The biggest collapse in energy prices since the 2008 global recession is presenting Asia’s cash-rich state oil companies with a one-year window to snap up global assets.
Explorers with debt-laden balance sheets will be likely targets and India’s Oil and Natural Gas Corp., the nation’s biggest explorer, has joined in the hunt.
ONGC expects crude prices to stay around current levels for the next 10 months, presenting the company with its best opportunity to buy assets in Africa, Latin America and North America, according to Narendra Kumar Verma, managing director of its overseas unit.
The company, which spent $6 billion in the past year and a half buying assets, will have to compete with national producers from China, Malaysia and Thailand, he said.
In 1998, when oil slumped to about $10 a barrel after the Asian financial crisis, the value of mergers and acquisitions surged more than seven times to a combined $376 billion in that year and the next, according to data compiled.
“Debt-laden oil and gas companies that are not well-hedged could increasingly become takeover targets in 2015, Christopher Sheehan, director of energy M&A research at IHS Inc., said in a January 5 report. ‘‘The volume of global assets for sale could surge if oil prices continue to remain depressed during the first half.’’
India’s new Prime Minister Narendra Modi and China’s President Xi Jinping, whose nations have huge energy appetites, may be hoping that crude oil’s slide continues, shifting power in the market to oil buyers as sellers look to retain marketshare with discounts.
‘‘The current oil and gas prices offers a new opportunity for us to leap-frog our growth trajectory,” ONGC’s Verma said in an interview at his office in New Delhi. “The maximum window for any company to capitalize on this is one year.”
Potential targets are small and medium-sized companies with assets in Africa, Latin and North America and listed in stock exchanges in London, New York and Canada, he said, declining to name them.
With oil in freefall, investors have punished the stocks of producers, particularly those such as Tullow Oil Plc (TLW) that have debt burdens and projects that are going to require more funding.
The slump could push the market value of some oil companies so far down that ONGC, with $4 billion in cash, and PetroChina Co. (857), the nation’s biggest energy producer, with $12 billion, look to turn predator.
“Cheaper oil prices provide more opportunities for PetroChina and other Chinese oil companies to make acquisitions,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “They’re likely to scour Russia and traditional destinations including South America, Iraq and Africa.”
Three calls to Mao Zefeng, PetroChina’s Beijing-based spokesman, mobile phone went unanswered.
The 113-member MSCI World Energy Sector Index dropped 14 percent last year, the steepest fall since 2008. ONGC rose 18%, the best year in five, while PetroChina also outperformed the index.
Among London-listed companies with West African operations and with high net debt-to-equity ratios are Tullow Oil and Afren Plc (AFR), which received an initial approach in December from Seplat Petroleum Development Co.
George Cazenove, London-based head of media relations at Tullow, declined to comment on the company being a takeover target.
A reponse from Bell Pottinger, an external public relations company for Afren, said the producer had no further comment beyond statements it made last last month after the Seplat approach.
ONGC wants to be present off Africa’s west coast in Ghana and Angola, in Brazilian deepwaters and North America, Verma said. It’s also targeting fields from where US explorers are exiting to consolidate their local portfolios, he said.
PT Pertamina, Indonesia’s state-owned energy company, agreed to buy a 30 percent stake in El Dorado, Arkansas-based Murphy Oil Corp. (MUR)’s oil and gas assets in Malaysia for $2 billion in September last year.
Brent crude, the international benchmark, slumped by almost half last year. On January 7, prices traded below $50 a barrel for the first time since May 2009 as a supply glut continues with the US pumping at the fastest rate in more than three decades and OPEC maintaining output quotas.
Brent at $90 a barrel is ideal for both oil producers and buyers, Verma said. He doesn’t expect it will be reached this year. Prices will reach near $90 in 2017, according to median of 18 analyst estimates compiled.
The New Delhi-based company plans to spend 11 trillion rupees ($174 billion) by 2030 to add reserves in India and overseas and reverse a drop in output from aging fields at home. More than half of the near-term target will come from fields it plans to acquire, Verma said.
The money ONGC spent on recent acquisitions “may just be the beginning,” Verma said. “If we have to reach our target, we have to be aggressive. There are a number of projects we’re concurrently pursuing. I’m confident there will be achievement.”
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