Analysis by Wood Mackenzie shows that as of mid-November, transactions in the industry are down more than 90% from 2019's levels

Upstream gas investments

Wood Mackenzie said that globally, upstream mergers and acquisitions (M&A) have felt the pandemic’s impact “acutely” (Credit: Wikimedia Commons/Floydrosebridge)

Upstream transactions across the Asia Pacific region in 2020 have plunged to their lowest total this century.

That is according to analysis by energy researcher Wood Mackenzie, which shows that as of mid-November, only $426m worth of assets have changed hands this year, down more than 90% from the $5.1bn worth of transactions in 2019.

It added that globally, upstream mergers and acquisitions (M&A) have felt the pandemic’s impact “acutely”, as commodity prices fall, and operators have shelved growth plans in favour of “resilience and long-term strategic planning”.

But the research firm believes that with strategic repositioning underway in the face of the energy transition, the situation is “expected to change”.

Wood Mackenzie principal analyst Alay Patel said: “Never before has the upstream industry been challenged to this extent. The combination of the oil price crash, Covid-19 and rising pressure to comply with environmental, social and corporate governance (ESG) standards have created the perfect storm in the upstream industry.

“This means we can expect deal activity to bounce back over the next 12 months as buyer-seller price expectations converge, and the recent uptick in global M&A driven by consolidation of North American players spills over to divestment of non-core Asia Pacific assets.”

 

About $12bn worth of upstream assets available for transactions across Asia Pacific

Wood Mackenzie estimates about $12bn worth of upstream assets in the market are rumoured to be for sale or farm down across Asia Pacific.

It added that portfolio rationalisation, financial deleveraging and decarbonisation in preparation for the energy transition are “key drivers of these divestments”.

Unsurprisingly, majors and large cap international oil companies are the primary sellers of assets – a trend that has accelerated since the oil price crash in the first quarter of 2020.

The energy researcher’s analysis notes that a deeper dive into sub-regional breakdown reveals that more than half of the assets on sale come from Australia and New Zealand. LNG opportunities account for almost 60% of the 5.8 billion barrels of oil equivalent of resources on offer.

Wood Mackenzie research director Andrew Harwood said: “If we look further ahead towards potential farm downs or future candidates for divestment, we assess a further $26bn of assets could come to the market as corporate strategies evolve.

“The big question on the minds of many market watchers is who will step up to acquire the many assets coming to the market.”

Wood Mackenzie highlights that potential buyers are “slowly emerging”, and that they are “targeting specific geographies and asset types”.

It added that Asian national oil companies, regional specialists and infrastructure funds are likely to be “key buyers”, while private equity-backed buyers could also make a splash in the region as they “adapt their strategies to the new upstream outlook”.

The researcher believes these players may not be the “traditional buyers of mature assets” in Asia Pacific.

Because of this, it added that policymakers, regulators and investors must become familiar with the strategic objectives of these new buyers as the region’s corporate landscape “undergoes its own transformation”.