<article>Asset sales in the Asia-Pacific oil and gas sector are estimated to spike in the year ahead, reflecting the impact of depressed oil prices on profit margins, a report by <a style="color: #000080;" href="http://www.dealstreetasia.com/tag/eversheds/" target="_blank">Eversheds</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/tag/mergermarket/" target="_blank">Mergermarket </a>says.</article>

Asset sales in the Asia-Pacific oil and gas sector are estimated to spike in the year ahead, reflecting the impact of depressed oil prices on profit margins, a report by <a style="color: #000080;" href="http://www.dealstreetasia.com/tag/eversheds/" target="_blank">Eversheds</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/tag/mergermarket/" target="_blank">Mergermarket </a>says.
The report, Searching for solutions: Energy asset sales in Asia-Pacific stated that there were 44 energy divestitures and asset sales in Asia-Pacific in 2015, totalling $17 billion, down from $30.2 billion in 2014 from 60 deals.
The first quarter of 2016 (Q1 2016) saw 11 divestments worth $1.3 billion. More than a quarter (26 per cent) of global M&amp;A activity was divestment-focused, according to a 2015 Eversheds report.
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy3.jpg" rel="attachment wp-att-46209"><img loading="lazy" decoding="async" class="alignnone wp-image-46209" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy3.jpg" alt="Eversheds MM Asia Energy3" width="535" height="365" srcset="https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy3.jpg?w=558 558w, https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy3.jpg?resize=768,524 768w" sizes="(max-width: 535px) 100vw, 535px" /></a>
“Of those divestitures, 56 per cent were driven by the need to refocus on core business activities and 15 per cent resulted from market changes – two factors which are particularly relevant to the oil and gas sector,” the report stated.
The report highlighted more than $200 billion in oil and gas assets were ready for sale worldwide as of mid-October 2015, citing Bloomberg data, with the inventory of assets for sale increasing through the remainder of the year into 2016.
One in eight independent producers in the United States came close to corporate default when Brent crude prices dipped below $40 per barrel in September, 2015. This was the highest rate since January 2010, Moody’s had said.
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy2.jpg" rel="attachment wp-att-46207"><img loading="lazy" decoding="async" class="alignnone wp-image-46207" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy2.jpg" alt="Eversheds MM Asia Energy2" width="535" height="241" srcset="https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy2.jpg?w=693 693w, https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy2.jpg?resize=768,345 768w" sizes="(max-width: 535px) 100vw, 535px" /></a>
Among the oil and gas sub-sectors, exploration and production assets accounted for almost half of asset sales by value and 42 per cent by volume between 2014 and Q1 2016.
The clean energy sub-sector had Asia-Pacific’s second-highest rate of asset sale and divestment activity between 2014 and Q1 2016, accounting for 34 per cent of deal volume and 17 per cent by value.
Across the Asia-Pacific region, Australia accounted for 54 per cent of energy asset sale and divestiture values and 30 per cent of volume from 2014 to Q1 2016. China was second, with 24 per cent of the region’s total divestment volumes and 17 per cent by value.
<h3 style="text-align: justify;">Factors favour PE players</h3>
Citing Bloomberg data, the report noted that in the United States alone, over $5.5 billion in credit lines have been removed from 36 oil and gas producers since the start of this year, depicting a 12 per cent drop.
“This has left cash-strapped drillers with a choice between expensive refinancing plans or auctioning off prized assets or land holdings at bargain prices to raise funds. Depending on how 2016 unfolds, oil companies with weak balance sheets – international oil companies and national companies alike – may find themselves forced to choose between bankruptcy and wide scale asset divestment programmes,” it said.
As the realisation grows among energy companies that a recovery in asset prices is unlikely in the short term, energy companies are adopting more aggressive divestiture and asset sale programmes in the region.
Private equity firms are expected to move into the space, in turn, as bank credit lines tighten and lower valuations present more attractive targets.
The report noted the examples of Carlyle Group and Blackstone have already indicated their interest in oil and gas opportunities outside the United States, including Europe, Africa and more recently in Asia and Australia.
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy.jpg" rel="attachment wp-att-46208"><img loading="lazy" decoding="async" class="alignnone wp-image-46208" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Eversheds-MM-Asia-Energy.jpg" alt="Eversheds MM Asia Energy" width="700" height="246" srcset="https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy.jpg?w=1092 1092w, https://media.dealstreetasia.com/uploads/2016/07/Eversheds-MM-Asia-Energy.jpg?resize=768,270 768w" sizes="(max-width: 700px) 100vw, 700px" /></a>
Charles Butcher, a corporate partner with Eversheds Hong Kong, noted that while divestments were becoming more complex, they are now considered to be effective tools for retaining shareholder value, streamlining businesses and refocusing corporate priorities.
“Divestitures and asset sales have become an integral part of core strategies for many regional and international energy corporations as subdued oil prices and persistent volatility become part of the narrative of the current market,” Butcher commented.
He added that being proactive with divestitures, or at the very least taking action when early signs of financial or operational stress become apparent, coupled with sensible planning, give corporates the immediate advantage of controlling timing.
Hong Kong-based banking partner, Jae Lemin, said there were risks and challenges involved with selling oil and gas assets in emerging Asia.
“To avoid an untimely asset ‘fire sale’ under duress, stressed and distressed companies can also explore alternative methods of raising cash. For instance, refinancing and bond issues present opportunities to preserve the balance sheet. In many cases, these options are preferable to sales as energy companies want to avoid situations where they have sold assets at a discount.”
Nonetheless, Lemin said asset sales may be an energy company’s best option, although this depends on the underlying strength of the business.
Also read:
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/apac-robust-energy-mas-2015-eversheds-mergermarket-34029/" target="_blank">APAC most robust for energy M&amp;As in 2015: Eversheds, Mergermarket</a>
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/sea-ma-momentum-first-quarter-2016-continues-drop-mergermarket-38873/" target="_blank">SEA M&amp;A momentum for first quarter 2016 continues to drop: Mergermarket</a>
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/36954-36954/" target="_blank">APAC PE’s stellar momentum in 2015, unlikely to sustain this year: Bain &amp; Co</a>

APAC O&G asset sales expected to jump next 12 months: Eversheds, Mergermarket

Apac energy asset sales to jump in next 12 months: Eversheds, Mergermarket

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