A group of ambitious, fledgling North Sea companies has emerged out of the doom and gloom of the oil and gas industry downturn.
Deals struck by these firms have breathed new life into the basin and shown that plenty of people haven’t thrown in the towel yet.
The bosses behind these companies are experienced, savvy and willing to invest at a time when majors are siphoning off mature, high maintenance assets.
Some have targeted large packages, drawing on private equity, while others are snapping up stakes in one or two fields at a time.
Eye-catching acquisitions have been announced by newcomers Chrysaor, Siccar Point Energy and Neptune Oil and Gas.
Decipher and Whalsay Energy have come out of the woodwork to take over licences from the fallen businesses of Iona Energy and Xcite.
More established companies including Petrochemicals giant Ineos and Israel’s Delek Group have also dipped their toes into the North Sea for the first time in recent years.
It means that after more than two or three years of liquidations, job losses and hardship, the North Sea has a new, fresher look.
Fiona Legate, senior research analyst, UK upstream oil and gas at energy consultancy Wood Mackenzie, said majors like BP and Shell have continued to dominate in recent years with their “legacy foothold” and strong positions west of Shetland.
Mergers and acquisitions (M&A) activity was subdued during the first two years of the downturn, with the influx of deals expected following the crude price rout failing to materialise.
But new mid-caps feel there is an upside to putting off decommissioning and extending production from older fields, whereas majors don’t, Ms Legate said.
Significant reductions in operating costs, drilling rig rates, and pressure on majors to divest have also helped bring mid-caps to the fore.
Ms Legate said: “Majors are not going to sell unless they can get a good price for their assets. It’s the same for the smaller guys too, if they are not going to get the value they wanted.
“There’s been a bit of a shift. Things have started to stabilise and in the second half of last year there was some modest growth, the oil price stabilised and we started to see a return of M&A activity.”
She added that the intervention from newcomers was important for squeezing extra barrels out of the North Sea, as they are more “nimble and able to get things done quicker”.
Ray Riddoch, managing director of Nexen UK, one of the biggest North Sea producers, also said that M&A activity had been “surprisingly quiet”, but predicted a “flurry” over the next 12 months.
Mr Riddoch said Phil Kirk’s Chrysaor had pulled off a “great deal” to buy a package of North Sea assets from Shell, describing the £3billion acquisition as a “game changer”.
But he also said it would be interesting to see whether private-equity-backed Chrysaor would stick around “in a few years when the sun starts shining”, or whether its backers would look to cash in.
Another private-equity (PE) backed player to make headlines in the last year after clinching an acquisition was Siccar Point Energy.
Supported by US giant Blackstone and Blue Water, Siccar Point agreed a deal for OMV’s UK assets for $1billion (£765million) in November.
Siccar Point chief executive Jonathan Roger admitted it took “some time” for the company, which was launched in 2014, to get the first deal over the line.
Mr Roger said he was determined to only purchase assets of real quality and that the PE involvement meant he could afford to be picky.
He added: “That backing gave us the ability to go out and look for high quality opportunities that others did not have the financial strength to compete for.
“We were focused on looking at opportunities with real longevity and investment potential.
“We weren’t looking at the super mature end of the spectrum – we were looking at opportunities where we could deploy our capital and experience to unlock additional resources.”
The deal with OMV gave it stakes in several major projects, including BP’s Schiehallion field and Chevron’s Rosebank project.
Now, bolstered by serious financial firepower and assets with production up until the 2050s, Mr Roger said Siccar Point planned to stick around.
“The UKCS has definitely got its challenges, but for the right team, with good funding, there’s a bright and positive future,” he said.
“We’re going to be one of the longest lasting businesses in the UK sector when you look at our assets.
“It’s all about growth for us. We’ve got a long runway ahead of us so we are here to stay.”
Not everyone can spend hundreds of millions or billions of pounds at a time, however.
Jersey Oil and Gas is one of a growing number of companies prepared to do less headline-grabbing acquisitions.
Formerly known as Trapoil, Jersey is eagerly anticipating the outcome of the drilling campaign for the Verbier prospect, which gets going this month.
Jersey holds 18% of the licence following a farm out to Statoil, the current operator.
A positive outcome would further boost Jersey’s share price, which currently sits above £2.50, compared to 35p a year ago.
The company is also sniffing around for other assets. It intends to build up working interests in six to 10 fields, giving it 10,000 barrels per day of production.
Jersey chief executive Andrew Benitz said it is possible and worthwhile to put together a portfolio of that size in three to five years.
Mr Benitz said Jersey had submitted bids for more than 50 North Sea producing assets and was still in active negotiations for some targets.
There are still some barriers in the way, however.
He said: “It’s a buyers’ market and there are different types of transaction being done by, for example, private-equity backed vehicles like Chrysaor and Siccar Point
involving multi-billion pound portfolios.
“The other type of deal is for single assets and that’s the field we are in.
“At that level there’s a growing opportunity, but transactions are not being concluded mainly due to vendor-related issues, including concerns about the oil price. They do not feel they can sell at $40 oil.
“The other barrier is liabilities. Being able to reach a satisfactory agreement with vendors and gain approval from joint venture partners is definitely a challenge.”
But Mr Benitz is confident the market will soon soften.
“The North Sea is evolving,” he said. “It’s still full of promise, but it’s very difficult for big oil companies to build there and replace their resources from declining assets.
“But as long as the conundrum of decommissioning liability can be negotiated then there are opportunities for companies like us.
“I believe most late life assets are profitable.
“We’ve seen mostly large transactions in the last six months, but it will all filter down and we will see an acceleration of the sort of deals we are pursuing.”
Andrew Austin, executive chairman of RockRose Energy, another of the newcomers, said that while there are large pools of capital looking to buy up a lot of assets, some smaller reservoirs are being neglected.
RockRose, whose shares were recently readmitted onto the London Stock Exchange after the firm raised £8million through a placing, wants to gather up those assets and put them in a package. The plan is to become a company with 10-15,000 barrels a day of production over the next couple of years.
RockRose was founded in 2015 and had its stocks admitted in January 2016. By the end of 2016, the firm had signed a deal with Maersk Oil UK for 7.43% of the Wytch Farm field, 5.16% of Scott and 2.36% of Telford.
Mr Austin, formerly of IGas, said: “We felt there was an opportunity to build an energy business that could cope in the $40-60 oil price environment and would be able to buy assets that are probably no longer in the most advantageous hands.
“Assets have matured in some people’s hands that would be better for others – people are stuck with legacy issues.”
Mr Austin said RockRose didn’t intend to look for PE investment, which is in the game for larger transactions.
He said PE-backed companies had “struggled to get the rubber to hit the road”, so far, due to the size of their appetites.
He cited Neptune Oil and Gas as an example. Neptune was set up mid-2015 by Carlyle Group, CVC Capital Partners and former Centrica boss Sam Laidlaw.
It wasn’t until May 2017, almost two years later, that Neptune managed to bag Engie’s oil and gas exploration and production interests for $3.9billion.
Mr Austin said some of the barriers mentioned by Mr Benitz – uncertainty around oil prices and decommissioning liabilities – were becoming less of a problem.
He said: “Through 2016 we saw almost no business happening, but the mood is different in 2017. There are two reasons for that. People are starting to get realistic about the oil price and that has closed the valuation gap. The second is comments around decommissioning tax credits by the chancellor.”
In March, chancellor Philip Hammond said an expert panel would discuss reforming decommissioning tax relief. If the reforms are made, the transfer of late life assets should become a lot easier.
“Let’s hope the chancellor can carry decommissioning tax relief through,” Mr Austin said.
“His comments were a catalyst for some of the transactions that have happened.”
RockRose’s assets are typically expected to reach the decommissioning stage around 2030.
But Mr Austin is optimistic that technological advancement could keep infrastructure functioning for longer and help lower the cost of decommissioning.
He said: “Some people say that’s not a long time, but 13 years ago we didn’t have the iPhone. Technology is going to move on.”
“Necessity is the mother of invention.”
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