Skip to main content
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
// //

The collapse in oil prices to 21-year lows has led potential buyers of oil and gas fields to try and renegotiate deals already agreed at higher prices, with the first examples emerging of sellers having their hand forced.

At a time when most oil companies are slashing budgets, dividends and headcounts to preserve cash, sellers are facing a difficult choice between sweetening the deal or risking losing it altogether.

Premier Oil’s CEO said he is seeking a cheaper price for North Sea assets it agreed to buy from BP for $625 million and Energean is doing the same with a $700 million purchase from Edison.

Story continues below advertisement

“The oil industry is revisiting its ‘before coronavirus’ (BC) bids, and we envisage announcements from other firms as they re-price or repackage previously announced deals,” said Royal Bank of Canada oil and gas equity analyst Al Stanton.

Total this month decided to walk away from its purchase of Occidental Petroleum’s assets in Ghana, which hit a glitch over part of the French firm’s wider deal with U.S. Occidental.

“Given the extraordinary market environment and the lack of visibility that the group faces... Total has decided not to pursue the completion of the purchase of the Ghana assets,” Total said in a statement.

Among deals currently on the table, private equity group Blackstone with its North Sea vehicle Siccar Point, was already disagreeing with another private equity firm, Chrysaor, over price even before the slump in March, sources said.

However, privately held Hilcorp Energy and private-equity firm HitecVision have successfully renegotiated deals with energy majors BP and Total, respectively, during the current oil price meltdown.

“Sellers, especially the majors, have certainly been very constructive,” said one industry banker.

Hilcorp’s new agreement retains the original sale price but provides for vendor financing, smaller payments in 2020 and for cash-flow sharing in the near term, BP said. The terms may lead to BP receiving less cash at the end of the day.

Story continues below advertisement

Total on Wednesday said it agreed to restructure a deal, initially set at $635 million, to sell North Sea oilfields to HitecVision’s NEO unit to reflect “current market conditions while retaining the majority of the value of the transaction.” This included lending money to the buyer.

“It is my view that all deals... in general will be a mixture of initial payments that are suitable for the current market and earn out or commodity price payments that allow sellers to get good deals as the volatility subsides,” HitecVision Senior Partner John Knight said.

“Vendor finance with junior (debt) facilities, working capital and marketing and hedging arrangements and in some cases tax transfers and allocations and decommissioning security arrangements will all be tools all sellers and buyers will use in markets like this.”

Earn-out or upside sharing means the seller will only be paid once the oil price exceeds a certain limit.

HitecVision said it is on the prowl for more acquisitions in the British North Sea. In Norway, Aker BP and Lundin may be on the lookout for cheap assets, while OKEA and DNO, which took control of U.K.’s Faroe Petroleum last year, are also looking to grow.

For some producers, like North Africa and gas-focused SDX, current oil prices do represent a “catalyst for opportunities”, but chief executive Mark Reid said vendor financing, such as becoming the sellers’ debtor, is a double-edged sword.

Story continues below advertisement

“It’s clearly something that helps to sell the asset and put it into the hands of a smaller company... It is an interesting dynamic that the majors are able to use their balance sheet to facilitate (mergers and acquisitions),” he said.

“We continue to talk to our contacts at BP, and other majors. (But) most importantly, (we plan) so that the company doesn’t find itself drowned in debt.”

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies