Small Asian Firms Seize Upstream Opportunities in Weak Market

Lemang was Mandala’s first upstream transaction in the region since it was established in March 2015 and the Southeast Asia-focused company is backed by global investment firm Kolhberg Kravis Roberts & Co. (KKR).

“For Mandala Energy, this marks an excellent first step in building our South East Asia portfolio. Combining Ramba’s local relationships and knowledge with Mandala’s technical and operational strengths will provide an ideal platform for securing early production whilst pursuing significant upside potential in the Lemang project,” Mandala CEO Barry O’Donnell commented Oct. 5 on the acquisition.

In the Philippines, Australia’s exploration firm Red Emperor Resources NL acquired a 15 percent interest in Otto Energy Ltd.’s Service Contract (SC) 55, located in southwest Palawan Basin for up to $5.63 million.

“Red Emperor is delighted to have been able to complete on a transaction that has the potential to completely redefine the company. After extensive review of many potential projects, the Red Emperor Board have … taken advantage of a depressed oil market that has seen drill rig rates halve and farm-in promotes reduce significantly,” Managing Director Greg Bandy said in the March 2, 2015 transaction.

Malaysian SPACs Targeting Asset Buys

Elsewhere in Asia, the steep downturn in oil markets may encourage some investments from Malaysian special purpose acquisition companies (SPAC) listed on local stock exchange Bursa Malaysia. These firms are given 3 years from listing on the stock exchange to make a qualifying acquisition.

“Current weak oil price environment provides better [bargaining] power for ‘undergraduate’ SPAC … SPACs are cash companies looking for oilfield assets and should potentially be able to negotiate for better pricing especially in the declining oil price environment,” Jason Tan, Malaysia’s HongLeong Investment Bank analyst said in a Dec. 10, 2015 research report.

Reach Energy Berhad, the last SPAC to be listed on Bursa Malaysia in August 2014, is hopeful of completing its first upstream acquisition in the current market environment as asset prices fall in tandem with the slide in oil prices. A senior executive told Bloomberg News Dec. 23, 2015 that the SPAC has shortlisted two upstream assets from over 50 that it evaluated last year and expected to seal a deal earlier this year.

“This is the best time to buy because oil price is depressed and there are a lot of companies, big and small, rationalizing their portfolios … A lot of the players may say, OK, if I divest here I can get the funds to develop this one because I need the funding, since revenue is down,” Reach’s Managing Director Shahul Hamid Mohd Ismail told Bloomberg News Dec. 22.

One of the acquisition targets that Malaysia’s largest listed SPAC is considering is located in the Asia Pacific.

Meanwhile, Cliq Energy Berhad – another Malaysian SPAC – announced in March 2015 its much-anticipated upstream asset purchase after listing on Bursa Malaysia in April 2013 to raise $118 million (MRY 364.39 million). The company agreed conditionally to pay $117.3 million (MYR 492 million) to Phystech Firm LLP to acquire a 51 percent interest in Phystech II Joint Stock Company.

Cliq revealed that Phystech II would give it ownership of two producing onshore oilfields in Kazakhstan’s North Karazhanbas Region, with proved and probable reserves of 39.4 million barrels of oil as at April 1, 2015. The SPAC is awaiting approval of the Securities Commission Malaysia for the Phystec II acquisition proposal which was resubmitted to the authorities Dec. 14, 2015.

Falling Asset Prices Entice Large Players Too

Small firms in Asia aren’t the only ones drawn by falling prices of petroleum assets as larger competitors such as Japan’s trading house Mitsui & Co., Ltd. is on the look-out to acquire distressed oil assets.

“If we wait for oil demand to recover it will take about three years, but we want to avoid conflicting with the oil majors ... it is good timing to find distress assets that small and mid-sized players may be pressured to sell off,” Mitsui’s President and CEO Tatsuo Yasunaga said, as quoted in the Financial Times Jan. 3.

Mitsui is already on the asset acquisition trial, with the company taking a 35 percent stake in the Kipper gas and condensate field offshore Australia from Santos Ltd. in November 2015 for $358.2 million (AUD 520 million).


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