Energy Ventures was set up in 2001 as a private equity firm investing solely in the oil and gas industry. The crash of oil prices in 2014 has significantly reduced investment in all sectors of the industry, as companies struggle to downscale and shrink expenses to survive.
But in a surprise statement in November, Energy Ventures pledged $200m for investment in the North Sea. Energy Ventures investment director Tomas Hvamb thinks this is a great time to be investing and is helping to drive opportunities in companies which he believes can bring something unique to the industry.
But as other companies have reined in their programmes, what makes Energy Ventures willing to invest so much in oil? And what is the company looking for in potential partners?
Molly Lempriere: Energy Ventures is one of the only companies really investing in North Sea oil at the moment. What makes you different from all the other companies?
Tomas Hvamb: We are an oil and gas investor only, and we've always only been that. So since we started off in 2001, we have been a through-the-cycle investor, meaning that we have invested throughout the oil cycle, and we've also sold companies through the cycle.
We're only about 15 people in the fund, 16 investors, and pretty much everyone has been in the industry for a long time. We understand the cyclicality of the industry and we believe, we strongly believe, that the sector is now at the low point.
That means this is a super time, and a very important time to invest. I think given the fact that we're specifically oil and gas, and have that sort of history and knowledge, that we’re comfortable with the cyclicality of the sector, that's probably what sets us apart from a lot of other funds.
Often these private equity funds invest across various industries. Right now it will be perceived as a very risky investment to invest in oil and gas. In 2014 when oil was at its peak, everyone wanted a piece of oil and gas. But when people invested at the peak time all the prices of assets were very high, because people were bidding against each other. Right now it’s a very different environment; there are few capital providers, so less capital available, but we are certainly one of them. And we’re very keen to invest at this point in time.
ML: Your investment can be used to stabilise and help companies to grow. Right now how far can companies really expect to grow?
TH: Well that's a very difficult question. We are looking for unique businesses. What I mean by unique is that the businesses that we invested in are differentiated with in some shape or form. So they have a unique offering when it comes to service, a unique position in the market, a unique technology, or fantastic management, something that sets them apart. Those companies, even in a tough market, are able to grow. We're looking for companies who outperform their peers, and outperform their market.
But we are very much aware of where the market is; we have 18 companies in our portfolio today, and very few of them have been able to grow over the last few years. Most of them have, as you can imagine, lost a lot of revenue in the way the market has.
But we do believe that the tide is about to turn and there are several things that suggest that to us. For one, often the US market is about 12-18 months front running the European market. The US offshore market has turned; you can already see that order books are being filled up and new capital is coming into play in the US market. We expect probably 15-20% more investments in the oil field services sector in the US next year than this year.
That's a signal to us, that the market has turned, and also a signal that suggests that this market will. We think next year will be very difficult, equally as difficult as this year. But that we might, at some point next year, hit the bottom also in the international sector.
ML: So you believe that there's still a lot of potential left in the North Sea? How long do you think that can continue?
TH: The North Sea has got a long time to live still, but in a different way and I think the industry has already seen this. The big major new discoveries in the North Sea are unlikely to be there any more, although you never know. We did get Johan Sverdrup in Norway for example, a couple of years back, a fantastic and very significant new discovery. There is also some significant ongoing development both in the UKCS as well as in Norway. Hopefully we will see the oil price stabilise over the next six months which should drive some confidence for operators to start investing more in the North Sea.
But important to continued activity in the North Sea is the development of marginal fields as well as life extension of our existing fields. The industry needs to cater for this in a safe and efficient way at a cost level that supports the price level that we have today. Both operators and the wider supply chain in the industry need to be economical at the current oil price.
ML: How important is investment in new technology?
TH: You already see both new technology and different thinking from the operators. If you look at some of the operators right now on the UK side of the North Sea, there is much more willingness to look at new technology and new ways of doing things.
We need not just new technology but new ways of engineering things, using smaller companies such as companies which we invest in rather that only the bigger service providers. We clearly see that already, there is a trend towards thinking differently. The industry has to think differently to be able to reach the cost-saving and the efficiency savings that are needed.
ML: Do you think the 2014 price crash forced the industry to modernise?
TH: Yeah absolutely, I think it was a very healthy correction.
ML: You mentioned that you're looking for unique companies. Do you have anyone in mind at this stage?
TH: We can't talk about things which we haven't invested in yet, because as you can imagine there's competition out there. But as you will have seen in our portfolio, we invest across the life cycle of the assets and the oil field. We have a rig company based in Singapore, we have various downhole drill companies, we have companies on the inspection side, and we have drilling-related companies.
We look across the value chain. There are some themes that we look for, for example on the inspection side there is a wall of maintenance needed. Maintenance is going to be more and more important as we need to keep [offshore infrastructure] running for a longer period of time. Keeping maintenance and inspection of the assets capital-efficient and safe is going to be more and more important.
We're looking at various new technology companies that can drive that. In terms of well construction we're looking at companies that can provide a lot of price efficiency, in terms of well engineering and well construction. We're looking at companies that have novel technology and novel services into the decommissioning and P&A market.
Really while there is a long life left in the North Sea, there is a whole lot of P&A and decommissioning that is going to come through over the next 15-20 years so we're looking at companies that can do that efficiently as well.