More oil pain needed before energy deals seen picking up

JAMES PATON

PERTH, Australia (Bloomberg) -- It may take another quarter of weakening oil prices before energy companies start selling assets, according to Australia’s Woodside Petroleum Ltd.

Sellers that haven’t been willing to offload their best assets may begin putting them up for sale after suffering a few more months of slumping oil prices, CEO Peter Coleman said Wednesday.

“We’ve got another quarter in front of us before we really start to see a significant number of asset sales coming into the market,” Coleman said on a conference call after Woodside posted a 39% drop in first-half profit. “It’s really difficult to sell an asset today, and it’s equally difficult to buy one.”

Royal Dutch Shell’s Plc’s $70-billion deal earlier this year to buy BG Group Plc was seen as the start of an M&A wave in the energy industry as oil prices fell. Crude prices that have dropped by about half over the past year have forced oil and gas producers to slash costs.

Even after its $2.75-billion agreement in December to purchase stakes in assets held by Apache Corp., Woodside has a strong balance sheet that may allow the company to make another acquisition and take advantage of low crude prices, according to a February report from Goldman Sachs Group Inc.

While Woodside has fared better than its Australian peers in the downturn, the company told investors in May that it’s targeting A$680 million ($500 million) of cost savings by next year and had let about 600 people go since the start of 2014.

Tough Markets

Woodside’s net income fell to $679 million from $1.1 billion a year earlier, the Perth-based oil producer said Wednesday in a statement. That was better than the $649 million median estimate of four analysts surveyed by Bloomberg News.

Woodside rose 2.5% to close at A$32.86 in Sydney, the biggest gain in a month. The stock has fallen about 14% so far this year, compared with a 27% loss for Australian competitor Santos Ltd.

Brent crude, the benchmark for more than half the world’s oil, has slumped in the last year as OPEC refrains from trimming output amid a global glut while U.S. production has surged.

Woodside also faces a fall in LNG prices in Asia as new supply combines with weakened demand in key markets, such as Japan, Korea and China. The operator of the Pluto and North West Shelf LNG projects in Australia aims to make a decision on whether to go ahead with its Browse project in the second half of 2016, it reiterated Wednesday.

Interest in Browse among potential customers has “gone up quite significantly” since the project entered the key engineering and design phase, Coleman said.

LNG prices are expected to be little changed over the next 18 months, he said. “We think it’s a short- to medium-term issue that will get worked through,” Coleman said.

Spot LNG cargoes in Northeast Asia were selling at $8.15 per million British thermal units earlier this month, down about 24% in the last year, according to data from New York-based Energy Intelligence Group.