| HOUSTON, March 4
HOUSTON, March 4 Asset-sale activity in the
energy exploration sector should wake up from its 2013 slumber
as industry majors make hard decisions about what assets to shed
after a binge of deals completed earlier in the decade, several
energy bankers said on Tuesday.
After the acquisition surge of the early 2010s, last year
"was a year to reassess, to look at what you bought, to ask, do
we need all this stuff," said Maynard Holt, head of exploration
and production investment banking at Tudor, Pickering, Holt &
"It was a year of digestion," Holt said at the IHS CERAWeek
energy conference in Houston.
The number and value of merger and acquisition transactions
declined last year as companies worked to digest deals completed
in the previous few years, driven largely by an explosion in
shale oil and gas exploration.
In 2014, "we will get out of this digestion phase," Holt
said, as large energy companies seek to improve their portfolio
"The beginnings of the deal market improving are here," he
Potential investors, such as private equity firms, were
deterred by an inability of exploration and production companies
to boost oil and gas output in recent years despite spending
billions of dollars each year, said Poppy Allonby, managing
director of BlackRock Investment Management Ltd.
Investors want the industry "to demonstrate that the capex
being spent is going to earn a decent return," she said.
"If (investors) can't see that it's going to earn a decent
return, there's pressure for management" to pursue asset sales
instead, Allonby said.
The environment for asset sales and mergers will be more
difficult and some assets will not find buyers, said Jonathan
Cox, Morgan Stanley's managing director of energy M&A
"There's a surprising consensus among companies and
investors about what is worth owning and what is not," Cox said.
"Too many people are going for the same assets: the core Bakken,
the Permian (Basin), the Eagle Ford and the Niobrara."
As a result, Cox said, he sees a shortage of buyers for
"legacy assets that in many cases can be proved to generate
terrific returns. That will have to change."
Cox called the growing influence of activist investors on
corporations' strategic decisions "unprecedented."
He said the "tremendous pressure" on energy-company boards
to reduce capital spending shows that "investors don't
understand the capital intensity; they don't understand the
returns and they want to see some capital returned to
Given the environment of rising production costs, "it's very
challenging for a CEO to go the board and advocate for a
transaction," Cox said.