When US independents begin reporting earnings in earnest this week, investors will be looking for more than just growing production and profits. More asset sales will also be on the wish list.
Companies like Hess, Occidental, Apache and Chesapeake Energy have sold tens of billions of dollars in assets in the past two years, a reaction to investor demands to narrow their focus on higher growth projects, particularly onshore US shale fields.
Hess is getting rid of nearly every business that is not focused on upstream production, including its marketing and retail businesses. Oxy is spinning off its California holdings into a new company and selling other domestic and overseas assets, while Chesapeake has sold off nearly $4bn in properties in 2014 alone, including the spinoff of its oil field services business which closed earlier this month.
In the first half of 2014 there were about $41bn in US oil and gas deals, and the drumbeat will continue through the end of 2014, UBS Securities analysts said.
"After more than two years of aggressive portfolio disposal and corporate restructurings in the E&P space, the market continues to reward companies executing asset sales," UBS said.
But those efforts still may not be enough. Last week activist investor Jana Partners revealed that it has taken a $1bn stake in Apache and told investors it wants the company to go beyond the $10bn in asset sales made over the past 18 months. Apache's performance has lagged compared to competitors, Jana said, so the company should also sell its stake in liquefied natural gas projects in Australia and Canada.
Apache said it welcomes Jana's investment and continues to move forward with plans to put an even greater focus on its North American onshore business. "We will continue to take actions to enhance shareholder value," the company said.
Companies are looking to do more than just focus on US projects, but are honing in on one or two key basins. This has led to a churn in small to midsize deals, such as Diamondback Energy paying $538mn for leases in Texas' Permian basin, and Linn Energy paying $2.3bn for Devon acreage in the Rockies, east Texas and Louisiana. Freeport-McMoRan sold its Eagle Ford assets to Encana for $3.1bn, while Whiting Petroleum and Kodiak Oil and Gas just agreed to a $6bn combination that will make them the largest producer in the Bakken.
The latest E&P asset shuffle began in 2011, when Marathon Oil and ConocoPhillips decided to spin off their refining businesses into separate companies following several quarters of lagging downstream results. Turmoil in the Middle East and North Africa, including Egypt, also led investors to encourage companies to focus on investing in the more stable North American markets.
Investors continued to push companies to narrow their focus amid falling natural gas prices. Buoyant gas prices had underpinned the US shale drilling boom before they dove to 10-year lows below $2/mmBtu in the spring 2012.
Investor pressure led to the departure Chesapeake co-founder and chief executive Aubrey McClendon in 2013. The company hired Doug Lawler as chief executive, who quickly went about cutting spending and selling tens of thousands of US acres. The company has cut its debt and seen its stock price rise by 25pc over the past year.
Hess picked up the pace of its asset sales in early 2013 following pressure from activist investors Elliott Management. Company chairman and chief executive John Hess relinquished his chairman position and agreed to allow several Elliott picks onto the board of directors as a concession. Hess' stock has also risen since then by nearly 40pc.
Apache sold a stake in its Egyptian business to Chinese national oil company Sinopec last year and is looking to sell its stake over LNG projects in Australia and Canada, moves that have helped drive up the stock 25pc in the past year.
But narrowing focus is not as easy as posting a ‘for sale' sign. Oxy's asset divestment effort has been slow to pan out. The company had hoped to sell a sizeable stake in its Middle East business but has failed to close a deal, while the company's Bakken shale acreage have also failed to attract significant interest. Oxy's stock is up about 10pc over the past year.
Hess reports second quarter results on Wednesday, Apache and Oxy on 31 July, while Chesapeake reports on 6 August.
tdf/dcb
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