North Sea oil enters new phase following $6 billion worth of M&A deals

North Sea oil and gas is on the crest of a third wave in its evolution following a series of E&P deals totalling more than $6 billion, energy experts claim.

Energy deals specialist at Pinsent Masons, Rosalie Chadwick, believes Shell’s $3.8 billion disposal of North Sea assets to E&P company Chrysaor will be a catalyst for more mergers and acquisitions in the UKCS following the resurgence of oil-focused equity capital market investment.

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In the last six months $6.06 billion has been invested in North Sea assets as a result of renewed interest in E&P, including last week’s $1.24 billion acquisition of Ithaca Energy by Israeli-based Delek Group.

Pinsent Masons’ head of corporate finance, Rosalie Chadwick, who advised Ithaca Energy, said: “Based on the recent flurry of deal activity the future looks very positive for UKCS and I believe the Shell-Chrysaor deal will prove to be the tipping point which leads to the third wave of the North Sea’s evolution and a number of other significant transactions in the months and years ahead

“More availability of funding, a stable oil price, better alignment of price expectations for both buyers and sellers, and a fresh approach to decommissioning responsibilities, means that all the chess pieces are lined up with the North Sea poised for a period of productive M&A activity.

“The identity of a lot of owners will change quite considerably, but it is no bad thing to see well-capitalised new blood enter the sector and embracing new technologies, which make smaller recoveries in the more mature fields economically viable.

“We have a relationship with Ithaca dating back a number of years and are delighted to be involved in this next major milestone for the business. It caps off a busy start to the year which has seen a renewed level of interest in North Sea assets as prices have stabilised and expectations adjusted.”

Chadwick said there has been an opening up of the equity markets over the last six to 12 months with increased PE backing, not just in funding management teams but also in capital deployment. “This has been transformational after a four-year funding hiatus which left the North Sea perched on the edge of a chasm,” she said.

Chadwick added that Blackstone and Bluewater Energy’s investment of over $500 million into Siccar Point Energy, Suncor Energy’s acquisition of a 30% stake in the Rosebank project and EnQuest’s $85 million purchase of a stake BP’s Magnus field, demonstrate innovative deal structures which signify the recovery of North Sea investment.

“This funding boom is a combination of businesses successfully adjusting to the new $50 oil norm and resetting their cost base which has resulted in a surge of confidence in investment in North Sea assets.

“We’re also experiencing a transformation in terms of the treatment of decommissioning as assets change hands. Majors are taking a more realistic view, with recognition that some liabilities will need to be retained and the net result of this shift in attitude is that more deals will get over the line.”

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