ExxonMobil said in July that it plans to sell some of its assets in Asia to Malaysia's Petronas, but the specific terms have not yet been disclosed. Earlier, Qatar Energy also signed an agreement with ExxonMobil to acquire some of the latter's offshore oil and gas exploration assets in Egypt. Although the details of the above two M&A transactions need to be further tracked and analyzed, the trend of national oil companies focusing on global upstream oil and gas assets has gradually formed in recent years.

Against the complex background of geopolitical conflicts driving regional oil and gas geopolitical risks to continue to increase, higher-than-expected growth in U.S. shale oil production impacting the effect of OPEC+ agreement production cuts, and slow recovery of world economic growth in the post-epidemic era, the total amount of global oil and gas resource M&A transactions will exceed US$233.5 billion in 2023, which is basically equivalent to the historical peak level of US$238 billion in 2012. However, the performance of national oil companies in the global oil and gas resource M&A market has continued its weak trend for nearly a decade, with asset purchases amounting to only US$3.1 billion, far lower than US$108 billion in 2012, and accounting for less than 15% of the total amount of global oil and gas resource M&A transactions for seven consecutive years.

Make up for the lack of asset portfolio and enrich the global oil and gas asset portfolio

However, under the general trend of high-level international operations of modern oil companies, it is also necessary for national oil companies to "make a difference" in the global oil and gas resource M&A market. From the perspective of national oil companies in oil and gas resource countries, some Middle Eastern national oil companies represented by Qatar Energy, Saudi Aramco and Abu Dhabi National Oil Company, although their domestic oil and gas resources are relatively rich, also hope to make up for the lack of asset portfolio through M&A activities.

Domestic resource development in some resource-rich countries is mainly based on crude oil, and natural gas development is relatively lagging behind. In particular, there are certain shortcomings in the allocation of liquefied natural gas (LNG)-related assets, and there is an urgent need to improve the upstream asset portfolio through mergers and acquisitions. For example, Saudi Aramco acquired a minority stake in MidOcean Energy, a well-known LNG producer, in September 2023, and officially entered the global LNG market; Abu Dhabi National Oil also further strengthened its global LNG market layout by acquiring 11.7% of the Rio Grande project in the United States and 10% of the Rovuma LNG project in Mozambique.

In addition, the assets of some national oil companies in the Middle East are mainly concentrated in China, and their participation in the global upstream market is relatively low. Enriching their global oil and gas asset portfolio through mergers and acquisitions will help reduce the impact of regional geopolitical risks on the company's production and operations. Taking Qatar Energy as an example, it already holds interests in three exploration license areas offshore Namibia, including 45% of the PEL-39 oil field, 30% of the PEL-56 oil field and 28.33% of the PEL-91 oil field, with a total area of more than 28,000 square kilometers. Recently, Qatar Energy discovered light oil in the Jonker-1X well in the Orange Basin offshore southern Namibia, which is the third oil and gas exploration breakthrough in the basin since last year.

Acquiring high-quality overseas assets is an important guarantee for the security of national oil and gas supply

From the perspective of national oil companies in oil and gas importing countries, some Asian national oil companies are constrained by domestic oil and gas resource endowments and exploration and development technology levels. At this stage, they are facing the challenges of oil and gas demand growth caused by various factors such as population growth, economic expansion or energy transformation. The pressure to ensure the security of oil and gas supply is relatively high. Acquiring high-quality overseas assets through mergers and acquisitions is an important guarantee for the security of national oil and gas supply. Energy consulting firm Wood Mackenzie predicts that the combined domestic oil and gas supply and demand gap in India, Indonesia, Malaysia, Thailand, Vietnam and China in Asia will increase significantly from 9 billion barrels of oil equivalent in 2023 to 13 billion barrels of oil equivalent in 2030. India's Oil and Natural Gas Corporation (ONGC) said that in order to avoid the risks brought to oil and gas trade by geopolitical factors, it plans to increase its overseas oil and gas production by four times in 2040 through mergers and acquisitions.

In fact, national oil companies have a good opportunity to increase their global oil and gas asset mergers and acquisitions at this stage. From the perspective of international oil prices, since the second half of 2020, international oil prices have ushered in a wave of stable upward trends. The average prices of Brent crude oil and WTI in 2023 will be US$82.5/barrel and US$77.6/barrel respectively. Although lower than US$100.9/barrel and US$94.6/barrel in 2022, they are still at a relatively high level in the past 30 years, creating a good external environment for national oil companies to enter the global oil and gas resource merger and acquisition market.

From the perspective of corporate finance, after experiencing a long period of low oil prices from 2014 to 2020, most national oil companies have generally maintained a good financial situation at this stage through strategies such as continuous cost reduction and efficiency improvement and adherence to investment discipline. According to Wood Mackenzie's estimates, the average leverage ratio of national oil companies remains at around 20%, far lower than the average level of 30% of international oil companies; the relatively high international oil prices since 2021 have further consolidated the strong ability of national oil companies to obtain free cash flow from upstream businesses, and laid a solid capital foundation for their participation in global oil and gas resource mergers and acquisitions.

From the perspective of the oil and gas resource merger and acquisition market, on the one hand, although the transaction amount completed in the global oil and gas resource merger and acquisition market in 2023 is close to the historical peak level, the number of merger and acquisition transactions is only more than 200, which is the second lowest level in the past 20 years, indicating that the oil and gas resource merger and acquisition market is not active, or there are a large number of potential transaction assets with relatively reasonable valuations. On the other hand, after the completion of many "super M&A" transactions in 2023 and the first half of 2024, relevant international oil companies plan to divest and integrate non-core oil and gas assets on a large scale, which also creates market opportunities for national oil companies to acquire high-quality assets. For example, after acquiring Hess, Chevron announced that it would implement a non-core oil and gas asset divestment plan of US$10 billion to US$15 billion in the next five years; after completing the acquisition of CrownRock, Occidental Petroleum also plans to sell US$4.5 billion to US$6 billion in assets in the next 18 months.

Types of M&A assets that national oil companies focus on

From the perspective of asset types, four types of oil and gas assets may become the targets that national oil companies pay more attention to. The first is potential exploration assets. In the past decade, some national oil companies have achieved good returns on their international exploration assets, such as PetroChina's Brazilian assets, CNOOC's Guyana assets, and Qatar Energy's Namibian assets. Wood Mackenzie disclosed that the average return rate of national oil companies' international exploration business is as high as more than 20% at this stage. Therefore, national oil companies will pay more attention to the merger and acquisition of oil and gas assets with good exploration potential.

Second, growth-oriented development assets. Unlike some international oil companies that acquire asset value by "buying low and selling high", most national oil companies acquire overseas upstream assets with the goal of ultimately obtaining real oil and gas reserves and production, so they will pay more attention to M&A assets with development potential. Recently, Portugal's Galp Energy Company plans to sell 50% of the shares of the Mopane oil field discovered offshore Namibia, which has attracted the attention of many oil companies. The oil field is estimated to have recoverable oil and gas reserves worth more than US$20 billion.

Third, low-carbon LNG-related assets. With the accelerated advancement of global climate and environmental governance, national oil companies are also facing tremendous pressure to reduce carbon emissions. The acquisition of low-emission LNG assets can not only enrich the upstream asset portfolio of some resource-rich countries, but also conform to the world's energy development trend. This is also the internal logic of Saudi Aramco's recent plan to purchase 25% of the shares of the Port Arthur LNG Phase II project in the United States.

Fourth, assets in cooperation with leading international oil companies. Acquiring some assets of leading international oil companies is conducive to the "strong alliance" between national oil companies and international oil companies to open up overseas oil and gas resource markets and reduce risks. For example, Abu Dhabi National Oil plans to establish a joint venture with BP to participate in the exploration and development of a number of Egyptian natural gas assets with a 49% stake. In addition, Saudi Aramco also expressed its willingness to introduce technologically advanced international oil companies to jointly develop its Jafurah unconventional gas field.

Take advantage of the global oil and gas resource market to increase asset mergers and acquisitions

For my country's oil companies, although domestic oil and gas exploration and development has made positive progress at this stage, crude oil production has increased from 189 million tons in 2018 to 209 million tons in 2023, and natural gas production has increased from 160.2 billion cubic meters in 2018 to 232.4 billion cubic meters in 2023, with an increase of more than 10 billion cubic meters for seven consecutive years, it is still necessary to further enhance the sense of responsibility for holding the energy rice bowl firmly, make full use of the current good external environment of the global oil and gas resource market, and explore increasing overseas oil and gas asset mergers and acquisitions to ensure the security of national oil and gas supply.

First of all, my country's oil companies should do a solid job in the relevant research and business preparations for oil and gas resource mergers and acquisitions, and acquire high-quality assets at the lowest cost in the shortest time after high-quality merger and acquisition targets appear.

Secondly, my country's oil companies should study the types of upstream assets that other national oil companies and international leading oil companies prioritize for mergers and acquisitions, as well as foreign cooperation models, to continuously improve the quality and efficiency of overseas operations.

Finally, by tracking the dynamics of the global oil and gas resource merger and acquisition market, my country's oil companies can judge the development trend of the upstream oil and gas industry, study its internal mechanisms in a timely manner, and use them to optimize and adjust the company's overall upstream development strategy.

Saudi Aramco and Abu Dhabi National Oil intend to bid for Santos

Bloomberg recently reported that Saudi Aramco is considering acquiring Australian energy giant Santos. Abu Dhabi National Oil Company (ADNOC) is also studying an acquisition offer for Santos. The news shook the global oil and gas resource merger and acquisition market, and as a result, Santos' stock price rose by nearly 8% in the following days.

Santos is an Australian oil and gas production company with nearly 1.7 billion barrels of oil equivalent in recoverable reserves and oil and gas production of more than 90 million barrels of oil equivalent in 2023. Santos has several highly regarded liquefied natural gas (LNG) projects in Australia, Papua New Guinea and East Timor, including the Darwin LNG project, the Gladstone LNG project and the PNG LNG project. These projects are close to Asia's rapidly expanding energy demand market, so they have attracted attention. In addition, Santos also owns natural gas operations in Australia and conventional oil assets in Alaska.

Simon Mohinni, managing director of Allan Gray, Africa's largest private independent investment management company, said, "Santos is an attractively priced company with many high-quality assets."

The protagonists of the acquisition rumors are not limited to Saudi Aramco and Abu Dhabi National Oil. Sources said that Santos may also attract the interest of other buyers. However, relevant planning is underway and no clear acquisition proposal has been announced.

In recent years, Santos has been a popular candidate for energy acquisition targets. In 2018, the company rejected several offers from Harbour Energy in the United States; last year, Australia's Woodside Petroleum also held preliminary talks with Santos on the acquisition, but Woodside Petroleum's investors were worried about having to pay a high premium for Santos' shares, and the negotiations ultimately failed to reach an agreement.

Analysts believe that the potential involvement of Middle Eastern energy giants will further boost Santos' market value, and may also attract more attention and competition from international energy companies.

Saudi Aramco also recently signed a non-binding agreement to purchase a 25% stake in Sempra Energy's Port Arthur LNG project in the United States. In addition, the company has signed an agreement to purchase LNG from NextDecade's Rio Grande LNG project on a long-term basis.

A Santos spokesman did not comment on media speculation. Saudi Aramco said reports that it was interested in bidding for Santos were "inaccurate." Abu Dhabi National Oil declined to comment.