The focus on portfolio optimisation was sharpened in the latest round of quarterly reports from majors including BP, ExxonMobil, Chevron, ConocoPhillips, Repsol, Shell, Total and Statoil, financial consultancy EY stated in a report.

Bigger players are seeking to dispose of non-core assets to rationalise their portfolios, while other companies aim to take advantage of asset bargains,

Companies will be seeking to take advantage of opportunities to reshape their portfolios for sustainable competitive advantage
EY's Adi Karev

“With hopes that the worst may be over, at least for most in the industry, attention is now shifting to capital-efficient growth,” EY’s global oil and gas sector leader Adi Karev stated in the report, which reviews key analyst themes in companies’ third-quarter results.

“Companies will be seeking to take advantage of opportunities to reshape their portfolios for sustainable competitive advantage,” he wrote.

“Competitive advantage can be extended through the acquisition of quality resources in low-cost, core positions.”

Karev stated “the environment for getting deals done… has improved over the last quarter” – particularly in the US unconventionals arena – as companies with financial flexibility have been able to move on asset investments.

EY’s global oil and gas transactions leader Andy Brogan said: “As a greater consensus on the future trajectory of the oil and gas market develops, we expect this to translate into a pick-up in M&A [merger and acquisition] activity as companies work to optimise and grow their portfolios.

“This appears to be supported by a narrowing of the bid-ask spread as it relates to asset pricing.”

This trend is reflected in the apparent move by Shell to dispose of its North Sea assets, with Chrysaor reported to be the leading bidder, as part of a $30 billion divestment effort by the Anglo-Dutch supermajor following its takeover of BG Group.

Similarly, Aker BP – formerly Det Norske – has been actively buying up assets off Norway with a series of acquisitions under its belt including the notable purchase of BP’s holdings off the country, while others are also looking to jump on the M&A bandwagon.

“Companies are making structural changes to their portfolios to position themselves for the longer term” in a lower oil price regime, Karev wrote.

While companies have not taken the brakes off cost-control measures, “there are signs that the focus is shifting to disciplined growth”, he added.

A raft of proposed new field projects have been shelved as part of capital expenditure reductions by oil companies as low oil prices have hit profitability, while they have also been slashing spending on exploration.

Swedbank analyst Teodor Sveen Nilsen stated in a note that majors’ capex is down around 40% while global exploration spending has been cut by 55% to 60% since the oil price started falling in late 2014.

However, he suggested the tide may be finally turning in terms of field development sanctions as cost improvements due to concept simplification, new technology and lower market prices have lowered the commercial threshold for new projects.

He believes the number of major projects reaching final investment decision in 2017 could more than double compared with this year as break-even prices have been “lowered significantly”.

“We see signs of having reached the bottom and expect sentiment to improve over the next 12 months. Globally, we expect the number of FIDs to pick up next year, especially towards the end of the year,” Nilsen wrote.

He stated oil companies are focusing on projects with a short lead time and low capex, with subsea tiebacks to existing infrastructure by the likes of Norway’s Statoil the preferred development solution.

In particular, the analyst sees “vast potential” off Norway given there are 11 projects yet to be sanctioned with a break-even price of lower than $50 a barrel, with five more schemes set to reach FID by mid-2017 and others planned thereafter.

Statoil is moving forward with tieback projects for its Trestakk, Utgard and Byrding satellite finds off Norway, while Dea will develop its Dvalin field in the same manner and both Centrica and VNG have lined up similar solutions for their respective Oda and Pil & Bue fields pending formal sanction.

EY analysts struck a more cautious note though, with Karev stating “project sanction decisions will continue to be challenged or withheld unless proposed development and execution costs are reduced, and delivery certainty to final investment decision targets is improved”.

On the exploration side, Nilsen said recent increased late data sales by seismic contractors have reinforced signs of a rebound for the sector but rig demand is still declining with utilisation expected to bottom out in mid-2017.

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