ExxonMobil opts out of Bass Strait assets sale

U.S. oil and gas major ExxonMobil has called off the potential multibillion-dollar sale of its assets in Australia’s Bass Strait.

According to the Australian Financial Review, the decision by the U.S. oil major comes just six weeks after the deadline for indicative bids for the portfolio set by adviser JPMorgan.

“After completing an extensive market evaluation, ExxonMobil has decided to retain its operated Gippsland Basin producing assets in Australia”, AFR quoted an ExxonMobil spokesman for local affiliate Esso Australia.

Australian Financial Review also stated in its article that the sale process had not yielded attractive enough offers.

ExxonMobil’s unwanted Bass Strait assets were put up for sale in September 2019. Exxon’s 50 per cent stake was estimated to fetch up to $3 billion.

The other 50 per cent stake is held by energy giant BHP. The company decided in August 2020 to sell its stake to enable focusing on higher-value petroleum assets.

It is worth noting that the Bass Strait oil and gas fields off Australia’s southeastern coast have produced more than 4 billion barrels of crude oil and about 8 trillion cubic feet of gas over the past 50 years and now face a steep decline.

At $1.1 billion, the Bass Strait was the biggest single contributor to BHP’s petroleum revenue in the year to June 2020, but that is a drop from a $1.6 billion annual contribution in 2010.

It was predicted that BHP might be able to sell its stake before ExxonMobil since its interest might attract more bidders as it is not the operator of the field.

One of the problems for the sale of the Bass Strait asset sale is the risk regarding abandonment liabilities which are deemed as significant.

Namely, regulators will most likely watch any sale very closely because of the case of the North Oil & Gas Australia (NOGA) company which bought an ageing field in 2016. The field came with $156 million in abandonment liabilities, but the company went into voluntary administration last year. The decommissioning costs for the Bass Strait assets are estimated to be many times higher than that.

High abandonment costs and anyone’s ability to meet them, along with heightened regulatory scrutiny, hindered giving any high-quality offer. This drastically limited the pool of buyers for Bass Strait interests.