Energy Sector Sees Surge in Deal-Making as Year Ends

Companies are diversifying their portfolios, with major oil and gas firms investing in renewable energy projects and clean technologies.
Notable deals include Tokyo Gas acquiring Rockcliff Energy, Brookfield selling renewable assets, and Carlos Slim’s Grupo Carso acquiring stakes in Mexican oil fields.
Strategic international agreements are being formed, such as Adnoc’s LNG deal with ENN Natural Gas and the green hydrogen project between Egypt and Saudi Arabia.

After enduring a torrid season for much of the second half of 2023 due to falling commodity prices, the energy sector is looking to close out the year on a high after a long-awaited Fed pivot finally arrived. Not surprisingly, Wall Street and investors have started peering into their crystal balls to try and divine what the new year holds in store for energy markets, with some predicting we shall see more of the same while others are saying to expect an oil price rebound.

Investors will also be watching closely to see if another corner of the market will finally sputter back to life: dealmaking. The value of global oil and gas mergers and acquisitions (M&A) has declined to only 3% of the industry’s market capitalization per annum, down from a peak of 10% in 2014. Thankfully, there’s a glimmer of hope: the U.S. oil patch recorded a small 3% Y/Y increase in the third quarter with 105 M&A deals announced, worth a total value of $47bn. Interestingly, the global energy sector has suddenly come alive with all manner of deals from M&A and asset sale/purchase deals to supply deals being announced in the final month of the year. Here are some notable ones.

Tokyo Gas To Acquire Rockcliff Energy

Japan’s largest gas supplier Tokyo Gas has entered an agreement to acquire privately held Haynesville Shale gas producer Rockcliff Energy for $2.7 billion in an all-share deal. The agreement comes nearly a year after Tokyo Gas’ partially owned Houston-based subsidiary TG Natural Resources (TGNR) and Rockcliff were reportedly in advanced talks on a merger that was at the time reported to be worth ~ $4.6 billion. The deal fell apart after US natural gas prices collapsed to $2 per million Btu from a summer 2022 peak around $9/MMBtu.

“For a variety of reasons the deal between these two parties made a lot of sense. The main thing that changed was the value of the transaction, which was effectively recalibrated at the sustained lower gas price, compared to the much higher gas price at the time of the January announcement,” Energy Advisors Group partner Adrian Goodisman told Energy Intelligence on Monday.

TGNR has been active in the Haynesville after acquiring Shell Plc’s (NYSE:SHEL) assets in the Texas/Louisiana play in 2019. Haynesville has seen little M&A action over the past two years amid volatile gas prices.

Brookfield To Sell Renewable Assets

Canada’s Brookfield Corp. (BN.TO) has announced plans to sell renewable assets owned by its company Saeta Yield worth 1.5 billion euros ($1.64 billion) including debt. The assets to be sold are wind and photovoltaic plants located in Spain and Portugal. Saeta owns 28 wind farms and 10 photovoltaic parks; however, its seven solar thermal plants are not part of the sale process.

Spain and Portugal’s abundant solar and wind resources have made them a hotspot for both domestic and foreign firms looking to leverage the growing demand for renewable energy. This has sparked a flurry of renewable energy deals in the region with the broader global trend towards sustainable investments.

Carlos Slim Bets on Mexico’s Mega Oil Projects

Mexican billionaire Carlos Slim’s Grupo Carso SAB has agreed to acquire PetroBal SAPI’s stake in two oil fields in Campeche in southern Mexico for $530 million, expanding its bet on energy production. Under the deal, Grupo Carso will take a 50% stake in the Ichalkil and Pokoch oil fields, the company has revealed in a statement. According to the company, the fields produce about 16,350 barrels of crude oil equivalent per day. Carso shares have jumped to record highs of 181.79 pesos after the deal was announced.

Mexican President Andres Manuel Lopez Obrador has welcomed the deal despite earlier being critical of energy reforms that opened exploration to private investment, “Why do I celebrate this? Because it stays in the hands of Mexicans and I’m sure that they’re going to invest to extract crude. I consider that to be good news,” the president said at his daily news conference.

Obradors’ nationalist policies have seen the Mexican government become increasingly hostile to foreign companies. Earlier in the year, giant oil and commodities trading firm, Trafigura, was forced to scale back its oil trading business in Mexico thanks to shrinking margins. Trafigura has recorded margin compression due to fuel subsidies by the Mexican government.

Adnoc Signs LNG Supply Deal With ENN Natural Gas

Adnoc has just signed a 15-year agreement with ENN LNG, a subsidiary of China’s ENN Natural Gas, for the delivery of at least a million metric tonnes a year of LNG. The super-chilled fuel will primarily be sourced from Adnoc’s Ruwais LNG project in Abu Dhabi, with deliveries expected to kick off in 2028. According to Adnoc, the Ruwais plant will be the first LNG project in the region to run on clean power, making it “one of the lowest carbon-intensity LNG facilities in the world”, according to Adnoc.

As one of the largest private energy companies in China, ENN has been signing multiple long-term supply deals. Back in June, Cheniere signed a long-term LNG sale and purchase agreement with ENN Energy Holdings. Under terms of the deal, ENN will purchase ~1.8M metric tons/year of LNG on a free-on-board basis at Henry Hub prices for a 20-year term, with deliveries to commence mid-2026 ramping up to 0.9 million tonne per annum (mtpa) in 2027.

Egypt, Saudi Arabia Sign $4 bn Green Hydrogen Deal

Egypt has reached an agreement with Saudi Arabia’s ACWA Power to develop a green hydrogen project worth $4 billion, the Egyptian government has revealed. Egypt’s minister of Electricity, Dr. Mohamed Shaker, has revealed that an action plan will be implemented shortly for the first phase of the green hydrogen project. The initial phase will have a production capacity of up to 600,000 tons per year of green ammonia with total investments expected to exceed $4 billion.

Three years ago, Aramco made the world’s first blue ammonia shipment from Saudi Arabia to Japan. Japan is looking for dependable suppliers of hydrogen fuel with its mountainous terrain and extreme seismic activity rendering it unsuitable for the development of sustainable renewable energy.

Two years ago, Saudi Aramco announced that it had abandoned former plans to develop its LNG sector in favor of hydrogen. The company said that the kingdom’s immediate plan is to produce enough natural gas for domestic use to stop burning oil in its power plants then convert the remainder into hydrogen.

By Alex Kimani for Oilprice.com