Asset Diversification, Industry Consolidation on two sides of Atlantic by Oil and Gas E&P Companies

The COVID-19 pandemic has changed the landscape of the oil and gas industry. On 14th of May this year, I had the opportunity to attend the webinar hosted by Petroleum Economist "The OFSE sector:Navigating the Price decline". One of the points discussed in the webinar by the panellists is, how the companies can manage and navigate this price decline? The panellists addressed this question under Trends and solution. One of point of view of the panellists to manage the price decline is asset diversification, industry consolidation.

I can visualize the above two points by recent actions by the major oil and gas exploration companies on both side of the Atlantic (Only focused on European and North American companies) with different approach.

1. The European companies like Shell, BP, Total has changed their prediction of lower oil prices to continue up to 2022 and beyond,acknowledged the same. As a consequence, write-off some of their unexplored oil and gas assets from the balance sheet. To make their balance sheet better for example, BP has sold its Petrochemical to INEOS for 15 billion USD, and selling its Alaska assets to Hilcorp Alaska for 5.6 billion USD. The pandemic has accelerated energy transition on European side. The oil and gas companies on European continent committed to invest more on the technologies such as hydrogen, offshore wind, carbon capture and storage, and to become net zero carbon emission companies by 2050. This is one of their diversification strategies.It is in line with European Union's road map.

2. On the other side North American oil and gas exploration companies adopting a different strategy. They are looking to increase their liquidity and hunting for good assets at cheaper prices. For example, Chervon buying Nobel energy in a 5 Billion USD deal, Exxon mobil reducing their capital expenditure by postponing some of the E&P projects in their list. But both these companies didn't announce any write-offs of their oil and gas assets from the balance sheet. It is surprising to some energy analyst in USA. Like in Europe, the lower oil prices didn't accelerate the energy transition in USA. This may not be true in case if USA didn't withdraw from Paris Climate change agreement -2015.