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Why ExxonMobil want to sell $25 billion of assets in Africa and Europe

ExxonMobil plans to sell up to $25 billion of oil and gas fields in Europe, Asia and Africa in its biggest asset sales for decades, seeking to free up cash to focus on a handful of mega-projects, according to three banking sources.

According to Reuters, the company is planning to sell its operations in Chad, Equatorial Guinea as well as parts of its Nigerian assets.

The sell-off would be a marked acceleration of the U.S. oil major’s previous divestment plans. It would represent an ambitious attempt by chief executive Darren Woods to catch up with competitors who carried out sweeping portfolio reviews and sold swathes of assets following the 2014 market crash.

Exxon’s shares have underperformed its major rivals’ in recent years. The disposals would help the company increase spending on new developments and appease investors unhappy with weak cash generation and oil output, which flat lined under Woods’ predecessor Rex Tillerson.

The sales would see Exxon effectively quit its upstream oil and gas business in Europe, according to the three banking sources with direct knowledge of the plans. They would free up cash to invest in new developments in Guyana, Mozambique, Papua New Guinea, Brazil and the United States.

An Exxon spokesman declined to comment on specific assets offered for sale but noted it has told Wall Street its asset sales could reach $25 billion through 2025.

In recent months, the Texas-based company has drawn up an extensive list of assets that it wants to divest, spanning at least 11 countries, the sources said.

The list, details of which have not been previously reported, would easily exceed its current divestment target which envisages it selling about $15 billion of assets by 2021.

Exxon has struck a number of deals in recent months including a $4.5 billion exit from Norway, and is also already offering assets in Australia, Nigeria, Malaysia.

The expanded plan will see Exxon also sell out of operations in the British North Sea, Germany and Romania, according to the sources. In Europe, that would leave it with production only in the Netherlands, where it holds a stake with Royal Dutch Shell in the giant Groningen gas field which the government plans to shut down in 2022.

While Exxon is set to ramp up its spending sharply in the coming years to develop new oil and gas projects, most of its peers have more cautious spending plans due to an uncertain outlook for oil prices and growing pressure from investors to diversify away from fossil fuels toward renewables.

Exxon responded more slowly to the 2014 oil price crash than some of its rivals that sharply cut spending, putting it under pressure from shareholders to reduce costs.

Exxon’s shares heavily underperformed relative to other Oil Majors over the past five year

Unlike rivals such as Shell and BP, Exxon did not carry out major review of its portfolio in recent decades. BP sold over $65 billion of assets following the 2010 Deepwater Horizon spill in the Gulf of Mexico while Shell sold over $30 billion after acquiring rival BG Group in 2016.

“The company’s high level of growth capital investments cannot be funded with operating cash flow and asset sales at projected levels given ExxonMobil’s substantial dividend payout, absent meaningfully higher commodity prices and earnings from downstream and chemicals,” Moody’s said.

 

Olusola Bello

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