Blackstone hits gas as US majors retreat from SE Asia

Blackstone and Tamarind talk to FinanceAsia about M&A openings created by North American oil & gas giants retreating from the region.

Blackstone is pouring up to $800 million into a startup called Tamarind Energy, which will join a small but growing band of independent exploration and production companies drilling for oil and gas across Malaysia and Indonesia.

The US group's first investment in the Southeast Asian oil and gas sector comes as many North American international oil companies (IOCs) sell assets across the region and Southeast Asian governments strive for greater energy self sufficiency.

Both trends are creating opportunities for Kuala Lumpur-headquartered Tamarind to partner with state-owned oil companies such as Pertamina and Petronas and buy assets from retreating IOCs. Other small exploration and production firms such as KrisEnergy and Salamander Energy are also stepping up.

Last year Hess sold $700 million worth of oil and gas assets in Indonesia and $1 billion worth of assets in Thailand. Meanwhile Newfield Exploration sold $898 million of assets in Malaysia, according to data provider Dealogic.

Private equity firm First Reserve said in June it is buying three of British oil services firm Petrofac’s production facilities in Malaysia and Thailand for $450 million.  

Arkansas-based Murphy Oil is selling its Malaysian oil and gas assets while Canada’s Talisman Energy is reviewing its $4 billion Asian oil & gas portfolio with an eye to farming down equity in blocks. 

Tamarind’s chief executive Ian Angell, who was previously at Talisman for five years, said he expects the North American IOCs will continue to sharpen their focus on domestic unconventionals, such as the shale gas boom, and that pull on capital will prompt them to release more assets in the region.

“The last 24 months or so have brought an unprecedented level of both asset and corporate opportunities which we don’t see abating,” said Tamarind’s Angell during a telephone interview with FinanceAsia. “We bring knowledge of deal flow … We are in no doubt that we will be able to access assets and opportunities quite quickly,” he added.

Blackstone has committed and invested more than $6.8 billion of equity in 25 energy transactions, throughout the energy value-chain globally. “We can help grow investments, via M&A and creative transaction structures,” said Angelo Acconcia, a managing director with Blackstone Energy Partners. Acconcia oversees investments in the oil and gas sector for Blackstone. “We’re a partner not a buyer of assets,” he added during in an interview with FinanceAsia.

Fueling growth
Southeast Asia’s growing demand for energy is outstripping supply as production declines at large legacy fields. Imports are rising swiftly and governments are pushing their national oil companies to up domestic production.

Deloitte estimated Southeast Asia liquids 2012 production at about 2.5 million barrels of oil equivalent (BOE)  a day and consumption at 5.5 million BOE per day.

“The national oil companies are increasingly turning to smaller independents like ourselves to help solve these problems,” said Angell noting that Petronas, Indonesian upstream regulator SKK Migas with state-owned oil giant Pertamina are bringing partners into their existing fields to help squeeze barrels out of tired fields and that Tamarind is keen to be one of those partners.

Angell pointed to the Malaysia Petroleum Management Unit as a regional pioneer in looking at fiscal and commercial structures to incentivise E&P companies.

“I have personal experience with some of these new structures in Malaysia including those focused on the later life mature fields. They pioneered progressive, volume-based fiscal terms, allowing operators like us to strive for that extra barrel,” said Angell. 

He also highlighted the risk-sharing models in Indonesia.

“All the countries around Southeast Asia are trying to adjust their regulatory and tax structures to drive companies to find those tougher barrels,” said Angell.

It’s not just the last 20% of oil that Tamarind and Blackstone are going after: Tamarind aims to grow production and reserves from producing oil and gas fields, develop discoveries and explore in and around proven plays.

““We’re looking at the more complicated developments, whether it be the appraisal of a large-scale asset that requires a significant amount of infrastructure or is complicated technically; or a very large mature asset that requires patience and a lot of blocking and tackling to increase production,” said Acconcia.

Blackstone's Angelo Acconcia

To be sure Tamarind and Blackstone are not alone in seeing the opportunity. Capital from the region is stepping in to replace capital that has been exiting and new players are emerging in a region that has long been dominated by the national oil companies. 

KrisEnergy used seed money from First Reserve and was the first company to list under new Singapore regulations that allow unprofitable companies in the oil and gas and mining sectors to go public, inviting investors put their faith in the founders' track record.

Other Asian exchanges are being more flexible on listing requirements for the sector- SPACs are sprouting up in Malaysia such as Hibiscus Petroleum, Sona Petroleum and Cliq Energy.

“There is a more diverse mix of exploration and production players now in the region,” said Simon Crellin
, a director in Deloitte's Petroleum Services Group which provides data and advice to E&P companies.

There are many geologists, explorers and well-connected specialists in the region working at the majors but it has been rare to find a team that will strike out on its own -- until funding became easier and the majors more cooperative.

Angell, who will be working with other former Talisman employees at Tamarind including Lawrence Bernstein, said he welcomed the opportunity to partner with these emerging companies in Asia. “Capital is not the constraint to finding opportunities – it’s the team, the ability to be a value-added partner and to be patient,” said Acconcia. 

Angell is also looking at new models for financing projects – the structure of most contracts in the region historically put the high and low risk products all in one bucket. Pipeline infrastructure, for instance, is not usually financed separately from the upstream assets, but given its lower risk profile for investors, Tamarind thinks there is scope for exploring packaging that separately and lowering the overall cost of projects.

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