A mergers and acquisitions merry-go-round that has seen a band of new North Sea players snap up fields from the older, established energy groups spun once again last week when Chrysaor struck a $2.7 billion deal for the assets of U.S. oil major ConocoPhillips.
Much attention has focused on the private equity money driving this change. Chrysaor, for example, is backed by EIG Partners. But a cluster of smaller, listed companies are also making a splash in the mature basin.
Relatively unknown, listed minnows such as RockRose Energy and Serica Energy do not have the same deep pockets as the private equity-backed newcomers. But they have been making a mark by doing creative, often complex deals to take over unloved assets from the majors and other groups wanting to either reduce their exposure or exit the mature North Sea altogether.
Such deals might involve striking a profit-sharing deal with the current owners over future production, agreeing to take on decommissioning liabilities in return for a cash sum or offering up a stake in exchange for interests in fields.
The cold waters of the North Sea may be a far cry from the beaches of the Caribbean but Andrew Austin, founder of RockRose, was lured by the U.K.’s oil and gas basin.
In 2015, Austin, former CEO and a co-founder of U.K. onshore energy company IGas, returned to Britain from taking time out in the Caribbean with the intention of buying up North Sea assets.
“There were a lot of people phoning up with asset packages in the North Sea that were no longer in the hands of people who really wanted them,” said Austin.
RockRose in February agreed a deal for US major Marathon Oil’s two North Sea subsidiaries, which will more than double the U.K. company’s production this year to 24,000 barrels of oil equivalent a day. The acquisition was priced at $140 million, although the subsidiaries come with $350 million of cash, meaning Marathon Oil is in effect paying RockRose as it will also take on the decommissioning liabilities for the assets.
The acquisition, through which RockRose will become an operator of fields for the first time, is the eighth the company has negotiated in the basin in just four years, although one of those—with former Danish company Maersk Oil—failed to complete. Last month it approached London-listed Independent Oil & Gas. Its overtures were rejected but the approach was evidence of further appetite.
“Our next move . . . will be looking at more development assets,” said Austin.
Serica Energy, which started life in 2004 as an explorer drilling wells, switched strategy in 2015 and began acquiring North Sea assets that were already in production from the majors. That year it struck a deal with BP for an 18% stake in the Erskine field, through which it avoided having to raise capital by handing BP a 5% stake.
In November last year, Serica completed a deal involving four complex transactions with BP, Total, BHP Billiton and Marubeni, the Japanese trading and investment conglomerate. Those transactions gave it interests in the Bruce, Keith and Rhum assets and involved a profit-sharing arrangement with BP, BHP and Total. Its production has increased to 30,000 barrels of oil equivalent per day from 2,000 bbl/d at the end of 2017.
Small independent oil and gas companies have a long history in the North Sea and Serica and RockRose are not the only independents participating in the latest M&A flurry, with EnQuest recently acquiring the Magnus oil feld from BP.
But both RockRose and Serica argue their case is different, as they are following an unconventional route.
RockRose was doing business “the other way round”, said Austin, by securing production first rather than drilling wells, appraising a discovery and then trying to develop it.
Tony Craven Walker, executive chairman of Serica and a North Sea veteran, has been replicating with Serica a model he had already tested with Monument Oil & Gas, once a leading U.K. independent, which was sold in 1999.
“We started off [with Monument] by buying production from Petrofina, BP and a couple of other people. After we had the production, we then expanded it into a bigger portfolio of exploration, development, appraisal, all sorts of things that we could fund on the back of the production,” he said.
Craven Walker cited the 2016 merger between Norwegian independent Det norske oljeselskap and BP’s Norwegian unit to form Aker-BP as the kind of deal Serica would like to do next to secure more development and appraisal assets. “We need to merge ourselves together with a portfolio,” he said.
Mitch Flegg, Serica’s CEO, said he did not see companies such as his in competition with the private equity-backed players such as Chrysaor but rather operating in a “different niche” by taking on assets where there are issues to be resolved—with the ownership structures for example.
“We are prepared to take things that have real problems that need solving,” Flegg said.
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