18 May 2015
Barry FitzGerald, Resources Editor, Melbourne
Oil and gas consulting firm RISC believes a “bow wave’’ of assets holed up inside mid-tier companies is about to hit the market as the industry’s adjustment to the plunge in oil prices enters a new phase.
Speaking ahead of the APPEA conference this week, the chief executive of RISC, Peter Dawson, told The Australian a backlog of asset transactions was building up because asset owners were not yet willing to bring them to market.
That reluctance comes as new entrants on the buy side, particularly private equity funds, see the fall in oil prices as an opportunity to buy into the sector at bargain basement prices.
“Ultimately, this opportunistic buying capacity may be partially filled by distressed assets, driven by forced sales where owners have debt facilities which cannot be refinanced, well commitments that cannot be deferred, or cash calls from joint venture partners which cannot be renegotiated,’’ he said.
“We have not seen many of these types of asset transactions.”
Mr Dawson said that was a good sign for the sector.
“There has been reasonable cushioning for many mid-tier and junior producers through their hedge books and reserve base lending. Many producers were fortunate to have entered into forward sales contracts while oil was at $US90 to $US100. In addition, reserve base lending facilities negotiated at the time of $US100 oil has provided some producers with breathing space,” he said.
But when hedging protection expired and/or RBL facilities were marked-to-market, instrument holders were going to be faced with the need to rationalise and a series of asset sales would flow.
“How the wave of activity breaks could well be determined by the willingness of banks to work with their clients to preserve value,” Mr Dawson said.
Oil prices (Brent) averaged $US109 a barrel in calendar 2013 and $US99 a barrel last year. Oil prices fell below $US50 a barrel this year but since March have rallied to $US66 a barrel.
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