Two projects worth $45 billion announced this month show the world’s largest oil companies are regaining the confidence to make big investments, emboldened by rising crude prices and low costs that promise to trigger more expansion ahead.
Chevron Corp. gave the go-ahead to a $37 billion expansion in Kazakhstan, the industry’s biggest undertaking since crude started tumbling two years ago. BP Plc signed off on the $8 billion expansion of a liquefied natural gas plant in Indonesia. Two more big projects are likely to get a green light this year, according to industry consulting firm Wood Mackenzie Ltd. and Jefferies International Ltd. — BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Coral LNG development off Mozambique.
Crude’s recovery from a 12-year low and a decline in project expenses have emboldened executives to start spending again after cutting more than $1 trillion in planned investments planned investments amid sinking earnings. While protecting balance sheets is important, explorers need to at least begin a new phase of investment in exploration and production to ensure future growth.
“We have seen a recent pick-up, demonstrating that projects deemed strategically important are still going ahead,” said Angus Rodger, a Singapore-based principal analyst for upstream research at Wood Mackenzie. He expects about 10 decisions on midsize to large projects this year from fewer than 10 last year, though still well below the annual average of 40 before oil crashed.
While the price slump hit profit hard, it has also driven down costs of services and equipment, including rigs. Drillers have renegotiated contracts to get better deals from suppliers as reduced demand creates a buyers’ market.
BP has knocked more than half the cost off its Mad Dog Phase 2 project. Estimated at $20 billion four years ago, it’s now expected to cost less than $9 billion, Chief Executive Officer Bob Dudley said last month. Rig-rental rates are likely to stay down because of an oversupply, while low steel prices are reducing the cost of other equipment, he said.
Chevron and its partners including Exxon Mobil Corp. approved the Tengiz expansion after postponing the decision last year as oil prices were falling. Like BP, Chevron estimates it has been able to bring costs down far enough to make the investment viable. Output is expected to start in 2022.
Tengiz “has undergone extensive engineering and construction planning reviews and is well-timed to take advantage of lower costs of oil industry goods and services,” Jay Johnson, executive vice president for upstream at Chevron, said in a statement.
Protecting Dividends
Chevron’s and BP’s investment decisions “are a signal that they’re more confident of their ability to pay their dividend,” said Jason Gammel, a London-based analyst with Jefferies. “It’s showing more confidence” in cash flows.
As earnings fell, companies faced a choice between protecting dividends and cutting investment. The biggest opted to protect payouts, canceling projects and firing thousands of people. While some analysts criticized that strategy, bosses including Ben Van Beurden of Royal Dutch Shell Plc said they were doing what shareholders wanted.
Brent crude rose 0.8 percent to $46.76 a barrel on the London-based ICE Futures Europe exchange on Friday. That’s less than half what it was two years ago. It means earnings remain under pressure and companies are still planning to keep overall expenditures low expenditures low to preserve their balance sheets.
“Big Oil is still going to be conservative in their spending,” said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, Missouri. “Those days of several of these big projects going on at the same time are in the past.”
Crude Turnaround
Some, including Ian Taylor, CEO of Vitol Group, the world’s largest independent oil-trading house, believe crude’s recent rise is unlikely to last as demand growth slows. Brent also climbed in the first half of 2015 before sliding more than 40 percent by year-end.
Chevron’s and BP’s plans are for expansions of existing projects rather than something built from scratch. They are easier to push through because they maximize existing infrastructure, said Brendan Warn, a managing director at BMO Capital Markets in London.
By contrast, Eni’s plans to exploit its giant Coral gas discovery off Mozambique include the first newly built floating LNG plant in Africa. Eni CEO Claudio Descalzi said in April he is “practically sure” the company will make a final investment decision this year.
“Unless oil prices do something very drastic and go lower, these companies now have many projects in their portfolios to pick from,” said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd. “Times have improved.”
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Exxon Mobil Corp. is doubling down on Papua New Guinea, topping a rival offer for InterOil Corp., a gas explorer focused on the Southeast Asian nation.
The energy giant’s offer values InterOil at $2.5 billion, including debt, beating an earlier bid from Oil Search Ltd. and Total SA. Exxon already runs Papua New Guinea’s only liquefied natural gas terminal and buying InterOil, which has gas fields and a stake in a second gas export project in the country, would give it a new source of the fuel for its exports. Oil Search and Total have three days to decide whether to counter Exxon’s offer.
“This was widely expected by the market and looks at first glance to be in line with our estimates that Exxon’s bid would be 10 percent higher than the original Oil Search bid,” said Neil Beveridge, an analyst at Sanford C. Bernstein in Hong Kong. “The key question now is whether we see a counter-bid from Total and Oil Search.»
InterOil said Exxon is offering it a fixed price of $45 per share, and values the company at $2.5 billion, including $188 billion in net debt. As part of Oil Search’s $2.2 billion bid with Total in May, it offered 8.05 shares for each of InterOil’s, valuing InterOil’s share at $40.25.
The bid from Exxon also includes a higher initial so-called contingent-value right, offering $7.07 per share for each trillion cubic feet of likely gas reserves above 6.2 trillion found in InterOil’s Elk-Antelope fields, capped at 10 trillion cubic feet. Oil Search offered an additional $6.05 per share for each trillion cubic feet more than 6.2 trillion, with no cap.
Oil Search said in a statement it’s talking with Total about its options and that it’s entitled to a $60 million break-up fee, with 20 percent going to Total, if the deal doesn’t go through after InterOil changed its recommendation.
“InterOil has advised that it intends to make a change in its recommendation and enter into an Arrangement Agreement with ExxonMobil,” Oil Search said in a statement.
Exxon is targeting gas fields that hold enough reserves to supply the U.K. for three years. The company already operates the existing $19 billion PNG LNG gas-liquefaction plant in Papua New Guinea. InterOil and its partners have planned the nation’s second export project, Papua LNG. Oil Search is a shareholder in both ventures and has encouraged a tie-up to lower development costs.
Lower Cost
“ExxonMobil has submitted an offer to acquire InterOil Corporation, which we believe represents a superior proposal,” Exxon said in a statement.
Oil Search rose as much as 4.2% to A$7.27 in Sydney before trading at A$7.22 at 3:43 p.m. local time.
Papua New Guinea has lower costs than rival LNG sources, making it a more-attractive place to invest in an oversupplied market for the seaborne fuel. A deal for InterOil could speed up a boom in fuel sales from the nation, which began exporting LNG in 2014.
InterOil’s gas fields are closer to the coastal site of its proposed LNG plant and the pipeline that would feed it cuts through a less densely populated region than Exxon’s, which pipes its supply down from the country’s highlands, according to a presentation published on InterOil’s website.
Project Partners
“PNG’s lower costs are largely driven by the downstream. The cost of constructing the LNG facility is lower because labor is cheaper and site preparation is easier,” Matt Howell, a Perth, Australia-based research analyst for energy consultant Wood Mackenzie Ltd., said by e-mail. “In the case of Elk-Antelope, the fields are also nearer to the LNG facilities and the conditions in that area are a lot kinder, which lowers midstream and upstream costs.”
Oil Search is already a partner in both Exxon’s PNG LNG venture as well as Papua LNG. The Oil Search deal may save the country’s two projects as much as $3 billion and speed up development if they cooperate, according to Managing Director Peter Botten. After buying InterOil, Oil Search planned to sell 60 percent of the assets to Total.
InterOil’s appraisal of the fields found 10.2 trillion cubic feet of likely reserves at the end of 2015. Oil Search released results Friday of a separate analysis of those fields that estimated likely reserves at 6.4 trillion cubic feet. Oil Search said it would do a different analysis if it were to purchase InterOil that would include gas condensate volumes and another appraisal well that could unlock an additional 1 trillion to 2 trillion cubic feet of gas.
Exxon has pursued InterOil’s assets in the past. In May 2013, the energy explorer entered into exclusive talks to acquire a stake in InterOil’s Papua New Guinea discoveries, estimated at the time to hold the equivalent of 9 trillion cubic feet of recoverable gas. The talks collapsed later that year for undisclosed reasons.
Exxon Mobil Corp. agreed to buy natural gas explorer InterOil Corp. for as much as $3.6 billion to acquire discoveries in Papua New Guinea that will feed the buyer’s existing gas-export plant.
Exxon will use its own stock to pay between $45 and $71.87 per share of InterOil, depending on how much gas InterOil’s Elk-Antelope field holds, Irving, Texas-based Exxon said in a statement on Thursday. With the range of potential payouts valuing the agreement at $2.5 billion to $3.6 billion, it represents Exxon’s biggest acquisition in almost four years.
The world’s largest energy producer by market value also agreed to pay a $60 million breakup fee on behalf of InterOil, which backed out of an earlier deal to sell itself to Oil Search Ltd. and Total SA for $2.2 billion.
Exxon said it plans to chill, liquefy and export the gas from the Elk-Antelope field in its PNG LNG complex on the coast of the South Pacific nation. Exxon’s statement made no mention of InterOil’s original plan to build a separate LNG facility known as Papua LNG from scratch. Exxon’s PNG LNG plant cost $19 billion to build and began exporting the fuel in 2014.
“Exxon Mobil will work with co-venturers and the government to evaluate processing of gas from the Elk-Antelope field by expanding the PNG LNG project,” the company said. “This would take advantage of synergies offered by expansion of an existing project to realize time and cost reductions that would benefit the PNG Treasury, the government’s holding in Oil Search, other shareholders and landowners.”
https://nrgibroker.com/wp-content/uploads/2016/07/Exxon-GETTY1-e1469473818843.jpg267400adminhttps://nrgibroker.com/wp-content/uploads/2025/12/logo-nrgi.svgadmin2026-05-11 19:30:262026-05-11 19:42:27Exxon to Buy Gas Explorer InterOil for Up to $3.6 Billion
Carlyle Group has bought Royal Dutch Shell’s onshore assets in Gabon for $587 million as the world’s largest private equity fund expands in the global oil and gas sector.
For Shell, the deal marks a further step in a $30 billion asset disposal programme to help cut debt after its $54 billion acquisition of BG Group last year. The Anglo-Dutch oil company has sold assets for more than $15 billion since 2016.
Shell’s Gabon assets will be incorporated into Carlyle-backed Assala Energy, which is led by former Tullow Oil executive David Roux and will focus on energy opportunities in sub-Saharan Africa, Carlyle said in a statement on Friday.
The assets operated by Shell produce approximately 60,000 barrels of oil equivalent per day, of which 40,000 boed go to the company. Under the deal, which is expected to close in the summer, Assala Energy will assume a debt of $285 million.
For Shell, the transaction will result in an impairment charge of $53 million after tax which will be taken in the first quarter of 2017, it said in a separate statement. About 430 local Shell employees will become part of Assala Energy.
The capital for the investment will come from Carlyle International Energy Partners (CIEP), a $2.5 billion fund that invests in global oil and gas exploration and production, and the $698 million Carlyle Sub-Saharan Africa Fund (SSA).
Private equity funds have increased their presence in oil exploration and production companies outside the United States since the collapse in oil prices in 2014, snapping up assets from oil companies seeking to reduce debt and narrow operations.
CIEP has invested $500 million in Mazarine Energy to make bolt-on acquisitions in southern Europe and North Africa.
It also set up, together with private equity fund CVC Partners, North Sea investment vehicle Neptune, headed by former Centrica boss Sam Laidlaw, which is expected to make an investment in the near future.
Reporting by Ron Bousso; editing by Alexander Smith / REUTERS
Fri Mar 24, 2017 | 6:04am EDT
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