EXXON Mobil has shortlisted three bidders for its oil-producing offshore assets in Malaysia that are worth billions of ringgit.
According to sources, Hibiscus Petroleum Bhd is among the shortlisted bidders along with United Kingdom-based EnQuest plc.
One source points out that Sapura Energy Bhd has also expressed interest in ExxonMobil’s assets. It is unknown if the oil and gas (O&G) company made it to the list.
Both Sapura Energy and Hibiscus Petroleum declined to comment when contacted.
Late last year, it was reported by Bloomberg that ExxonMobil was looking to sell its upstream offshore assets for between US$2bil (RM8.3bil) to US$3bil (RM12.3bil).
ExxonMobil is a major crude oil and natural gas producer in Malaysia.
The US-based oil major operates in Malaysia under four production sharing contracts (PSCs) with Petroliam Nasional Bhd (Petronas).
According to ExxonMobil’s website, the PSCs are producing about one-fifth of Malaysia’s oil production and about half of all natural gas supplies to Peninsular Malaysia.
Even before the oil price rout this year due to the Covid-19 fallout and the price war between Saudi Arabia and Russia, ExxonMobil had been on an asset divestment programme.
Last year, ExxonMobil exited Norway after it sold its upstream assets to Vår Energi AS for US$4.5bil.
According to the Institute for Energy Economics and Financial Analysis (IEEFA), a global energy think tank, asset sales play an important role in ExxonMobil’s annual cash management strategy.
“Over the past decade, the company has covered one-third of its total cash distributions to shareholders through sources other than free cash flows.
“Asset sales have provided key cash infusions to make up for that shortfall, ” it said.
IEEFA said in a report in April that ExxonMobil was planning an increase in asset sales that could reach US$25bil by 2025, spanning over 11 countries across four continents. ExxonMobil isn’t alone in its divestment plans.
Other global O&G players are also taking the same route.
Last year, US-based Murphy Oil Corp exited Malaysia with a US$2.13bil sale of its O&G assets to Thailand’s PTT Exploration and Production Public Co Ltd (PTTEP).
Murphy Oil had said the proceeds from the sale were used to pay down debt, buy back shares and fund potential deals in the United States.
Industry sources say that Sapura Energy had also been interested in Murphy’s assets at that point of time.
For Sapura Energy, which is already laden with high debt levels, funding the acquisition of ExxonMobil’s assets would be a challenge.
However, the recently announced changes at the leadership of Sapura Energy could play a part in how the group will be able to fund such a deal.
One industry observer points out that Sapura Energy could be looking to morph itself into a mini version of the country’s national oil company, Petronas. After all, two of Petronas’ former top executives will be at the helm of Sapura by next March.
In July, ex-Petronas CEO, Tan Sri Shamsul Azhar Abbas was made Sapura Energy’s non-executive chairman.
Last week, the group announced the departure of its long standing CEO Tan Sri Shahril Shamsuddin, who will retire in March next year. He will be replaced by former Petronas executive vice-president and CEO of Upstream, Datuk Mohd Anuar Taib, himself at one point a potential candidate to helm the Petronas group.
With Anuar’s expertise in the upstream business of the O&G industry, some argue that Sapura Energy could be focusing its business on oil exploration and production.
But first, the group would need to address its earnings underperformance and massive debt. The debt level, in the league of RM10bil, would clearly put its main shareholder Permodalan Nasional Bhd (PNB) in a tough spot were there to be a fresh cash call to fund a major acquisition.
Over the last few years, PNB has already sunk some RM4bil into Sapura Energy.
AmInvestment Bank has pointed out that Sapura Energy’s RM10bil debt will need to be refinanced with 14 banks by December 2020.
However, it should be noted that Sapura Energy could be exploring the bid for ExxonMobil’s asset via its joint venture company called SapuraOMV Upstream Sdn Bhd.
In 2018, Sapura Energy sold 50% of its exploration and production arm for US$540mil to Austria-based OMV Aktiengesellschaft, creating SapuraOMV Upstream.
Meanwhile, Hibiscus Petroleum is currently in the midst of raising a massive sum of RM2bil, a figure which is worth twice its market capitalisation.
The group announced the fund raising exercise last month, which will be through the issuance of new shares.
Hibiscus said that the proceeds would be used to “acquire good-value and high-quality producing O&G assets” that “include three O&G assets in South-East Asia”.
Notably, Hibiscus has undertaken a number of private placement exercises over the last few years and has not raised much debt from the banks.
Under its latest fundraising exercise, Hibiscus has proposed to issue up to two billion units of convertible redeemable preference shares (CRPS).
Hibiscus currently has two producing assets - Anasuria and north Sabah. It will be interesting to see who emerges as the successful bidder for ExxonMobil’s Malaysia oil and gas fields, at a time when the industry faces significant headwinds.