For the UKCS upstream oil & gas sector, 2017 could perhaps be labelled the year of “cautious optimism”. We have heard that phrase a lot over the last twelve months. The optimism may have been well-founded though, as after a hiatus in upstream deals in 2015 and 2016, caused by the oil price crash and compounded by specific issues related to the maturity of the basin – such as aging infrastructure, decommissioning cost and deal complexity – in 2017, things picked up and we have seen the signing and completion of a number of significant deals.
Chrysaor acquired a $3 billion package of assets from Shell at the end of October, and while Chrysaor is by no means a newcomer to the oil and gas industry, this deal has certainly moved the company’s status up a notch. Since its completion, Chrysaor has become one of the North Sea’s largest independent E&P players.
On the same day, the Forties Pipeline System (FPS) – a hugely important and historic piece of infrastructure –– was acquired by INEOS from BP. FPS has been transporting oil from offshore since the early 1970s and today still carries around 445,000 barrels a day.
Another deal involving historic infrastructure closed at the end of November when Enquest completed its acquisition of an interest in the Sullom Voe Terminal and part of the Magnus field from BP, with Enquest also taking over operatorship of both.
And yet another deal completed in November, seeing Ancala Midstream acquire 30% of the SAGE System and 60% of the Beryl Pipeline from Apache, and take over operatorship of both.
A central message from The Oil and Gas Authority’s is get assets in the right hands, and these deals go a significant way towards meeting that objective. There is still room for further progress, and with Philip Hammond’s Transferable Tax History announcement in the Autumn Budget, sellers and purchasers have yet another tool with which to facilitate deals – a vital development at this stage of our mature basin’s lifecycle.
Looking forward to 2018, we expect this trend to continue, although the short term impact of Transferable Tax History (which won’t come into force until the end of next year) may be to delay the completion of deals until then so that sellers and purchasers can benefit from the new arrangements. However, there is much that can be done during the year in preparation, so there may well be several deals signed during the year which complete in Q4.
We also expect 2018 to be a more active year for UKCS-based service sector deals. With a more stable oil price, and much capacity removed from the market over the last three years, those companies that remain should be in good shape for the future, and conditions therefore seem right for some of those to change hands.
Hopefully we can move on from “cautious optimism” to “optimism” in 2018!