Suitors bent on extracting more juice from North Sea
The UK and Norwegian North Sea has recently shown an increase in mergers and acquisitions activity despite the latest oil price down-cycle and its perception of a high-cost mature basin.
Acquisitions of both mature and undeveloped assets have been supported by fair values, the potential for reduced operating costs and large resource bases, all of which highlight long term potential for upside.
Metrics for assets included in recent North Sea asset transactions show the economic viability of each field sitting below the $50/barrel break even line and with remaining operating costs already substantially attractive, sitting below $25/barrel of oil equivalent, noticeably demonstrating their current viability and upside.
Smaller regional operators and new venture capital backed-companies have demonstrated themselves to be keen to take advantage of lower costs investing in extending the field life of maturing fields and short-cycle tie-backs of smaller nearby fields.
Investments have become even more attractive with a receptive UK government which actively works to address the industry’s challenges and adapts the fiscal and regulatory frameworks to the current economic conditions.
Analysing recent mergers and acquisitions in the region, it’s noteworthy to point efforts by supermajors to divest non-core assets in an effort to rebalance portfolios towards higher growth opportunities and limit future abandonment liabilities.
Most sellers cite the lack of fit within the strategic rationale for their capital investments and efforts to build a higher margin per barrel, longer-term portfolio. Recent buyers, such as Chrysaor and Kufpec, however, see a strong strategic fit based on the low-risk profile and potential.
Chrysaor’s is representative of the strategy behind the current outlook in the North Sea. The quality of the mature assets involved and collaboration with UK governmental entities were key competitive factors in the decision for Chrysaor’s recent acquisition of Shell’s North Sea asset package.
Kufpec’s acquisition of low-risk assets in the Norwegian North Sea show the company’s commitment to establish itself in the region, complementing its strategy to become an operator of international upstream assets.
The combined efforts of operators and service companies to improve cost efficiency and resulting project economics is reflected in the higher number of mergers and acquisitions taking place despite the maturity of the North Sea.