Emerging North Sea independents must demonstrate track record

Equity agreements totalling US$10 billion have assisted US$12 billion in transactions in the North Sea since 2014, according to Wood Mackenzie.

Another US$13 billion could be invested in the North Sea, based on disclosed funding.

Neivan Boroujerdi, senior research analyst, North Sea upstream, and Greig Aitken, director, M&A research, examined eight of the independent oil companies affected: Azinor Catalyst, Chrysaor, Neptune Energy, Siccar Point, Vår Energy, Verus Petroleum, Wellesley Petroleum, and Zennor Petroleum.

Collectively, they should contribute production of 550,000 boe in the North Sea this year.

The research indicates that private equity (PE)-backed tend to adopt one of two approaches.

One is “acquire and exploit,” taking on under-capitalised assets and exploiting the upside, by optimising production and lowering costs.

Another approach, “lease and drill,” is largely exploration-driven, focused on appraisal upside and development in a low-cost environment.

According to Mr Boroujerdi, whatever the strategy, private equity companies will eventually need to achieve a successful exit.

This could involve a secondary private equity or trade sale, or an IPO. For a successful IPO, he added, there needs to be a strong growth story to underpin future returns and a proven track record.

He pointed out that PE-backed firms face the same growth challenges as other companies active in the North Sea, namely development risk, declining portfolios, and a competitive M&A market.

“Other than relying on increases in oil prices, not every company can win in such an environment. But the upstream industry is certainly winning.

“The influx of private equity investment has sparked a new momentum in the North Sea, revitalising assets, extending the life of fields, and igniting animal spirits.”

Source: Offshore Magazine