European energy groups press on with multibillion-dollar disposals


Three of Europe’s biggest energy groups are looking to make progress with multibillion-dollar asset disposal programmes before the end of this year, despite pressure on valuations from low oil prices.

Total of France is aiming to sell its Atotech chemicals subsidiary this autumn in a deal expected by analysts to raise approximately US$3-billion, and ENI of Italy has allegedly wrapped up talks to offload part of a big Mozambique gas field.

Royal Dutch Shell, meanwhile, says it is working on 17 potential disposals as it seeks to reassure investors that its target for US$30-billion of asset sales by 2018 is achievable.

In common with other oil companies, the European trio are looking to divest non-core assets to help shore up their balance sheets and defend dividends at a time of mounting pressure from the prolonged weakness in oil prices.

However, they face a challenge to achieve acceptable valuations as the deflationary impact of the oil price crash ripples through the industry.

This balancing act is especially tricky for Shell as disposals are crucial to reduce debts after its £35-billion takeover of BG Group, completed in February.

“Shell is going to have to be flexible on price if it is to move forward with some of these deals”, said one energy banker. “They cannot just sit back and wait for oil prices to come back”.

About US$3-billion of disposals have been completed or announced by Shell so far this year, including the sale of its stake in the Japanese refiner Showa Shell.

Simon Henry, Shell’s chief financial officer, said last month that the group wanted to make “significant progress” on deals worth US$6-billion to US$8-billion by the end of the year.

Assets in Thailand, New Zealand and the North Sea are among those up for grabs, as well as Shell’s planned exit from its Motiva refining joint venture with Saudi Aramco in the US.

Patrick de la Chevardière, chief financial officer of Total, said he was confident of hitting his target for US$10-billion of disposals by the end of next year despite weak valuations for upstream exploration and production assets.

“It is true that the oil price environment is not favourable to sell upstream assets, and we are not desperate to sell at any price”, he told investors last month. “We have a few projects under negotiation to sell midstream assets, mostly pipeline infrastructure … and the market is there for those assets”.

Much of this year’s deal activity has involved downstream refining and chemicals businesses, such as Total’s Berlin-based Atotech unit, which makes chemicals for circuit boards and semiconductors used in electronics. Chevardière said that Total was in the process of selecting a short list of bidders, with an aim to sign a deal in the fourth quarter.

Reuters reported last week that Sinochem of China and private equity groups Cinven and BC Partners had made it into a second round of bidding. Total and the three reported bidders declined to comment.

ExxonMobil has been strongly linked with ENI’s Mozambique asset. Both companies declined to comment. ENI is also planning to offload part of a big Egyptian field next year in pursuit of its target for €7-billion of disposals by 2019.

Source: Financial Times

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