Why Chevron, Shell and Even the Mighty ExxonMobil Are Retrenching

NEW YORK ( The Deal) -- In the oil and gas business, when the going gets rough, the tough sell assets.
 
Amid this rough patch, the sellers so far have been mostly small, debt-laden oil and gas producers that don't have a lot of extra cash in their coffers and the access to capital markets that the larger companies do. So these operators jettison non-core assets that they don't need or have the money to develop anyway.
 
 
Witness just this week Energy XXI ( EXXI) selling a gathering system in the shallow Gulf of Mexico waters to CorEnergy Infrastructure Trust ( CORR) for $245 million, which boosted its liquidity to $1 billion, and Rex Energy ( REXX) shedding its 60% stake in Keystone Clearwater Solutions to American Water Works ( AWK) for $130 million.

But recently the so-called supermajors have been doing a little housecleaning of their own, and more is expected given lower commodity prices, which are leading to weaker cash flow and sliding earnings.

"It was like a wake-up call," said Dennis Cassidy, a managing director at advisory firm AlixPartners. "The big multinationals are all rethinking their strategies."

Last week, Chevron (CVXexited Vietnam with the sale of its stakes in natural-gas properties and a pipeline project to state-owned partner Vietnam Oil & Gas Group, known as PetroVietnam.

The buyer didn't reveal the price, but industry officials have said the two partners couldn't agree on what to charge for the gas coming out of the properties, so off it went.

Industry watchers say that the San Ramon, Calif.-based company will keep selling as it tries to reach cash flow neutrality while covering its dividends. It already sold $6 billion worth of assets last year, including its stake in an oil project in Chad to the Chad government for $1.3 billion.

In March, it boosted its divestiture target by 50% to $15 billion over the next two years. So far this year, most of its divestitures have been down under, including its half stake in Australian oil refiner and retailer Caltex Australia (CTXAF) to institutional investors for $3.6 billion, its downstream operations in New Zealand to Z Energy (Z) for $558 million and its 11.4% interest in New Zealand Refining (NZRFF), also to institutional investors, for $58 million.

Even the biggest giant of them all, ExxonMobil (XOM), is lightening its load.

Last week PBF Energy (PBF) said it agreed to buy the Chalmette refinery near New Orleans from ExxonMobil and a unit of Petróleos de Venezuela for $322 million.

Analysts at Tudor Pickering Holt & Co. Securities said PBF Energy got the refinery cheaply because its core profitability seems "quite poor" and it apparently took on historical environmental liabilities with no cap.

"In a refining environment with healthy margins and many potential buyers, we are surprised this asset did not go for much more," they said.

The buyer plans to improve the facility by restarting an idle cracker and bringing in more light crude.

The biggest asset sales are coming from Royal Dutch Shell (RDS.A), whose $70 billion purchase of BG Group in April triggered a strategic review of its entire portfolio that could reach $30 billion over a two-year period starting next year. The proceeds initially will be used to pay down debt, as the combination's obligations would balloon to 20% of equity based on last year's figures and even more this year.

So far this year, the company has sold $2 billion worth of assets, mostly in troubled Nigeria, where it has scaled back its onshore presence to improve competitive performance and "drive a sharper focus on the bottom line."

BP (BP), which is still in reparation mode after the disastrous Deepwater Horizon oil spill in the Gulf of Mexico five years ago, has already completed 70% of its $10 billion additional asset sales target, which may make it an acquisition target itself, and the rumored buyer is ExxonMobil.

BP Chief Executive Bob Dudley has discounted such talk.

"Big is not necessarily beautiful," he said at the IHS CERAWeek conference in Houston in April. "I don't see forces at work for consolidation."

So what does the company have left to sell?


"Bits and pieces, both upstream and downstream," said Fadel Gheit, an analyst at Oppenheimer.

The large, non-integrated oil companies are also contemplating asset sales.

ConocoPhillips (COP) is also considering as much as $2.5 billion worth of asset sales in the United States with Wells Fargo advising it, according to people familiar with the situation.

Those assets include properties in the Rockies, East and South Texas and northern Louisiana. Scotia Waterous is already helping it on the sale of its western Canadian properties.

ConocoPhillips is also said to be looking to shed its North Sea assets in Norway, which could fetch $1 billion.

Other large independents such as Anadarko Petroleum (APC)and Marathon Oil (MRO) are also selling about $500 million worth of assets each, Anadarko Petroleum in the mid-continent and Marathon Oil in the United Kingdom.

Smaller oil and gas producers worry about the perception of selling assets near the bottom of the market. The oil giants don't really care, as each sale barely moves the needle in their large enterprises, but put all of them together and they make an impressive haystack.

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