Big Oil mergers could trigger more deals, consolidation in South-east Asia crude sector

BIG Oil is on the move, and South-east Asia’s crude oil sector is bracing itself for a shake-up. In the wake of deals recently announced by ExxonMobil and Chevron, industry watchers say more mergers, acquisitions and consolidation may be expected among oil players in the region.

The “immediate and wider reverberations” of the mega-mergers are likely to be felt in corporate strategies in South-east Asia, said Angus Rodger, Wood Mackenzie’s vice-president for upstream small and medium-sized enterprises in the Asia-Pacific and Middle East.

“While it’s not certain that we’re entering a new round of industry-wide consolidation – mega-mergers or otherwise – it’s fair to assume that the parameters of C-suite discussions across the global oil sector have been broadened by the events of the last two weeks,” he said.

He reckoned mid-cap and large-cap companies will be “considering their options; and the highest quality of those will seek to attract an increasing-scarcity premium”.

ExxonMobil said on Oct 11 that it intends to merge with Pioneer Natural Resources in an all-stock transaction valued at US$59.5 billion. The oil major said that the acquisition would transform its upstream portfolio and more than double its footprint in the Permian Basin in the US.

Not to be outdone, Chevron announced shortly after that it would acquire all the shares of smaller rival Hess for US$53 billion. Chevron described Hess’ Stabroek block in oil-rich Guyana as an “extraordinary asset with industry-leading cash margins”.

Rodger said Chevron has – as part of the merger – outlined plans for US$10 billion to US$15 billion of asset sales from the combined entity from now till 2028.

“From an upstream perspective, Chevron has greatly improved its global diversification, moving from six core assets to eight by adding Guyana and the Bakken,” he said.

He noted that the oil giant has several non-core assets within its combined Asia-Pacific portfolio that could be divestment candidates, based on their maturity, remaining value and future licence expiry risks.

In the region, Chevron also has downstream – or refining – interests in Singapore, Thailand and South Korea.

“Not all refineries in Chevron’s downstream portfolio in Asia are globally competitive, and so these also could fall under the purview of review and divestment,” said Rodger. He does not expect “rapid moves” for divestment in Chevron’s downstream segment for now, though.

Market watchers said there are similarities in the types of deals that have been announced by the big oil players.

“The Chevron-Hess merger, like the ExxonMobil-Pioneer Energy merger, is about increasing the competitiveness of the upstream,” said S&P Global Commodity Insights’ executive director for crude oil consulting, Paul Tossetti.

He said the Chevron-Hess merger gives Chevron at least 25 per cent of Guyana’s offshore block – or about 11 billion proven barrels. Pioneer Energy is the top company in terms of production in the Permian Basin, with about five million barrels per day across the entire basin. 

Tossetti reckons more mergers could follow: “A lot of crude oil will be needed in the future, despite the energy transition.”

Wood Mackenzie’s Rodger said both ExxonMobil and Chevron have put in place “very large premium-priced deals” for their respective acquisition targets.

This, he said, further widens the strategic divergence between the US oil majors which are leaning harder into oil and gas, and the Euro majors such as Shell, BP and TotalEnergies.