Oil & Gas UK: M&A to continue in 2018, but won’t reach 2017 levels

Mergers & acquisitions activity in the UK oil and gas sector is expected to continue in 2018, however it is not expected to match the levels reached in 2018.

In its 2018 Business Outlook released on Tuesday, Oil & Gas UK looked at the big mergers and acquisitions in the past year.

Oil and Gas UK said  that, as confidence in the UKCS increased and the futures market stabilized, valuations between prospective buyers and sellers began to converge, enabling a wave of M&A activity.

According to the report, the value of UK upstream M&A deals announced last year surpassed $8 billion (total UK traded value only) as counterparts reached innovative commercial deals to overcome potential barriers such as decommissioning liabilities.

Majors divesting to smaller players

OGUK also said that, although there has been a trend towards divestment from majors and investment from smaller independent companies through private equity finance, there were a variety of deal types and sizes last year that offer a sign of confidence in the UKCS.

While the majors have often been the sellers in recent M&A deals, with the exception of Total’s takeover of Maersk Oil, they have retained their stake in assets they consider core to their portfolios.

According to the report, oil majors are not seeking to exit the UKCS and still view it as a basin of strategic importance.

Regarding mergers, the report listed two of importance, namely the merger of Centrica’s E&P business and BayernGas Norge into Spirit Energy back in December 2017 and Sterling Resources UK merged with Dutch exploration and production company Oranje-Nassau Energie in May of the same year.

As for asset sales, BP was involved in two of note. BP sold its interests in the Bruce, Keith, and Rhum fields to Serica while its Magnus and Sullom Voe Terminal stakes were sold to EnQuest. The third one mentioned in the report was the sale of Premier Oil’s stake in the Wytch Farm asset to Perenco.

“Meanwhile, on the purchasing side, private equity vehicles and independently backed companies are increasingly investing in the UKCS with a view to creating value by driving efficiencies within producing assets and enhancing their portfolios through the appraisal and progression of future development prospects. This has added to activity levels at a time when the domestic supply chain needs it most,” the report explained.

The major sales in question were the sale of Shell’s UK assets to Chrysaor, Dong to Ineos, Ithaca Energy’s UK stakes to Delek, and Engie’s sale to Neptune.

OGUK added in the report that the ‘world-class’ domestic supply chain was one of several factors that made the UKCS an attractive destination for potential investors, along with a competitive fiscal regime, a more co-operative business culture, straightforward access to markets, relative geopolitical stability and an exceptional geological understanding that shows up to 20 billion barrels of oil equivalent (boe) are yet to be recovered from the basin.

Looking forward, Oil & Gas UK expects M&A to continue during this year, albeit on a lesser scale than in 2017, as many new owners are working on maximizing value from their newly acquired portfolios.

Shell’s acquisition of BG Group in 2016, for a reported sum of $53 billion, remains UK’s largest oil and gas deal, hardly expected to be matched any time soon.

Offshore Energy Today Staff

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