Siccar Point Energy, an exploration and pipelining company based in Aberdeen and backed by private-equity, have pulled off a significant deal to acquire OMV’s North Sea interests. The $1bn deal is estimated to be the largest for the offshore energy industry in the UK, following the severe drop in crude prices. This is the second significant deal of the year that the highly acquisitive firm has made in the North Sea.
The size of the deal suggests that while many in the industry are cautious, there can be cause for optimism regarding M&A activity within this particular sector, moving into 2017. The long-term drop in the price of crude oil since 2014, coupled with volatility in the price within the past 12 months, mean that resilience has been a key watchword. However, some of the largest names in the industry, not to mention smaller operators, are filtering down some activity in acquisitions and investments.
Long-term confidence and innovation
Private equity investment in oil & gas has continued over the past two years, highlighting that long-term investors can find attractive investment opportunities in the sector. PE companies have relatively long-term investment aims, so the belief that the sector will recover over time is most likely the source of this activity – Siccar Point is backed by several PE firms, underlining this confidence.
Equally, the Siccar Point deal also highlights the attractiveness of the sector for newcomers. While companies and assets remain at low prices, new entrants can certainly spark new ways of thinking in the sector – it is clear that the current shock has forced a significant re-think for industry. Moreover, these highly acquisitive companies are looking to bolt-on a variety of different companies, developing potentially new synergies and new company structures taking the sector into uncharted territory. Those companies new to the sector will find creative ways of structuring, to take advantage once the price of oil stabilises, delivering a new lease of life, and innovative approaches, in the coming years.
Conversely, as these smaller players are looking to make a range of moves, activity from the largest companies in the sector is filtering down. Shell-BG Group and GE-Baker Hughes are mega deals which create significant challenges, from regulatory requirements to the big shifts in strategy sometimes required by these companies.
While, Baker Hughes had to scrap its proposed deal with Halliburton in 2014 due to regulatory issues, Shell and BG will have to sell off various parts of their existing businesses to ensure the deal is rubber-stamped by authorities. It has already been mooted that Siccar Point will look to make a play for some North Sea assets to be put on the market by Shell/BG.
Ultimately, while there is relatively low confidence in the sector as a result of long-term pressures, there is certainly hope for optimism as we head into the new year.
Stay tuned to our blog for M&A news and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.