DEA, the German oil and gas producer chaired by former BP chief John Browne, will on Wednesday announce plans to buy Mexico’s Sierra Oil and Gas in the country’s largest upstream oil M&A deal since the liberalisation of the sector.
The transaction — which according to people familiar with it is valued at about $500m — will expand DEA’s foothold in the Mexico as it looks to high-growth regions ahead of a multibillion-euro merger with rival Wintershall next year, which is set to create Europe’s largest independent oil and gas producer.
“This is in line with the bigger end of the deals we’ve done . . . It will be very important to continue the growth of the company,” Lord Browne said, adding that DEA would have to put “at least a billion” dollars behind Sierra.
The acquisition of Sierra will bring with it interests in six exploration blocks across 9,400 square kilometres, including a 40 per cent stake in Zama, one of the world’s largest shallow water discoveries, estimated to hold 400m-800m barrels of oil equivalent (boe) and set to begin production in the next five years.
DEA, which is owned by LetterOne, the investment vehicle of Russian billionaire Mikhail Fridman, has struggled to gain access to the lucrative US shale market, after its attempts were blocked by the Committee on Foreign Investment in the US (Cfius) due to its ownership.
“We cannot get into the US. Cfius prevents us. We tried,” said Lord Browne, who led BP for 12 years until 2007. “We’re not going to try and jump through a brick wall. It can’t be done.”
But Mexico, which liberalised its oil and gas sector in 2013, provides a strong alternative, according to the company. DEA already operates the Ogarrio onshore oilfield in a partnership with state producer Pemex, with an output of about 10,000 boe a day.
“We like Mexico a lot. It’s got a lot of potential,” said Lord Browne. “It is a place with great hydrocarbon potential. It’s got infrastructure — it’s not a brand-new start-up . . . and there’s a great labour force.”
“We are investing in places that are capable of growth. We’re not interested in swapping dollars for production as it is today.”
Wintershall DEA, the combined entity which is due to come into existence in the first half of next year, is targeting production of up to 800,000 boe/d within the next five years, up from current levels of about 575,0000 boe/d. The deal is awaiting regulatory approval.
“It’ll be a big and efficient beast on the market. It will be the largest independent, by a long way, in Europe, and one of the biggest in the world,” said Lord Browne.
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