With an estimated $10b in their war chests, large funds including Riverstone Energy, Carlyle Group and Blackstone are in talks to buy producing assets or invest in struggling exploration and production companies, several bankers and industry sources said.
The funds are hiring high-profile executive teams who will use their experience to drive costs lower by introducing savings and slash contractor costs at new assets.
Fresh investment in the North Sea has stalled in recent years due to a relatively unfavourable tax regime. Output from many fields has steadily declined since the basin’s peak production in the 1990s.
Despite that, some assets remain highly attractive. These include the Laggan Tormore field, where France’s Total is selling, and gas fields being put on the block by Russian billionaire Mikhail Fridman’s LetterOne fund.
“Private equity and other funds are beginning to make more concrete steps towards completing investments in the North Sea,” a source involved in such talks said.
In some cases, funds and executives are opting to create new vehicles to manage oil and gas fields such as Siccar Point, created late last year and headed by Jonathan Roger, a former executive at Conoco and British energy supplier Centrica, and backed by Blackstone and BlueWaterEnergy.
Another such fund is Aberdeen- based Verus Petroleum, backed by Norwegian private equity fund Hitech Vision and headed by Alan Curran, a North Sea veteran with Wood Group and Lundin Petroleum. Some of the funds are also pursuing a more traditional path by investing in struggling producing companies, introducing new change to their boards to lead a restructure and increase profits using the experience of management teams.
“With some private equity firms making little secret of their desire to invest in the European upstream sector, Siccar Point backed by Blackstone and BlueWater as an example, marrying this capital to management with a strong track record offers an opportunity for private equity firms to invest in what some are calling the ‘bottom of the cycle’,” said Emma Wild, UK head of upstream advisory at KPMG.
“The lay of the land is still difficult. It is a high-cost basin,” Amjad Bseisu, CEO of North Sea producer Enquest said.
“You will see incremental activities with fields that are near the major hubs, but I do think we will see a continued decline in investments in the UK and earlier decommissioning of fields,” he said.