The Exit Of U.S. Giant ExxonMobil Highlights The Decline Of North Sea Oil And Gas
It seems that the U.S. exodus of the Norwegian Continental Shelf (NCS) is now in full swing. Following hot on the heels of the decision by Chevron last year to exit the region, the news is coming out of Houston that the largest U.S. energy company, ExxonMobil, is planning to sell its Norwegian assets. Although they are no longer an operator in the region, the U.S. giant holds stakes in around 20 operating fields and projects in the area.
A continuing trend
Despite this being the most significant transaction on the NCS for a decade, Julien Mathonniere, global crude oil deputy editor at ICIS does not believe this deal will have a substantial impact on the region. “ExxonMobil sold its operated oil and gas assets in Norway two years ago and no longer is an active player in the Norwegian North Sea” he explained. “We’re only talking of the remaining, non-operated Norwegian Continental Shelf assets here, which are sizeable but not huge. Norway’s national oil company (NOC) Equinor already operates most of these fields.”
Daniel Rogers, oil and gas analyst at GlobalData, agreed that the move will have little impact. “ExxonMobil’s position in Norway has been dwindling over the recent years; the company offloaded all of its operated assets in the country in 2017 but still retains stakes in 19 producing fields,” he said. “Norwegian production only accounts for approximately 3% of the company’s total portfolio, and the sale could help focus on activities in more core growth regions such as onshore U.S. and deep-water South America.”
Looking for low-cost oil
The strategy behind the decision is simple: oil economics are shifting to more profitable plays and areas for integrated oil companies like ExxonMobil. “The tentative merger between Chevron and Anadarko earlier this year has signaled a change of paradigm among majors, some of which are refocusing on the more profitable U.S. shale plays and LNG projects,” Mathonniere added. “ExxonMobil is the largest U.S. oil and gas company, so if its competitor Chevron has identified profitable opportunities in U.S. shale and LNG, then I’m inclined to think that ExxonMobil will follow through in some way, especially since those opportunities are low-hanging fruits lying in its backyard.”
The age of the independents
ExxonMobil’s exit could pave the way for several smaller, independent operators with lower operating costs to enter the arena, in much the same manner as Chrysaor’s acquisition of ConocoPhillips UKCS assets for $2.68 billion last year. Norway’s Okea, a private equity-backed firm, has also been mentioned as a potential buyer, and independent exploration and production companies like Aker BP, DNO, Lundin Petroleum, and PGNiG could also be among the front runners for a potential bid.
“Aker BP and DNO both previously expressed interest for mature NCS assets,” Mathonniere continued. “Both are Norwegian. DNO made a hostile and controversial $778.5 million bid for U.K.’s Faroe Petroleum in November 2018, eventually ending with 20% more shares of Faroe, for a total ownership of 30.6%. Aker BP acquired 11 NCS licenses from Total for $205 million in July 2018. Both seem well positioned to continue their asset spree.”
Building a balanced portfolio
For potential buyers, the assets would provide a steady positive cash flow and an oil-weighted production portfolio. ExxonMobil’s Norwegian production in 2018 averaged 155,000 barrels of oil equivalent per day and has declined year-on-year over the last 11 years due to production declines in major fields such as Statfjord, coupled with the sale of significant assets like Balder.
“With estimated remaining recoverable reserves of approximately 400 million barrels of oil equivalent from producing fields, there is significant value to be captured,” Rogers continued. “Growth opportunities include the Trestakk oil field due to commence production in 2019 with expected gross recoverable reserves of 80 mmboe, the Snorre expansion project expected to extend field life beyond 2040 and gas discovery opportunities at Lavrans and Mikkel Sor.”
A steady decline for the North Sea
The decision by ExxonMobil to leave the area also highlights the fact that the North Sea is not where the future of oil is. “It’s been a declining petroleum province for a while, and it only accelerated after the oil price collapsed in late 2014,” Mathonniere concluded. “Activity there has registered a painful decline, particularly concerning field investment expenditures, but also to operating costs.
“Exploration activities are below the levels that would allow renewing reserves. Production is hence not sustainable. The Johann Sverdrup is the latest big discovery on the NCS, but it might also be the last one given the lackluster exploration budgets.”