New levels of North Sea upstream deal activity in 2019 are giving us many reasons to be positive and optimistic about the future.
Following a period of uncertainty for all of us in the sector, no one can deny now favourable conditions and levels of attractiveness are reaching new highs.
Much has been written and commented on about the reasons and factors for this ongoing positive trend. They include business and operational efficiency drives, adopting new technology and innovation, oil price stability, the gradual North Sea exit and sell-off of majors, an internationally competitive UK fiscal regime, the role of the Oil & Gas Authority (OGA) and availability of data.
The deals we are seeing range across the spectrum from larger corporates to rapidly growing and highly entrepreneurial ventures and new entrants.
At the higher end, there are inspiring examples of belief and confidence in the North Sea, such as Ithaca’s acquisition of Chevron UK, Rockrose acquiring Marathon Oil’s North Sea assets, Chrysaor’s ongoing growth through buying the UK ConocoPhillips business – and most recently Energean’s acquisition of Edison E&P, giving them a North Sea position and the Petrogas / NEO deal with Total.
Further down the scale, there are similar levels of activity from businesses buying into development opportunities. Active players include newcomers Talon Petroleum and Corallian Energy, and we are also seeing larger companies such as CalEnergy Resources, INEOS, Equinor and Shell increasing their positions.
Behind this is a growing pipeline of potential deals and business plans, most of which have not reached maturity or the attention of the press yet. There are increasing levels of activity from aspiring management teams and individuals who have acquired assets or licences and who are working up plans to execute new North Sea strategies.
A lot of this deal activity, particularly at the higher end of the scale, involves the transition of assets, people, infrastructure and liabilities, such as for decommissioning.
Many of the larger deals that have taken place and are being executed currently follow the trend of ‘smaller company acquires much larger entity’.
This is clearly a model that works and as highlighted in this article, the positive message it sends out is tremendous. What is crucially important however is the successful delivery of not only the deal transaction, but also the business transition. If handled badly, it can create uncertainty, put careers at risk, drive up large unnecessary costs and time delays, and depreciate investor confidence.
An early question that should be asked in any business transition situation needs to address the acquiring company’s capability of executing the work. How strong is the leadership? What experience does the in-house team have? Do they have the capacity to take on extra workload that is time pressured and potentially complex?
Quite often, a team understandably has the confidence in believing they have everything regarding a business transition covered off. They might think they are aware of all the tasks necessary.
Items that are sometimes major and critical to success, can be missed however and these suddenly become the centre of attention at a later stage.
Lacking transition experience or firepower does not necessarily mean that a business needs to hire new staff in order to complete the project. This can be potentially unfavourable for both parties if the deal is still to complete. This is where experienced consultants and advisory firms can add value in filling crucial gaps from as early in the process as possible.
At AAB, our specialist E&P team offers recent hands-on experience, knowledge and tested methodologies in North Sea upstream transaction and transition support and management. Our advisory and outsourced solutions span payroll and benefits, full lifecycle accounting, tax and consulting services.
By Alasdair Green, head of E&P strategy at Anderson Anderson & Brown