Asian Blocks on Offer as US Firms Change Priorities

Ownership of some oil and gas blocks in Asia may be about to change hands after two independent companies in the United States –Newfield Exploration Co. and Hess Corp. – completed a review of their strategies earlier this year. The move has caught the attention of national oil and gas companies in the region as well as private firms, which are keen to acquire stakes in blocks that are on offer in China and Southeast Asia, but no deals have been completed yet.

Asian Upstream Assets Marginalized by Changing Priorities

Newfield, with offshore oil and gas assets in China and Malaysia, has shifted its attention away from international operations. The firm is transiting to a North America-focused liquids company and is pursuing strategic alternatives to maximize the value of its international offshore assets, according to a presentation by Newfield in July.

"The decision to pursue alternatives for Newfield's international assets follows a comprehensive review of the Company's strategy, asset base and future direction … now is the right time to become a North American-focused operator,” Lee K. Boothby, Newfield chairman, president and CEO said in a press release Feb. 13. Newfield has engaged Goldman, Sachs & Co. as its advisor for the disposal of its foreign assets.

International assets are not that critical to Newfied as they accounted for only 6 percent of its total reserves in 2012, 15 percent of its estimated production in 2013 and 17 percent of the firm’s capital budget in the same year, data from Newfield’s website showed.

As for Hess, the company has set itself the objective of becoming a pure exploration and production (E&P) firm by 2014. The shift resulted from a multi-year strategic transformation, which upon completion, will enable Hess to have a focused portfolio of higher growth and lower risk E&P assets. The company plans to pursue “additional E&P asset sales by pruning [its] Asian portfolio to focus on the long lived, low risk Malaysia/Thailand Joint Development Area (MTJDA) and the North Malay Basin,” Hess said in its March 4 letter to shareholders and added in an April 15 letter that it has begun a “sale process for [its] mature E&P assets in Indonesia and Thailand.”

Hess sees the North Malay Basin as one of the six core E&P assets that will drive its future production growth for the firm, which is a joint operator of MTJDA through its equal joint venture Carigali Hess with Petroliam Nasional Bhd (Petronas).

Accordingly, Hess completed the sale of its 2.72 percent stake in the Azeri, Chirag and Guneshli (ACG) fields and a 2.36 percent interest in the associated Baku-Tbilisi-Ceyhan pipeline to India’s ONGC Videsh Ltd. for $1 billion in March. Hess also sold its Energy Marketing business – which supplies natural gas and electricity to non-residential energy customers in the eastern part of the United States – for $1.025 billion to Centrica’s subsidiary Direct Energy.

Blocks Being Offered

The Southeast Asian producing assets that Hess is selling include a 35 percent operating interest in the onshore Sinphuhorm block in Thailand as well as a 75 percent interest in the Pangkah Production Sharing Contract (PSC) offshore Indonesia, for which the company is the operator.

Hess’ original joint venture partner in the Pangkar PSC, Kuwait Petroleum Corp.’s unit Kuwait Foreign Petroleum Exploration Company (KUFPEC) sold its 25 percent share to PT Sakai Energi Indonesia, a subsidiary of Indonesia-listed Perusahaan Gas Negara (PGN), for $265 million in June. Pangkah PSC’s current daily production is about 40 million standard cubic feet of natural gas and 7,000 barrels of oil and condensate.

“We want to try involving ourselves in the procurement of oil and gas because until now we only received and distributed,” PGN corporate communications spokesperson Ridha Ababil told Indonesian daily Jakarta Post.

Newfield’s interest in Malaysia includes Blocks PM 318, PM 323 and PM 329. The company also has an interest in exploration Blocks 2C and SK 310, where it made a significant natural gas discovery off Sarawak in April. Daily production at Newfield's oilfields in Malaysia is around 30,000 barrels, while its gas production is at 5 million standard cubic feet. In China, Newfield has interest in the Bohai Bay Block. Preliminary offers for Newfield's upstream assets were due by end June, while the deadline for Hess was set for mid-July, according to Reuters.

Potential Buyers

Industry players noted that the region’s national oil and gas companies are potential buyers of these blocks as most are already existing stakeholders, especially with regards to upstream assets within their own territory. However, privately owned companies, including newcomers such as Malaysia’s Hibiscus Petroleum Bhd, are also on the look-out for opportunities to acquire interests in these producing blocks. International oil majors may also feature in bids for these blocks as they try to stem declining output from their own producing assets.

Newfield is reported to be offering its 12 percent stake in Caofeidian (CFD) 12-1 and 12-1 South oil fields in China’s Bohai Bay for sale, while another United States company Anadarko Petroleum Corp. – a fellow joint venture partner – is trying to offload its 35 percent interest in CFD. CNOOC, the majority shareholder in the CFD fields, appeared to be a potential buyer. 

“We do not have any information to share at the moment. If there is any news [on the purchase of Newfield and Anadarko stakes in the CFD fields], we will update the market,” Michelle Zhang, deputy manager of Media/Public Relations at CNOOC Limited told Rigzone.

Asian companies that appeared keen to acquire the assets offered by Newfield and Hess include Indonesia’s PT Pertamina Persero and Thailand's PTT Exploration and Production (PTTEP), while companies like Singapore-based KrisEnergy are also on the look-out. Pertamina is believed to be keen in acquiring stakes in Pangkah PSC and Sinphuhorm blocks, while PTTEP might be interested in the Sinphuhorm block in Thailand.

Hess’ plan to sell its assets “is an open tender and it may include a plan to sell its assets in Thailand. Pertamina is currently reviewing whether to purchase them,” Pertamina director for investment planning and risk management Afdal Bahaudin said, as quoted by Jakarta Post. 

However, Pertamina’s priority seemed focus on the acquisition of domestic assets, which may see the firm taking a closer interest in Pangkah PSC.

"Pertamina is always keen to expand its upstream business and explore every opportunity available. Naturally domestic (Indonesia) assets are prioritized," the firm’s corporate communications chief Ali Mundakir told Reuters.

Separately, Newfield expects to finalize the sale of its Malaysian oil and gas assets by the end of this year amid strong interest for them.

"Goldman Sachs is managing the process and we have seen strong interest in the assets … I would not be able to disclose further specifics on this sale until it is finalized ... most likely later this year," Newfield communications coordinator Keith Schmidt told Malaysia’s Business Times.

Malaysia-based oil and gas service firm SapuraKencana Petroleum Bhd is among companies keen on acquiring Newfield assets, while another local-based firm Hibiscus Petroleum may also be interested.

“Yes, we are looking at it … [but we are] not making any concrete offer … [there is] nothing formal, nothing firm,” a SapuraKencana source told Rigzone.

Hibiscus plans to buy producing upstream assets as it forms part of the company objective. The firm stated in a presentation to investors June 1 that “part acquisition of shares in international independent oil company (IOC) operating in Malaysia is an objective of the firm as this would enable Hibiscus to become the largest IOC in Malaysia.”

Meanwhile, Petronas, which is a major shareholder in some of Newfield’s upstream assets in Malaysia, is unlikely to take part in the acquisition.

We “heard there are some offers [for Newfield upstream assets] already … something is in the works, but we have to wait for the announcements,” a Petronas executive told Rigzone.

Meanwhile, Goldman Sachs has shortlisted Exxon Mobil Corp., Royal Dutch Shell plc, Talisman Energy Inc. and KUFPEC to submit second-round bids in mid-September for Newfield’s $1.2 billion assets in Malaysia and China, a source familiar with the matter told Reuters.

Who’s Taking Over

While it is clear that Hess, Newfield and Anadarko are selling some or all of their upstream assets in Asia, the question of who replaces them will be known only later this year or perhaps next year. The shortlist for Newfield’s Asian assets could suggest more intense competition for the remaining assets from the region’s state and private oil companies. In such a race, the region’s national oil companies are better placed to make the acquisitions, especially if it falls within their national boundaries, given their larger financial resources. These state-owned companies may however opt to buy only enough interest to be a majority shareholder, leaving the possibility that other parties, including private companies, may take a stake in those producing upstream assets.

Firms like the Malaysian pair of SapuraKencana and Hibiscus may see acquisitions of producing assets as an opportunity to become full-fledged oil and gas companies. Others such as KrisEnergy may add these producing assets to their portfolios if they are deemed to be of value. New names, perhaps familiar ones, will replace the departing United States trio from some of the producing oil and gas assets in Asia in the not too distant future. Their identities will be revealed only then.