The Japanese government is looking to give financial support to acquisitions of foreign upstream companies by domestic oil companies f
or the first time ever as part of its efforts to boost the country's equity oil and gas output, a senior government official said.
The current low oil price environment has created "a significant opportunity for acquiring [upstream] stakes and assets"
and there was also a need to facilitate upstream spending because of slowing global investment, director of the oil and gas division at the Ministry of Economy, Trade and Industry Yuki Sadamitsu said in an interview with S&P Global Platts on Friday.
This also offered a window of opportunity to help develop Japan's core upstream companies by helping them take stakes in oil and gas assets via acquisitions of foreign independent E&P companies, Sadamitu said.
EXPANSION OF JOGMEC'S CAPABILITIES
The Japanese cabinet recently approved a bill to amend a part of the law that defines the capabilities of state-owned Japan Oil, Gas and Metals National Corp. (Jogmec).
The government is hoping to obtain parliamentary approval for the bill before the end of the current Diet session at the end of November.
Following enactment of the bill with immediate effect, Jogmec's capabilities are set to expand beyond simply acquiring stakes in exploration projects and financially supporting domestic companies' participation in exploration projects.
Jogmec will be able to support domestic companies' acquisitions of foreign upstream firms and their capital tie-up.
It will be able to provide companies additional financial support through the development stage of their projects. Jogmec currently does not provide any finance to Japanese companies' projects that are at the development stage, except for providing loan guarantees for the companies' development costs.
Jogmec will also be able to acquire shares in state-owned national oil companies.
Jogmec will have a framework to borrow up to Yen 324.8 billion ($3.12 billion) from commercial banks in a fiscal year (April-March) with a government debt guarantee to support Japanese companies' acquisitions and upstream developments from the exploration stage through to the development stage.
Sadamitsu said Jogmec's new capability to provide financial support for Japanese companies' acquisitions of foreign upstream companies and capital tie-up was a key highlight of the amendments.
Asked about Jogmec's rationale for acquiring shares in foreign state-owned national oil companies, Sadamitsu said that the move was meant to establish medium- to long-term partnerships and help Japanese companies acquire upstream assets in those countries, Sadamitsu said.
Acquiring upstream stakes for domestic oil companies would be the main driving force behind Jogmec taking a stake in a foreign national oil company, he added.
POSSIBLE ACTION IN 2016-17
In a related development, METI has also secured a supplementary budget of Yen 162.4 billion for the upstream oil and gas sector in fiscal 2016-17, with Yen 150 billion earmarked to support Japanese companies' acquisition of foreign upstream companies.
"We are hearing that various Japanese upstream companies are exploring specific projects," Sadamitsu said, adding that the supplementary budget reflected this.
The supplementary budget combined with the previously approved Yen 92 billion budget and ability to borrow Yen 324.8 billion once the bill is ratified will take Jogmec's maximum finance available in the current fiscal year to Yen 579.2 billion.
While various projects are currently being studied by Japanese companies, "there is a reasonable chance that this much money can be invested in the current fiscal year," Sadamitsu said, adding that this budget did not have to be used within the fiscal year.
Japan hosted the Group of Seven industrialized nations summit in May when the leaders committed to play a leading role in facilitating upstream investment to stabilize energy prices and ensure economic growth.
Japan aims to increase its share of oil and gas equity liftings to 40% by 2030 from 27.2% in fiscal 2015-16.http://www.platts.com/latest-news/oil/tokyo/interview-japan-eyes-acquisitions-of-foreign-27691713