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Mega Mergers to Mega Sales: The Next Phase in Oil, Chevron, ConocoPhillips, and Occidental

U.S. oil giants need to sell $27 billion in assets to pay their investors.

Chevron, ConocoPhillips, and Occidental Petroleum aim to raise to $23 billion from selling assets after their mergers.

As the largest wave of oil mergers in 25 years wraps up, a big asset sale is coming.

U.S. oil and gas companies are facing a tough task: unloading $27 billion in assets to pay their investors. This push comes as the largest wave of energy mergers in 25 years is about to clear its final regulatory checks.

Chevron, ConocoPhillips, and Occidental Petroleum are aiming to raise between $16 billion and $23 billion from selling off assets after their mergers. Exxon Mobil, another major player, has been raising about $4 billion a year from sales since 2021 but hasn't set a specific target for future divestitures.

With fewer buyers and more stringent regulatory reviews, the process of selling these assets is likely to extend into next year, complicating the landscape for these oil giants.

Energy stocks are less appealing to investors these days, holding just 4.1% of the S&P 500—down sharply from their 2011 levels—as funds flow into tech and healthcare instead. The industry's shaky returns and the push towards greener portfolios are turning investors away.

The task of finding buyers for these assets is challenging. The usual crowd of buyers has thinned, with fewer institutional and European oil companies in the mix and a general cash shortage for such large transactions. Even private equity, once a reliable purchaser of big oil's leftovers, has shifted focus towards renewable energy and social impact projects.

The recent mergers have been massive, involving $180 billion across six deals since October. These mergers are primarily aimed at securing future oil reserves and are expected to be completed this year, potentially flooding the market with oil wells, pipelines, and other infrastructure. However, the lack of eager buyers might slow down sales or lead to swaps instead of straightforward cash deals.

Oil Giants Strategize Asset Sales

Exxon, fresh from its $60 billion acquisition of Pioneer Natural Resources in May, is looking to divest conventional oil and gas properties in the Permian Basin. This move is part of its strategy to concentrate on assets with higher growth potential, a spokesperson confirmed.

Conoco is preparing to offload gas properties in Western Oklahoma, acquired through its $22.5 billion takeover of Marathon Oil. Similarly, Chevron is expected to market some of Hess' Asian offshore assets, as well as gas holdings in Canada and the U.S., according to sources who requested anonymity due to ongoing regulatory reviews.

Occidental is gearing up to sell shale assets in West Texas, which analysts believe could bring in around $1 billion. They also anticipate that Occidental will soon list assets in the Gulf of Mexico and the Middle East following the closure of its CrownRock acquisition.

Exxon has publicly stated that it is considering selling certain conventional oil holdings in West Texas and New Mexico, aligning with its broader portfolio management strategy. However, it has not announced any new asset sale targets post-Pioneer acquisition.

Both Conoco and Occidental have opted not to disclose their asset sales plans at this time.

Following the completion of its deal with Hess, a Chevron spokesperson revealed plans to put up for sale several "highly attractive" assets, projecting to generate between $10 billion to $15 billion in pre-tax proceeds by 2028.

Private, closely-held oil companies like Hilcorp, known for acquiring mature fields, smaller publicly traded oil producers, and investors from Asia and the Middle East are well-placed in the current market. Bankers note a rising interest from Japanese companies in U.S. natural gas. Jeffery Hildebrand's Hilcorp is reportedly eager to explore opportunities among the assets Big Oil is discarding, according to insiders.

Challenges in the Oil Asset Market

Luis Rhi from Barrow Hanley Global Investors remarked that the assets up for sale aren't the best in the industry, suggesting that companies might wait for a better market to sell. David Krieger of Covalence Investment Partners highlighted a significant mismatch between the assets on offer and the available investment funds, noting a decrease in dedicated oil and gas investment funds.

Brian Williams of Carl Marks Advisors pointed out that European oil giants, once active in U.S. shale, are unlikely to invest again after previous losses. According to data from Petrie Partners, the market for smaller deals has shrunk considerably, with only 78% of oil deals in 2023 costing less than $1 billion, down from 94% in 2019.

Todd Dittmann of Angelo Gordon & Co emphasized the rarity of sub-$1 billion acquisitions in the current market and noted widespread dissatisfaction among private equity investors due to difficulties exiting energy investments.

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Permian Basin Giants: 2024 Net Production Forecasts

Rystad Energy predicts that the merged company of Diamondback Energy and Endeavor Energy will produce 819,500 barrels of oil per day in the Permian Basin in 2024. Rystad, an energy research and business intelligence company from Norway, expects the ExxonMobil-Pioneer Natural Resources merger to lead the Permian in total net production for the year, with a projection of nearly 1.4 million barrels per day. Notably, about 53% of this production will be oil. Chevron is set to produce slightly more than Diamondback-Endeavor, with Occidental-CrownRock following closely. ConocoPhillips ranks fifth, with a production forecast of just under 800,000 barrels per day. Chevron's production is 47% oil, while Diamondback-Endeavor and ConocoPhillips have 57% oil in their mix, and Occidental-CrownRock is just below 50%.

The $26 billion purchase of Endeavor Energy Resources by Diamondback Energy, with its stock up 2.6%, is the newest big deal combining oil and gas production in the Permian Basin under a few big companies

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