BMI View : Chiyoda Corporation joins compatriot Mitsubishi Corporation in Gabon , through a 25% acquisition of MPDC Gabon . While this is part of Chiyoda's diversification strategy of moving into the upstream and expanding its international presence, it can also be seen as a reinforcement of Japanese presence in Africa's energy sector, which Prime Minister Shinzo Abe had promised in an official May/June 2013 trip to the continent.
Japanese engineering heavyweight Chiyoda Corporation is diving into exploration and production (E&P) in Gabon through acquiring a 25% stake in MPDC Gabon. This will see Chiyoda share upstream operation costs with Mitsubishi Corporation Exploration, the parent company of MPDC. According to Chiyoda's press release, the entry will allow the firm to 'acquire knowledge of needs for offshore and upstream industries'. This will see the company move from a service provider to a full-fledged upstream player.
Win-Win For Both
Traditionally a major engineering service provider for the downstream segment and in liquefied natural gas (LNG) production , Chiyoda's new strategic direction calls for the firm to 'diversify its business domain'. The firm has be en expanding its E&P involvement , most recently throu gh a major equity investment in energy group Xodus Holdings , which specialises in upstream engineering and consultancy services especially in regions that Chiyoda lack exposure to in Europe and Middle East.
|Diversifying Its Global Portfolio|
|Chiyoda's Operating Revenue By Region (JPYbn)|
The move into MPDC will expand Chiyoda's upstream portfolio as it gains insight into upstream projects. MPDC currently has two producing assets: the 6,500 barrels per day (b/d) Baudoroie Merou and the 1,500b/d Loche East field offshore Gabon. Its involvement in Gabon could also indicate interest in the country's subsalt potential, which has been supported most recently by Total' s gas discovery in its deepwater Diaba licence ( see 'Sub-Salt Strike Sweetens Appetite As Investors Sour On Risks', August 20 ). It mirrors a wider trend of industry players engaging more actively with E&P offshore West Africa, as they hope to cash-in on the hydrocarbon windfall that offshore West Africa's geology suggests it could possess.
|Banking On Analogous Geology To Corresponding Plays Along Atlantic Margin|
|Countries Along The Coastlines Of The Continental Drift Theory|
Mitsubishi Corporation also benefits from this sale. One of the Japanese conglomerate's strategy goals is to 'increase focus on fiscal discipline', of which attention to its cash flow is of key importance. The firm's energy business has taken a beating in Q113, seeing a 22% year-on-year (y-o-y) decrease in the segment - the biggest contributor to income - especially as a result of lower dividend income from overseas businesses and from shale gas write-downs. Therefore, the sale - at an undisclosed amount at the time of writing - would partially divest its interest in non-core assets and free up some cash for the company. In addition, it could also release resources to fo cus on the Asian market, where Mitsubishi sees the greatest growth opportunity in for oil and gas supply and demand.
|Divestments To Help Focus Strategy|
|Mitsubishi's Net Income By Business Segment (JPYbn)|
Keeping In Line With Abe
Mitsubishi's transfer of a 25% stake to Chiyoda means that MPDC remains wholly in the hands of Japanese firms. Chiyoda's entry helps to strengthen Japanese presence in Africa, which Prime Minister Shinzo Abe intends to increase during his trip to the continent in May 2013. On top of a US$32bn assistance package offered to the continent, PM Abe had also pledged a JPY200bn (US$2.03bn) financial package for firms looking to invest in extractive industries, including oil and gas.
Other Japanese firms could follow in Chiyoda's footsteps, venturing into African countries. East Africa could see greater Japanese involvement, as gas discoveries in the region promise to make it a major global gas supplier ( see 'Another Asian Firm Dives Into Hydrocarbon-Rich Waters', April 3 ). This is particularly pertinent for Japan, which is currently the world's largest LNG importer. Joint investment from four Japanese firms - Mitsui , Marubeni , Mitsui O.S.K Lines and MODEC - has also been crucial for the funding of the floating production, storage and offloading (FPSO) unit to be used for Ghana's US$4.9bn Tweneboa, Enyenra, Ntomme (TEN) oil field development. State-linked Japan Oil, Gas and Metals National Corporation (JOGMEC) can also be expected to increase financial support fo r firms operating in Africa, having most recently provided equity financing for Inpex's farm-in to its Mozambican blocks.