Despite their steady profitability, large international companies are beginning to jettison land holdings to kick up their stock prices or get out of a financial jam of another sort.
In September, Royal Dutch Shell Plc announced the marketing of 106,000 acres on the Piloncillo Ranch, including 190 wells, in the Eagle Ford. The sale began after Shell's Upstream Americas segment incurred a $2.1-billion impairment related to liquids-rich shale properties in North America in the second quarter.
Companies that have announced lower capital expenditures, asset sales and buybacks have generally seen better share price performance, according to a report by Tudor, Pickering, Holt and Co. ConocoPhillips, Hess Corp., Total SA and BP have all captured some benefit.
It's “been a rewarding strategy in terms of near-term share prices,” says Robert Kessler, managing director, head of integrated oil research for Tudor, Pickering, Holt.
Shell is marketing a slew of unconventional acreage, including its Niobrara/Sand Wash acreage in Colorado and Wyoming and 625,000 acres in the Mississippi Lime play.
RBC Capital Markets estimates that disposals of selected assets from Shell's unconventional portfolio in North America could generate $7 billion in proceeds “even at material discounts to recent transactions,” says analyst Peter Hutton.
“This is equivalent to three years of Shell's normal guidance on divestments, and at closer-to-average transaction prices, proceeds could double this level.”
Divestment, along with cost cutting and buybacks, appear enticing to international oil companies.
In the short term, company moves “may be a positive catalyst … but not necessarily a clearly beneficial long-term strategy,” Kessler says.
Other companies hope to benefit. Statoil ASA has sold more than $17 billion in assets since 2010, or about $4.3 billion a year, Kessler says. That should help to reduce future capex. In third-quarter 2013, Statoil added $250 million to its 2013 exploration spending for a total of $3.75 billion. However, the company left total capex unchanged at $19 billion.
ConocoPhillips is in the later innings of a divestment program.
“Clearly, the 'divest and distribute' strategy has worked for COP shares, which trade at a premium to IOCs and large-cap E&Ps,” Kessler says. As of early November, ConocoPhillips had announced $13.5 billion in divestments in 2012-2013, surpassing its forecast of up to $10 billion.
A large amount of cash was headed to the company in the fourth quarter, as Conoco had collected $3.8 billion, with $9.7 billion to come by year-end.
As for Shell, an earnings and strategy update on January 30 may clear up confusion on strategy and spending. In 2013, acquisitions were running faster than divestments. By late November, the company had made $10 billion worth of acquisitions and divestments of $1 billion.
That trend “implies that Royal Dutch Shell will pick up the pace on divestments in 2014,” with net divestments of $8 billion rather than the original $5 billion, Kessler says.
—Darren Barbee
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