Zacks_Analysts' Blog : Exxon to Offload North Sea Assets - Analyst Blog

U.S. oil giant, ExxonMobil Corporation (XOM) plans to shed its Mobil North Sea LLC assets to Apache Corp. (APA) in an attempt to restructure its portfolio. The $1.75 billion transaction is subject to regulatory approvals and expected to close by the year end.

The divestiture will include ExxonMobil’s operating interests in the Beryl, Nevis, Ness, Nevis South, Skene and Buckland fields, the Beryl/Brae gas pipeline and the SAGE gas plant, as well as non-operating interests in the Maclure, Scott and Telford fields. It also includes the Benbecula exploration acreage west of the Shetland Islands. As part of the transaction, Apache will take over Exxon’s 200-strong work force in the North Sea.

The deal with ExxonMobil –– the major operator in the Beryl Area in Britain –– will augment Apache’s production by 54% (an increase of 19,000 barrels of oil equivalent and 58 million cubic feet of natural gas a day) and raise its proved reserves in the North Sea by 44%. Of late, Apache has been busy acquiring properties for the expansion of its operational territories. This was reflected in its acquisitions last year, that comprises Egyptian and Canadian properties from the U.K. oil major BP Plc (BP). It has also purchased Mariner Energy in a deal that added deepwater Gulf of Mexico (GoM) assets to its portfolio.

For ExxonMobil, the world largest publicly traded oil company, the disposal of matured assets is a part of its strategic move to streamline its portfolio and thereby reinvest the proceeds in opportunities that offer higher returns. Other energy giants, such as Royal Dutch Shell Plc (RDS.A), BP and Total SA (TOT) have also sold their aged North Sea assets recently to focus more on money-spinning opportunities like deepwater West Africa, Canadian oil sands or Arctic ventures.

ExxonMobil expects its total output to grow 3% to 4% in 2011 and 4% to 5% per year on average through 2014. The growth will be fueled by major upstream projects, which are scheduled to come online through 2013. Significant exploration successes in its wide ranging 2011 program, with key wells in the GoM, the Black Sea, Tanzania and Argentina, are believed to be major catalysts going forward.

However, we remain on the sidelines as we believe ExxonMobil, like most of its peers, is facing headwinds to replace its reserve. Again, even with full-year contribution from its XTO acquisition, its relatively low volume growth profile in 2011 is a cause of concern. We remain Neutral on the stock for the long term and the company holds a Zacks #3 Rank (short-term Hold rating).