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Private equity firms make a splash in the North Sea

22 Aug 2016 09:17 (+01:00 GMT)
Private equity firms make a splash in the North Sea

London, 22 August (Argus) — Private equity firms are stepping up upstream acquisitions in the North Sea, helping to breathe life into a sluggish market for mergers and acquisitions (M&A) in the region.

UK independent Siccar Point Energy is the latest private equity-backed venture to take a dip in the North Sea, agreeing to buy an 8.9pc stake in the 55,000 b/d Mariner field in the UK sector from Japanese upstream company JX Nippon for an undisclosed sum. The deal marks Siccar Point's first acquisition since private equity investors Blackstone and Blue Water Energy launched the firm with an initial $500mn of funding in 2014.

Norwegian state-controlled oil firm Statoil, which operates Mariner, last year pushed the start-up date for the field back to 2018 from 2017 and increased the cost estimate by 10pc from the original plan of $7bn. But the delay and cost overrun have not deterred Siccar Point. "Mariner's long reserves life and its resilience to near-term low oil prices position it well in the current environment and we continue to look for similar high-quality assets to add to our portfolio," chief executive Jonathan Roger says.

Private equity funds, armed with heavy war chests for upstream acquisitions, have been scouring the North Sea for bargains since oil prices started falling in 2014. And they have been presented with plenty of opportunities in the past two years. Many companies, including some of the majors, are seeking to divest non-core assets to free up capital, while a number of smaller firms are being forced into distressed asset sales to survive.

Oil price volatility and an uncertain market outlook have created a gap in valuation expectations between buyers and sellers, which has been a nagging obstacle for M&A deals during the oil price downturn. But a growing consensus that oil prices will stay "lower for longer" is helping to narrow that gap.

Siccar Point Energy's entry to the North Sea is the latest in a string of private equity acquisitions in the sector in recent months and it is unlikely to be the last (see table). Private equity-backed ventures "do not have the structure and associated cost bases of the oil majors", UK consultancy PwC says. "They are not burdened with the legacy of the past, culturally, operationally, or technologically. They are not wedded to existing processes and they can take full advantage of advanced new technology, which in turn allows them to more easily operate at lower cost."

Private equity investors look to high-profile industry veterans to lead their upstream ventures. They rely on professionals with experience at driving down costs and knowledge of assets on the market.

Siccar Point's Jonathan Roger worked for US upstream independent ConocoPhillips for 12 years and was more recently in charge of UK utility Centrica's upstream division. The company's newly appointed chairman, Chris Finlayson, was chief executive of UK firm BG until 2014. Finlayson brings with him valuable insight into BG's North Sea assets, some of which may form part of Shell's $30bn divestment programme in 2016-18.

But rival private equity-backed independent Neptune Oil and Gas might be a more likely suitor if Shell decides to trim its North Sea portfolio. It has deeper pockets than Siccar Point and has not made an acquisition since former Centrica chief executive Sam Laidlaw teamed up with private equity firms Carlyle and CVC Capital Partners to launch the company last year. Neptune has up to $5bn at its disposal to fund acquisitions in the North Sea, north Africa and southeast Asia.

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Recent private equity acquisitions
BuyerAssetSellerPrice $mn
Siccar Point EnergyMariner, UK (8.9pc)JX NipponNA
Zennor PetroleumMungo & Monan, UK (12.7%), Bacchus, UK (20%), Coromorant East, UK (36%), Causeway, UK (35.5%)First Oil*NA
Wellesley PetroleumPL636, Norway (20%) EngieNA
Azinor CatalystP1989, UK (100%)Noreco, Trap OilNA
Cape OmegaOselvar, Norway (15pc)Noreco25
*following administration