As one scours the landscape for potential mergers and acquisitions in the oil and gas patch, Occidental Petroleum might be a good starting point. After a strong 2009, the California-based producer is planning to increase its capital expenditures 19 per cent from the $3.6bn spent in 2009, to about $4.3bn.
Certainly that will not lend itself to any deals of the size ExxonMobil just pulled off. But there are numerous small fields and companies up for sale after a difficult 2009, given low commodity prices and a slowdown in demand amid the economic downturn. And Occidental has a history of picking up these little acquisitions.
This strategy enabled the company in 2009 to grow its worldwide production 7 per cent year-over-year, without increasing its net debt to capitalisation ratio, which stood at 9 per cent in 2009. It ended the year with cash on hand of $1.2bn and one of the strongest balance sheets in the industry.
And all signs point to continued growth. Occidential announced a big find in California this past year; it is redeveloping the Bahrain Field to increase production about three times; and, partnering with a consortium led by Eni, it was awarded a license for development of the Zubair Field in Iraq, which it forecasts will reach 1.2m barrels of oil production per day within the next six years.
Plenty of action there to watch. And, according to a new report from Deloitte, an uptick in mergers and acquisition activity in late 2009 suggests that repositioning has become the watchword for a growing number of companies in oil and gas related businesses.
The report, entitled, Positioning for Survival and Opportunity, notes that several integrated multinational oil companies have announced their intent to divest businesses and assets to redirect capital spending toward exploration and production. On top of that, some independent oil and gas companies have announced plans to sell non-core domestic, international and offshore portfolios to streamline their operations, and several oilfield service companies have announced plans to pull out of certain business lines or countries. Quoting from the report:
Strong cash flows from rising prices and demand for services over the past several years have caused many companies to expand in all directions. Now, pricing pressures are forcing some to rethink these expansive strategies as revenue falls. Tight credit conditions are choking off capital needed to operate and expand. Technology advances are offering new exploration horizons for companies ready and able to pursue high-potential but expensive plays. Anticipated carbon and renewable energy legislation is dampening the strategic view of refining, processing and other businesses.