outlook, especially given that their Project Atlas expansion plans involved the further development of domestic-only acreage.

However, the recent government intervention into the gas market has certainly created uncertainty and has been very unpopular with the industry. We have already seen POSCO International/Hancock Energy put their expansion plans for Project Atlas on hold.

It will likely take a little while for this all to work its way through but, once it does, if the increasing domestic price narrative remains, then we could see other gas players on the east coast become targets. These could include companies such as Central Petroleum, Cooper Energy, Beach Energy, and assets held by SGH, Mitsui and O.G. Energy.

New Zealand

OMV have stated their intention to divest their upstream business, with November seeing reports that the Carlyle Group are looking to acquire these assets. If a deal does happen, then they may look to rationalise the acquired assets.