Graph above shows the valuation of independent E&Ps (EV/Core NAV) compared to Brent.
(Published in Cotizalia on November 19th 2009)
What an incredible week. Warren Buffett buys $60 million in Exxon shares, the independent E&P stocks (Dana, Dragon) rose to near-all-year highs on takeover speculation and we witness the evidence of what PetroChina said recently: the war for natural resources has only just begun. And the EU is losing.
While large European oil companies still fail to know what they will do to keep their businesses afloat if prices fall $1 or $2/bbl, the world is experiencing a revolution. So far in 2009,
Following are the Top-10 acquisitions by Chinese companies in the oil and gas sector so far in 2009. (Billions of US dollars)
RANK VALUE ACQUIRER TARGET
1. 7.15 Sinopec Addax Petroleum Corp
3. 1.73 PetroChina
4. 1.30 CNOOC, Sinopec Block 32 Offshore,
6. 0.87 Sinochem Resources Emerald Energy PLC
7. 0.41 Petrochina South Oil E&D Co Ltd
8. 0.31 CNOOC Talisman Energy Inc (gas)
9. 0.27 Xinjiang New Energy
10. 0.13 XinAo Gas Holdings Various oil reserves
You see, Europe's efforts to invest in alternative energy and the electric car are very laudable and very necessary, but also very expensive, and even in the best case we should not lose sight of the importance of increasing access to natural resources . Especially when the International Energy Agency estimated that the use of electric vehicles in 2050 will not reach 35% of the worldwide fleet.
For me the problem is that the major oil companies are losing the best chance they ever had to buy relatively cheap assets and businesses in the OECD (see graph). For years we heard from Big Oil that E&P companies were too expensive, that they should wait for lower valuations to acquire assets. But that moment came in 2009, with the big oil companies full of cash and independents trading at historical lows ... and they missed it.
As Warren Buffett, Exxon knows that investing in cyclical assets with high debt clouds the ability to create long term value. And that's what Warren Buffett has bought: a dirt-cheap stock, as he pays the total resources (72 billion barrels) at $4/bbl and pays zero for the chemical and refining businesses … but especially with the option to grow and buy without destroying the balance sheet.
In 2010 the figure of mergers and acquisitions, according to several companies and analysts, will reach $35 billion and may exceed $50 billion. Between PetroChina and Exxon they already have more reserves than all European listed companies together. The large integrated oil companies from