Australian upstream and liquefied natural gas transactions exceeded US$7 billion by the end of October, however the risk index is steadily increasing due to the unstable legal and fiscal landscape.

The Australian market remains a top destination for global investors with a record volume of upstream and LNG mergers and acquisitions in 2023, despite the past 12 months having been the most unstable legal and fiscal landscape seen in Australia for over a decade, according to Wood Mackenzie.

“By October this year, we have seen more than US$7 billion spent on upstream transactions. It is particularly interesting that such a strong vote of confidence in the upstream sector be delivered against a backdrop of the most unstable legal, regulatory and fiscal landscape seen in Australia for over a decade,” commented Angus Rodger, WoodMac’s vice president, SME upstream APAC & Middle East.

Recent M&A deals in Australia include EIG and Brookfield’s acquisition of Origin Energy, a bidding war in Perth for Warrego Energy — that was won by mining giant Hancock Energy — and Taiwanese CPC Corporation buying a stake in Santos’ Dorado project.

Also, UK supermajor BP acquired Shell’s interest in Woodside Energy’s proposed Browse giant gas project.

Angus said “most Australian deals are focused on LNG and domestic gas, such as EIG/MidOcean Energy’s move on APLNG, ConocoPhillips' subsequent acquisition of an additional stake in the project, and Saudi Aramco then acquiring an interest in MidOcean. It’s interesting to note that Aramco made its first move towards becoming a global LNG player in an Australia-focused deal”.

He noted that despite recent criticism from Tokyo that Australia’s investment climate was deteriorating, Japanese companies still closed two back-to-back upstream deals in August. LNG Japan (the 50:50 Sojitz and Sumitomo joint venture) acquired a 10% share in Woodside’s Scarborough gas project, and TotalEnergies and Japan’s Inpex acquired Thailand national upstream company PTTEP’s interest in the Cash/Maple fields, indicating continued investment in high-quality LNG assets and commitment to the country.

“Despite a more volatile risk environment, Australia is still attracting investment for a few key reasons,” Angus said.

“Firstly, we can see companies are focusing on strengthening their LNG portfolios, demonstrating confidence that Australia’s world-class LNG assets will continue to play a key (role) in the energy transition for decades to come. Secondly, tight conditions in domestic gas markets also creates opportunities, such as in the Perth basin hotspot. Lastly, it is worth noting that companies are not selling under current or perceived future duress — for deals with an announced consideration the asset pricing is at levels equivalent or higher than the global upstream average.”

In 2023, new players have entered Australia’s upstream sector while existing heavyweights including TotalEnergies, ConocoPhillips and Inpex have strengthened their positions in the country.

“During our discussions with buyers and bankers, one message has been consistently conveyed — while Australia may not be as attractive as it used to be, it is still much less risky than most other countries on their radar,” Angus said.

Increased M&A activity in Australia also comes as the overall global market is picking up with the majors, national oil companies and North Asian players all being more active buyers in 2023 than in previous years. WoodMac attributed that in part to Russia’s invasion of Ukraine, which underlined the importance of energy security and the need to develop oil and gas supply for many years to come.

Crystal ball and challenges

Looking ahead, the consultant expects more deals in the pipeline.

Equity sell-downs of key assets such as Scarborough, Crux (Shell-operated), and Narrabri and Dorado (Santos) will likely be targeted by operators, according to WoodMac. It also expects companies to put up for sale their non-core and mature assets offshore Western Australia, while M&A activities in the [onshore] Perth basin are also expected to continue.

“We believe the asset market will continue to be active, but primarily for bigger, higher-quality and lower-risk assets — primarily in gas and LNG. The market for mature fields appears less competitive as decommissioning regulations tighten up,” Angus said.

However, WoodMac warned of the importance of considering the political, legal and fiscal risks in the background, not least given the high probability of increased government intervention in domestic gas markets and further delays in securing environmental approvals. If the regulatory volatility continues to increase, it will inevitably impact the M&A market, the Edinburgh-headquartered consultant concluded.

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