The North Sea: deal, or no deal?
As 2019 ended, many market commentators forecast that 2020 would be busy in terms of corporate deals and M&A activity in the North Sea. With Big Oil retreating, Private Equity Firms had acquired a number of production assets over prior years, so a number of exits were expected.
The price crash at the beginning of the 2020 coupled with Covid-19, has put the brakes on many deals. But what does the recent reverse takeover of Premier Oil by Chrysaor tell us, and is the attitude of Private Equity firms changing?
IPO exits seems unlikely in the short term, and with many expected floats being paused or shelved, company and investor options have become limited. However, as “Adversity is the mother of invention”, it will be interesting to see how creative companies become, and how PE firms adapt their investment strategies.
As I see it, there are three obvious options: remain invested for longer while consolidating and streamlining operations; find an exit route of some description now; or align the investment model to that of a large infrastructure fund. Following the Premier/Chrysaor deal, PE funds who had not necessarily considered reverse takeovers will certainly be looking carefully at this option. However, there are not many listed companies in the same (precarious) situation that Premier Oil found themselves in …
The announcement of a potentially effective COVID19 vaccine with the resulting increase in demand has got oil analysts excited. Goldman Sachs is forecasting oil will peak at US$65 next year before stabilising in the US$55-60 range by the end of 2021. At this level, well-run and operationally efficient producers will be in reasonable shape. However, if they are run more along the lines of an infrastructure investment, will we start to see big dividends paid to the funds and firms (like HitecVision) that hold investments longer; and will this mean companies need to think longer-term about their assets and how they are run?
To further complicate matters, if you factor in the aging demographic of operational talent in the North Sea and the pace of Energy Transition (possibly accelerated by the Biden victory), the need for businesses to evolve and do things differently is rapidly becoming essential. The Oil & Gas sector has traditionally been a very inward-looking industry; however, lessons can be learnt from other sectors that have adapted to a variety of similar challenges.
With so much to think about, will Leaders within the sector be able to adapt, or will new skills and capabilities need to be developed to capitalise on the market opportunity? It will be incredibly interesting to see how this plays out over the next 12-24 months. With the undoubted twists and turns ahead, Boards, management teams, and operational leaders will need every ounce of resilience and imagination they possess to come out the other side fitter, and more relevant than ever!
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