Upstream M&A Deals Under Review as Buyers Seek to Renegotiate
The steep fall in crude oil prices since the start of 2020 has led to several previously announced upstream M&A transactions being renegotiated or even terminated over the past month, as buyers seek to revise the terms of deals that were signed at much higher prices during the second half of 2019 and at the beginning of this year.
According to data from Finbrook’s Global Upstream Oil & Gas Database, over the past month more than half a dozen significant E&P deals have been renegotiated to reflect weaker market conditions and lower oil price forecasts.
Last week, NEO E&P Ltd., a UK-based company backed by Norwegian private equity firm HitecVision AS, renegotiated and restructured the terms of its US$635 million deal to acquire certain UK North Sea assets from French energy major Total S.A., a deal originally signed in mid-2019. Oman-based Petrogas E&P LLC, which was previously partnering with NEO on the deal, also withdrew from the transaction.
Another UK North Sea deal between BP Plc and London-listed independent Premier Oil Plc involving BP’s Andrew Area and Shearwater assets has run into trouble as Premier is reportedly seeking to lower the original US$625 million purchase price.
Privately held Neptune Energy Group Ltd. has also backed out of a US$250 million deal to buy Edison SpA’s UK and Norwegian subsidiaries from Energean Oil & Gas Plc, a deal that was announced in October last year on the back of Energean’s US$600 million deal with Edison to acquire its upstream subsidiary. That deal itself is also under review, as Energean announced this month that it was in discussions with Edison to further amend their agreement, pursuant to which the Norwegian subsidiary of Edison E&P may be excluded from the transaction.
In the United States, the terms of a US$5.6 billion sale agreement between the privately-held Hilcorp Energy Co. and oil giant BP Plc for the sale of the latter’s Alaskan assets were amended in late April. While the total consideration remained unchanged, the structure of the consideration and phasing of payments was modified. As a result, the remaining consideration will include lower completion payments in 2020, new cash flow sharing arrangements over the near-term, interest-bearing vendor financing, and a potential increase in the proportion of the consideration, subject to earn-out arrangements.
Earlier this month, Total also announced that it was walking away its previously announced purchase agreement with Occidental Petroleum Corp. involving the U.S. company’s assets in Ghana and Algeria. In May 2019, Total had entered into a US$8.8 billion agreement with Occidental to acquire assets in Ghana, Algeria, Mozambique and South Africa that were part of Occidental’s acquisition of Anadarko Petroleum Corp. Total subsequently completed the acquisition of only the Mozambican and South African interests.
As oil continues to trade around in the US$30 to $35 a barrel range, industry experts warn that more companies will be forced to revised or terminate previously announced acquisitions, as projects become economically unviable at current price levels, especially those involving offshore deepwater assets or the use of expensive fracking methods.