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North Sea: Private Equities pull the strings

A new group of mid-sized players comprising eight companies namely, Azinor Catalyst, Chrysaor, Neptune Energy, Siccar Point, Vår Energy, Verus Petroleum, Wellesley Petroleum and Zennor Petroleum will contribute 550,000 barrels of oil equivalent to North Sea production this year.

Neivan Boroujerdi, senior research analyst, North Sea upstream, and Greig Aitken, director, M&A research who took a close look at eight of the North Sea’s Private Equity PE-backed entrants also identified the strategies, challenges and potential exit routes the PE’s could employ which will include development risk, declining portfolios and a competitive M&A market.

“While private equity-backed companies will invest more than US$10 billion in development capital over the next five years, this needs to increase to meet ambitious growth plans.  However, PE-backed firms face the same growth challenges as other companies active in the North Sea: development risk, declining portfolios and a competitive M&A market”, Neivan Boroujerdi said.

While stating that though Europe has been one focal point for private equity in the upstream oil and gas besides the North Sea, Woodmac team believed equity commitments of about US$10 billion have also helped to fuel US$12 billion in M&A in the North Sea since 2014, with another US$13 billion investment anticipated in a few more years.

Wood Mackenzie’s research also found that, while company strategies vary, North Sea PE-backed companies generally adopt one of two approaches. An “acquire and exploit” approach sees them take on under-capitalized assets and exploit upside, by optimizing production and lowering costs. The “lease and drill” strategy, on the other hand Woodmac said was largely exploration-focused, targeting appraisal upside and development in a low-cost environment.

Mr Boroujerdi was quoted to have said: “Regardless of the chosen strategy, private equity companies eventually need to achieve a successful exit. There are a number of options. Some may choose a secondary private equity or trade sale.

“For larger companies, an IPO is most likely, given the corporate landscape and lack of major buyers. For a successful IPO, companies need have a strong growth story – both volume and value – that will underpin future returns, as well as a clear and differentiated investment thesis, and a proven track record. Most companies still have work to do.

He was also quoted to have added: “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, revitalizing assets, extending the life of fields and igniting animal spirits.”




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