Exxon to Pay Eni $2.8 Billion for Mozambique Gas Block Stake

March 9, 2017

Source: Bloomberg News
By Angela Rascouet and Paul Burkhardt

Exxon Mobil Corp. said it will buy 25 percent of a project off Mozambique from Italy’s Eni SpA for about $2.8 billion as the U.S. oil giant expands in natural gas.

The acquisition of the offshore Area 4 stake comes after former Exxon Chief Executive Officer Rex Tillerson — now U.S. Secretary of State — discussed plans to buy into Eni’s assets with Mozambique President Filipe Nyusi in July.

“This strategic investment will enable Exxon Mobil’s LNG leadership and experience to support development of Mozambique’s abundant natural gas resources,” Tillerson’s successor as CEO, Darren W. Woods, said in a statement on Thursday.

Exxon’s involvement could accelerate the development of one of the world’s largest liquefied natural gas projects as oil majors increasingly focus on cleaner hydrocarbons. While Eni will continue to operate the Coral floating LNG project and all upstream operations in Area 4, Exxon will lead the construction and operation of gas liquefaction facilities onshore.

“Having Exxon as a partner is certainly positive given their experience in such complex projects,” said Alessandro Pozzi, an analyst at Mediobanca SpA who had expected the stake to only fetch $2 billion.

Easing Concerns

Exxon will buy half of Eni’s 50 percent indirect stake in the block, held through a 71 percent stake in Eni East Africa, which owns 70 percent of Area 4. The concession, where Eni discovered gas in 2011, includes both the Coral and Mamba gas fields, with reserves estimated at 85 trillion cubic feet.

Exxon’s buy-in at a higher-than-expected price should “ease investor concerns” on the project, said Biraj Borkhataria, an analyst at RBC Europe Ltd.

Mozambique’s state oil company, Korea Gas Corp. and Galp Energia SGPS SA each hold 10 percent of Area 4, while the remainder is owned by China National Petroleum Corp. through its 28.6 percent stake in Eni East Africa.

Exxon’s purchase will require clearance from the authorities in Mozambique.

The neighboring offshore Area 1, operated by Anadarko Petroleum Corp., contains more than 75 trillion cubic feet of natural gas.

The stake sale means Eni is making good on its March 1 promise to deliver 5 billion to 7 billion euros ($5.3 billion to $7.4 billion) of asset disposals by 2020. That target doesn’t include the stake sales to BP Plc and Rosneft Oil Co PJSC in its giant Zohr gas project off Egypt, which brought in $2.1 billion last year, according to Mediobanca.

BP Deal

BP Plc said in October it would buy all LNG production from Eni’s Coral South Floating LNG plant, a deal worth about $1 billion a year at current prices. A final investment decision on that project has yet to be made amid concerns it might be impacted by Mozambique’s failure to make an interest payment on a Eurobond in January, becoming the first African nation to default in six years.

As the world moves toward cleaner ways of producing and consuming energy, many major oil companies are increasing their focus on natural gas, which is considered a crucial bridge fuel in the transition to a low-carbon future. Royal Dutch Shell Plc’s $54 billion takeover of BG Group Plc last year was a significant pivot toward gas, giving the company massive LNG projects in Australia.

Thursday’s deal signals further M&A appetite from Exxon, which in January decided to double its footprint in the Permian shale-oil basin in a transaction worth $6.6 billion.