Buying companies may actually be cheaper than buying assets, says Exxon partner

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Getty Images

Oil and gas companies are looking more attractive to buy than individual assets following the plunge in share prices, according to Oil Search Ltd., Exxon Mobil Corp.’s partner in Papua New Guinea.


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It’s one of the few times “I’ve seen that buying companies may actually be cheaper than buying assets,” Oil Search Managing Director Peter Botten said Tuesday in a phone interview. “With the recent correction in the share market, should it be sustained, you are going to see a lot of corporate activity and consolidation.”

Related: 3 top land drillers to buy prior to 2016 recovery: UBS

Oil and gas producers on Monday declined to their lowest level in almost four years as collapsing markets in China raised concern demand will falter and exacerbate a glut. The index of 40 energy explorers, refiners and drillers on the Standard & Poor’s 500 lost $17 billion in value amid a global selloff.

Australian oil and gas producer Santos Ltd., which lost two-thirds of its value in Sydney trading over the past year, said last week it has received approaches for assets and “strategic opportunities.” Santos, under pressure after a plunge in energy prices, may attract suitors including Total SA, according to Sanford C. Bernstein & Co. and IG Ltd.TSRlogo1

Companies selling assets may still not be willing to divest those holdings at lower prices, Botten said. Buyers with “fire power” may be able to purchase entire companies, Botten said after his company reported a 49 percent gain in first-half profit.

‘Measured, Disciplined’

Oil Search, which owns 29 percent of Exxon’s Papua New Guinea liquefied natural gas project, will look at acquisitions of its own in a “very measured and disciplined way,” he said. The company will focus on potential opportunities in Papua New Guinea, Botten said in a separate conference call with reporters.

Related: Perfect oil stocks to buy right now: Cramer

Considering Santos’ assets in Papua New Guinea would “come down to price,” Botten said.

While Oil Search has been helped by gains at the LNG development, which started production last year, the company has also been hit by sliding oil and gas prices. Oil prices will probably be “lower for longer,” Botten said Tuesday.

BMDBannerNewOil Search plans to cut jobs over the next six to nine months, and a number has yet to be determined, Botten said. He expects to stay at the company for a few more years to help steer growth.

Related: The oil selloff created this buying opportunity

The $19 billion PNG LNG project operated by Exxon is considering an expansion, while Oil Search is also in a venture with Paris-based Total and InterOil Corp. that’s planning a second LNG development in the Pacific country.

Oil Search, based in Port Moresby, expects the venture with Exxon to make a decision on an expansion by the end of 2017, according to its presentation Tuesday. Committing to the Total-led project known as Papua LNG in 2017 looks “very challenging,” Botten told analysts on a conference call.

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