The global focus and dependency on fossil fuels and shift towards low carbon energy has been building for many years, but only in the last 18 to 24 months has it become a leading agenda item in national and international political arenas.
It has been projected into our public consciousness and government policies to such an extent that it is now inconceivable that it can be ignored or pushed aside any further.
This has led to some interesting boardroom discussions for businesses that have established themselves in the oil and gas industry and have suffered from the double economic impacts of Covid-19 and crashes in commodity prices.
These sudden and disruptive implications to the industry were highlighted with final investment decisions on a number of North Sea projects such like Shell’s Jackdaw development and Siccar Point Energy’s Cambo project being delayed to 2021 at the earliest.
Although fossil fuels have had negative press and there is heightened focus to strive towards a cleaner and more sustainable future, we shouldn’t lose sight that many companies, innovators and investors in oil and gas and their supply chain may ultimately have the skills, technology, people and possibly funding solutions to many of the energy transition problems.
This was demonstrated on June 12 2020 when the Scottish Government announced a £62 million support package to help deliver a net zero future.
The Scottish Government is not only showing financial commitment and support to meet climate change targets, it also demonstrates its recognition of the importance of investing in the broader renewables energy sector at a time where the oil and gas industry faces the reality of longer term challenges.
The momentum to create sufficient and sustainable renewable energy supplies is gathering pace, raising the interesting dilemma for traditional oil and gas companies, notwithstanding the change in name from oil and gas to “energy”, but “how to be seen to be green, without just a lick of paint?”
As signs of stability appear to return, from speaking with clients and peers, both organic and growth by acquisition have returned to boardroom agendas. Operators have certainly taken the initiative with the notable recent example being BP announcing earlier this month that it had “taken an important early step” in its move into offshore wind with the £850 million purchase of 50% stakes in two US offshore wind projects, Empire and Beacon, being developed by Norwegian company Equinor.
Total announced in June 2020 that it was acquiring a 51% stake in the 1,140 megawatts Seagreen 1 offshore wind farm project from SSE. Once completed, this will be Scotland’s largest offshore wind farm.
The service sector has also seen activity as the supply chain adapts and looks to acquire renewable specific expertise. In particular, the Australian energy service firm Worley acquiring 3sun, the Great Yarmouth headquartered offshore wind installation, inspection and maintenance specialists for £20m.
While these examples are focused on wind energy, carbon capture and storage (CCS) is perhaps one of the most obvious examples of the energy sector deploying existing knowledge and technologies to achieving low carbon energy.
In July, Pale Blue Dot, who are leading the development of one of the UK’s first CCS projects, announced a corporate restructuring whereby Storegga Geotechnologies would become its new holding company with the Macquarie Group investing as a cornerstone investor to support the project.
The energy transition is not a short-term play and there is clear intent from the sector that it is embracing the challenge of achieving low carbon energy and assisting in meeting government targets.
Oil and gas is very much here to stay albeit in a cleaner way, though it appears there will continue to be a steady flow of transactions involving companies supplying products and services to the renewables and CCS sectors as energy companies can’t just be seen to portray themselves as green.
Callum Gray is corporate finance director at Anderson Anderson & Brown