Fossil fuels may be out of fashion, but sales of foreign-owned resources across Asia are expected to attract a broad mix of bidders

Some of Asia's biggest foreign-owned oil and gas assets, worth more than $40 billion, are to be sold this year, with potential bidders expected to include Chinese energy companies and sovereign funds.

Assets to be sold include US-based Chevron's $1 billion (0.94 billion euros; 0.81 billion) joint ownership stake with China's state-owned CNOOC in an offshore oil field.

One of the world's biggest oil and gas companies, Chevron plans to sell about $10 billion worth of assets, including natural-gas assets in Thailand, by the end of the year.

A worker checks one of CNOOC's deep-water drilling platforms in the South China Sea. China's top offshore oil and gas producer said it is scouting for potential acquisition opportunities among Chevron's $1 billion in assets that were put up for sale recently. Xinhua

CNOOC, China's top offshore oil and gas producer, has said it is scouting for potential acquisition opportunities, although a climate of low oil prices is making it difficult to agree on price.

This comes at a time when many countries in Asia are adding renewable resources, such as wind and solar, to their energy mix. While renewables are gaining traction, oil and coal-fired power stations will be around for some time.

Data from financial markets platform Dealogic show that from January to February this year, Chinese oil and gas companies were involved in $6.98 billion worth of mergers and acquisitions.

BP, Chevron, Royal Dutch Shell and other oil and gas majors have been slowly divesting tail-end assets within the region in recent years, but that trickle looks set to gain momentum as larger assets are to be put up for sale in 2017.

Chevron and Shell hold the largest portfolio of legacy assets in the region - that is, old assets that have lost value - and in the latter half of last year signaled their intentions to sell assets in Myanmar, Bangladesh, Thailand, New Zealand and Malaysia, among others.

In January, Shell said it would sell its stake in Thailand's Bongkot gas field to Kuwait Foreign Petroleum Exploration Company for $900 million.

The move is the latest stage of the Anglo-Dutch company's push to reduce debt. The transaction will include Shell's 22.2 percent equity stake in the Bongkot field and adjoining acreage off the coast of Thailand, Shell said in a statement.

"This transaction shows the clear momentum behind Shell's global, value-driven $30 billion divestment program," the company said.

International resources consultancy Wood Mackenzie expects 2017 to bring a different mix of buyers to the fore than has been seen in recent years.

According to Prasanth Kakaraparthi, senior upstream research analyst at the consultancy, between 2010 and 2016, national oil companies were the main buyers in the Asia-Pacific, acquiring over 2 million barrels of oil equivalent of commercial reserves.

"This year we expect to see more buying activity from local independents and private equity-backed players," he says.

"Domestic utilities and refiners, Japanese players and Middle Eastern NOCs looking for growth opportunities are also possible acquirers."

He says Asia-Pacific capital expenditure is expected to fall again in 2017 to $64 billion, with capital budgets some 40 percent lower than in 2015.

This is due in part to fewer projects with final investment decisions in 2016. Only two projects, Ca Rong Do (Red Emperor) in Vietnam and the Western Surat Gas Project in Australia, are expected to take this step in 2017.

Lackluster participation in recent licensing rounds, and reduced budgets, point to a bleak year for exploration in the Asia-Pacific.

"We expect around 50 wells to be drilled this year - a 70 percent drop from 2014 levels," Wood Mackenzie said in a report.

Myanmar, which holds some of the last remaining frontier acreage in an otherwise mature region, accounts for the bulk of frontier exploration drilling and will be the biggest bright spot in Asia Pacific this year.

"We expect several wildcat wells to be drilled, as several blocks from the hugely successful 2013 bid round are matured through the exploration process," the report said.

"We also expect to see several companies farm down interest in exploration acreage where commitment wells are due, to reduce risk and manage budgets."

Kakaraparthi says there are three reasons why he expects the big players to sell this year.

"Many of the assets they hold in Southeast Asia are now mature, meaning they are likely to incur high (capital expenditure) going forward for little additional value," he says.

"Abandonment liability is also a big issue for older assets, which is another incentive to divest these from a portfolio.

"Typically at this stage, we would expect to see assets change hands from the majors/international oil company (IOC) type operators, to late-life players, smaller independents who still find these assets valuable, and potentially domestic players and local NOCs."

He says the second reason is two years of low oil prices, in 2015 and 2016.

"This has given a further incentive for the majors to kick-start divestment programs in order to bolster cash flow and sharpen the tail end of their portfolios.

"Many of these deals were already in progress during 2016 and we expect them to come to fruition this year.

"And finally, with limited exploration upside, increasing uncertainty around license extensions and domestic NOCs taking a more aggressive stance, the region has much less appeal than it did a couple of decades ago."

Kakaraparthi says several IOCs were seen retreating back to North America even before the oil price began to tumble.

He expects this trend to continue, explaining that the overall investment climate for the majors is challenging, in Southeast Asia in particular. License expirations looming on many large assets over the next decade serve as a disincentive to spend and an incentive to sell.

As for the buyers, he says: "We expect to see a mixed bag, ranging from NOCs, domestic independents, refiners and utility players to private equity-backed independents.

"From a Chinese perspective, there are mature assets operated offshore from China by international players that could be in the frame for sale.

"As buyers, we see the Chinese NOCs as increasingly focused on ongoing domestic energy reforms and the impact it has on their overall business."

Tim Woodall, managing director of specialist oil and gas corporate advisory firm Miro Advisors, says the Wood Mackenzie expectations match what he is seeing in the market.

"The timing appears right for increased merger and acquisition activity in 2017, whether it be a continuation of companies deleveraging by asset divestments, or companies like Shell, BG, Repsol and Talisman tidying up their Asia portfolios post-merger, or some IOCs looking for growth in their 2017-18 time frame via M&A," Woodall says.

Last year, the French utility Engie was reported to be seeking buyers for its oil and gas assets in Malaysia and Indonesia.

Engie, which joins a number of European utilities in selling oil and gas exploration and production assets after a sharp drop in energy prices, is looking to raise up to $500 million from the sale, Reuters said, citing banking sources.

The first bidding round for the assets is scheduled to be completed in mid-June.

The package consists of five assets, including a 33.3 percent working interest in the Muara Bakau offshore gas and very light oil project in Indonesia operated by Italy's Eni.

In Malaysia, Engie is selling 20 percent stakes in two exploration blocks, according to documents seen by Reuters.

Potential buyers include Asian oil firms such as Indonesia's Pertamina, Malaysia's Petronas, Thailand's PTT Exploration and Production, and Japan's Inpex and Mitsui, as well as companies backed by private equity funds, the sources said.

Deal-making in the oil and gas sector has slowed significantly since the sharp fall in oil prices nearly two years ago, while the number of assets on the market has climbed as companies seek to raise cash.

karlwilson@chinadailyapac.com