OPINION: ExxonMobil has resumed the sales process, dubbed Project Longbow, for a large package of non-operated UK North Sea assets, but it remains to be seen if the offer, delayed from last year, will hit the target with potential buyers.
At first glance, most observers would probably assume interest will be high.
A marketing teaser obtained by Upstream describes the portfolio as a “unique growth opportunity” with net production of about 37,000 barrels of oil equivalent per day, which is set to increase to 44,000 boepd in 2023. The majority of the interests are operated by Shell.
The reality, however, may not be so straightforward, and a number of factors could dampen buyers' appetites, leaving ExxonMobil struggling to attract offers, at least ones it sees as fair value.
It seems safe to assume that almost all the main players in the UK North Sea, many of whom are now backed by private equity cash, will cast their eyes over the assets.
But how many will bid?
Bound to take a look are the likes of Chrysaor, which is backed Harbour Energy and EIG Global Energy Partners, HitecVision-funded NEO Energy and Siccar Point Energy, backed by Bluewater and Blackstone, which are likely looking for a way to bolster the company after last year's failed attempt to sell it.
Publicly funded players, such as EnQuest and Serica Energy, will take a look too in all probability.
Once source with knowledge of the matter even said Italian major Eni appeared to be showing interest.
Wide-ranging values of anywhere between $1 billion and $2 billion have been mentioned in the press and by sources. But several issues could affect what levels bids, due in October, come in at.
First, some buyers are likely to find the non-operated nature of the portfolio off-putting.
That appears especially true of the private equity houses, which tend to prefer retaining have influence over assets they buy, not least when they are spending north of $1 billion.
Second, and perhaps more importantly, will be how ExxonMobil decides to treat the large decommissioning securities associated with the assets.
A refusal by ExxonMobil to provide buyers with any support on this is bound to put nerves on edge and act as a deterrent, therefore depressing valuations.
A third issue could be the timing of the Shell-operated Penguins development, which appears to represent a large slice of the value of the deal.
Penguins is one of the largest development projects in the UK continental shelf where first production is due in 2022 and peak gross output of 28,000 boepd is due in 2023.
Upstream reported earlier this year that construction work in China on the new floating production, storage and offloading vessel destined for the northern North Sea re-development project hit delays as a result of the pandemic, although at that time no impact on the overall project schedule was expected.
Any deviation from that planned timeline could, again, pull down the value.
A fourth question in buyer’s minds will probably be over Shell’s future drilling plans.
Given Shell’s recent statements about moves to lower carbon energy in a post-Covid world, will North Sea exploration and infrastructure-led drilling, especially in more mature parts of the UK continental shelf, continue to make the cut for the Anglo-Dutch supermajor?
Even taking all those issues out of the mix, ExxonMobil’s ability to command $2 billion has been severely hampered by the fluctuations in price and downward revisions of future price expectations brought about by the fall in demand due to the Covid-19 pandemic.
One North Sea oilman described $2 billion as “yesterday’s price” and the deal, minus its own peculiarities, will in many ways set a new benchmark for pricing North Sea transactions.
Upstream understands ExxonMobil has only recently opened data rooms and management presentations are still not over so it is still early days.
The company told Upstream last week that it will sell if someone else can find greater value in the assets than it does.
ExxonMobil is pulling the string on Project Longbow, but where the arrow falls remains to be seen.
(This is an Upstream opinion article.)