The Changing North Sea Ownership Landscape

Private Equity firms have funded independent players to buy up North Sea assets in the last few years, taking advantage of the recovery in oil prices.

- There has £10-12 billion worth of North Sea acquisitions by private equity firms since the November ‘16 purchase by Siccar Point Energy of £800m worth of assets from OMV, the Austrian O+G company.

- Wood Mackenzie, the energy consultancy, has estimated a further £10bn worth of private equity investment into North Sea oil and gas.

- Some of the largest deals have been Neptune Energy’s £3bn purchase of Engie’s assets and the recent Chrysaor purchase of Conoco Philips’ £2.2bn holdings.

- Neptune and Siccar Point were backed by U.S. powerhouse investors, Carlyle and Blackstone, whilst Chrysaor were backed by Harbour Energy.

These deals highlight a changing of the guard in the North Sea and end the decades-long dominance of the oil majors such as BP, Shell and Chevron. The recent deal by Chrysaor comes two years after a £3bn purchase of Shell assets and has seen them jump ahead of BP, Shell and Total to become the leading producer in the North Sea.

Why did the majors move on?

The decision to sell assets and, in some cases, leave the North Sea completely was driven by the oil and gas price slump post-2014. Major companies had leveraged their business plans into higher oil prices and needed drastic cost-cutting and capital-raising to deal with plunging prices. Private equity-backed independents are more nimble and can have a clear focus on particular projects or regions.

Other reasons for the majors leaving include:

- Balanced portfolios- Companies are becoming more diversified through location, taxes and regulations. U.S. shale is a clear example and the lower U.S. tax regime has added another attractive layer to these projects, which already have low breakeven prices. The re-balancing also includes further investment in other areas such as LNG.

- A shift from higher CAPEX projects and complicated supply chains- Land drilling is far less complex than offshore projects. Major companies who have U.S.-based downstream infrastructure such as refineries and pipelines can also find cost savings by drilling closer to those assets.

- Oil to Energy- Major oil companies are now energy companies and are also looking to diversify from purely conventional sources of fuel into clean energy. BP’s purchase of the Chargemaster Electric Vehicle charging network for £130m is an example of this.

The assets that have been scooped up by independents in the North Sea would not have been available in 2014, or would have cost much more, leaving independents locked out. With stock prices higher and interest rates still at low levels, the energy investments are a welcome opportunity for private equity firms to chase higher returns and diversify from other sectors. A win-win for both parties.

These are the key reasons for the changing North Sea landscape and the exit of key players shouldn’t be a concern for those who work in the industry.


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