Less than three years ago, Phil Kirk was managing a small energy business with no revenues and about a dozen staff.
 
This year his company, Chrysaor Holdings Ltd., will, according to some estimates, be the biggest oil and gas producer in the North Sea, rivaling Total SA and BP Plc.

The former chartered accountant recoils at the moniker “New King of the North Sea” but the company he founded in 2007 has gone from relative anonymity to the top ranks of producers in the U.K. region at breakneck speed.

“Staff and contractors now are about 1,800,” Kirk said. In 2017, the company struck a $3 billion deal for around half of Royal Dutch Shell’s U.K. North Sea production, followed this year by a $2.7 billion swoop for the North Sea assets of U.S. major ConocoPhillips Co.

Chrysaor is one of a fleet of young, private equity-backed businesses that have dramatically changed the North Sea in recent years, scooping up billions of dollars of mainly mature assets from retreating utilities and oil majors that want to focus on higher growth regions elsewhere.

But analysts are already starting to raise questions over the next steps for operators such as Chrysaor, Siccar Point and Neptune Energy, as sentiment in public markets turns against fossil fuel producers.

In particular, there are increasing concerns over how their private equity backers will be able to exit their investments and whether stock market flotations would still be possible.

“When these companies were set up a few years ago, clearly they were in a different world then,” said Neivan Boroujerdi, principal analyst for the North Sea at Wood Mackenzie.

Chrysaor is backed by Harbour Energy, an arm of U.S. private equity group, EIG Global Energy Partners, which pumped $1 billion into the U.K. company in 2017 for a 90% stake.

Kirk insisted there was “no time limit” on Harbour’s investment and believed “for the right company” it would still be possible to float.
“We would want to be the sort of company that public markets would find acceptable and people would want to invest in and we seem to be heading pretty well on that journey,” he said.

“We’ve obviously done a big acquisition that we look forward to integrating...that will take a while but when we have done that, we would be ready if we wanted to but we don’t need to,” he added, admitting the easiest decision would be to stay private.

Chrysaor expects its newly enlarged portfolio, which will provide production into the 2030s, to average about 180,000 barrels of oil equivalent per day for the next few years, as it invests about $1 billion a year to recover as much oil and gas as possible.

Before the ConocoPhillips deal completed, the company was debt free but it retained a $3 billion reserve-based lending facility—a common form of financing in the oil industry—to help it fund the purchase. Chrysaor is expected to remain acquisitive to secure future production as its more mature assets go into decline.

Kirk said he was looking in Norway, where the company has built a small business, although he still saw “plenty in the U.K.”

As activist group, Extinction Rebellion, continues to stage protests, Kirk insisted climate change was “really important” to his business—but said Chrysaor was “just beginning our journey in terms of energy transition and carbon reduction.”

The company has committed around $5 million to an early stage carbon capture and storage project at the St Fergus gas terminal north of Aberdeen. It will seek to cut its own CO₂ emissions by 30% “within three or four years” and “then 50% within another three years after that”—for instance by improving the efficiency of gas engines that power platforms.

Like others in the industry, Kirk adopted the argument that hydrocarbons would still be needed.

“When you look out to 2050 under any scenario, the country, the world still needs oil and gas and hydrocarbons, it just needs them produced in a responsible way that society understands.”

“It’s almost as if at the side of the petrol pump there should be a message saying, ‘Are you using this responsibly? This costs a lot of money and is a danger to the environment, do you really need to drive your car today,’” he said.

Kirk’s first oil and gas job was in 1996, at U.S. group Hess Corp., during a different climate for fossil fuel producers. Does he now constantly have to justify himself?

“Everybody should justify themselves every day, whatever industry you’re in as to what value you are adding” he replied.

Federal Waters