Upstream assets acquisition tripled to $31bn in December 2016

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Total acquisitions of oil and gas fields, known as upstream assets, tripled to $31 billion in December, according to data from consultancy Energy Market Square.

Deals in the last month of 2016 alone accounted for nearly a quarter of total activity during the year, the report added.

There is no explanation for the investment surge, but it came after the Organisation of the Petroleum Exporting Countries, OPEC, agreed at a meeting at the end of November to cut output for the first time in eight years.

Details of the deals outlined in the report quoted by Reuters indicated BP was involved in a string of investments in the last two months of 2016, including a $1 billion partnership with Dallas-based Kosmos Energy in Mauritania and Senegal in West Africa, as well as acquisitions in Abu Dhabi and Azerbaijan.

The British company also spent $375 million on a 10 percent stake in Eni’s giant Zohr gas field in Egypt while Russian oil giant Rosneft bought 30 percent stake of the same field for $1.575 billion.

France’s Total and Norway’s Statoil bought into Brazil’s lucrative sub-salt deepwater oil fields while ExxonMobil Corporation bought assets in Papua New Guinea to meet growing Asian demand for liquefied natural gas, Reuters further reported.

The trend continued in January with Total boosting its stake in Uganda’s Lake Albert oil project by snapping up most of Tullow Oil’s stake for $900 million.

ExxonMobil and Noble Energy also struck deals worth nearly $10 billion combined for a larger slice of the Permian Basin, the largest US oil field.

While deal making outside the United States almost ground to a halt at the start of 2016, acquisitions in North American shale basins have continued at a steady pace.

In the Permian Basin, report indicated that the time it takes to produce oil and gas after an initial investment is far quicker and cheaper than developing conventional fields over three to five years.
Indications are that more deals were likely this year as the large overhang of crude oil in the world that has weighed on the market since 2014 continues to clear and oil prices rise.

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“When you can cut Capex (capital spending), two-and-a-half to three years later you see production decline and reserves depleting and you have one choice only and that is going after high-quality resource,” said Sachin Oza, co-manager with Stephen Williams of the Guinness Global Oil and Gas Exploration Trust.

“If you’ve not spent any time filling your hopper with these opportunities that take five years to build up, there is only one choice: you have to buy them,” said Oza.

The Guinness Trust is a fund that invests in firms in the early stages of exploration or development of energy resources which it believes will attract investment from oil majors.

Investors reckon large firms will focus on underdeveloped basins in the east and west Africa, Romania and Albania, as well as nascent Latin American reserves in places such as Colombia, all areas where the growth potential is seen as greater than in established regions such as North America and the North Sea.

Reuters report also indicated that oil majors are opting for joint ventures to develop specific fields in complex deals, such as share swaps or deferred payments, to lower their risk and limit the amount they need to spend upfront following two years of budget cuts.

For much of 2015 and 2016, there was subdued activity because buyers and sellers were too far apart on price.

Buyers hunting for bargain-basement deals were frustrated by sellers holding out for better terms but as oil prices have started to stabilise there has been more convergence.

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