But it’s not all doom and gloom for oil companies.
The tight market has encouraged majors to streamline their operations to focus on exploiting their most cost-efficient assets while getting cash from the sale of valuable, but noncore, oil plays. And that is producing some good buying opportunities for other majors too.
Case in point, Anadarko Petroleum has just agreed to buy Freeport-McMoRan’s deepwater Gulf of Mexico properties for $2 billion and up to $150 million in contingent payments. Already a strong player in the Gulf of Mexico, the purchase adds to Anadarko’s portfolio, while freeing up cash for the Freeport-McMoRan group (which is also facing financial struggles in the copper market) to spend elsewhere.
Assets being sold include a 100% working interest in the Holstein, Horn Mountain, Marlin, Dorado and King fields; a 50% working interest in the Phobos discovery; a 33.3% working interest in the Hoover field; and a 31% working interest in the Ram Powell field, among others. This inventory includes interests in 16 prospects and 154 undeveloped well locations. In particular, the purchase will boost Anadarko’s presence in the deepwater sector of the Gulf of Mexico, primarily the Lucius development, lifting its holding to 49%.
The deal should expand Anadarko’s production by 80,000 net barrels of oil equivalent per day to 155,000 barrels, more than 85% of which will be oil. It should also result in incremental free cash-flow gains of some $3 billion over the next five years.
The acquisition also reveals that while the current oil-price-in-the-$40s environment is crimping the expansion of oil activities, oil majors put away plenty of money in the bank during the times (just a few years ago) when oil prices topped $100 a barrel. That cash is now available for snapping up bargains, even as large as $2 billion, like this one.
British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history, he recommends Peter Doran’s “Breaking Rockefeller” and Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.