Banks envisage good prospects as oil price eases

Published on Wednesday 18 October 2006 00:57

THE RBS Oil & Gas Index for September 2006 argues that the sharp decline in crude oil prices can be attributed to expectations of slower demand growth and rising interest rates. In addition, some of the geopolitical crises, such as Iran's nuclear enrichment programme and the armed conflict in Lebanon, have vanished from the headlines, at least for now.

In the absence of renewed tensions, which remain an important upside risk, RBS expects further moderation in crude prices.

The North Sea holds some four billion barrels of recoverable reserves, a number that is bound to increase with further technological improvements. While the province is a high-cost environment, advances in technology, such as 3D seismic imaging and directional drilling, are bound to bring down exploration and production costs, thereby extending the lifespan of many maturing fields.

Prospects for UK companies, in particular small and medium-sized businesses, specialising in the sector are good. These businesses have acquired considerable expertise in exploiting mature fields, and stand to benefit from increased global demand for their services.

The know-how these outfits have developed positions them as formidable competitors when it comes to supplying technology to offshore projects outwith the North Sea.

RBS's corporate banking and corporate and structured finance teams in Scotland have earned a reputation as one of the leading providers of funding in the oil and gas market in North-East Scotland over the last 18 months.

The teams' success has been driven by its strong relationships with the local corporate finance and private equity community, along with its ability to deliver flexible funding solutions tailored to clients' needs.

Kenny Stewart, managing director of corporate and structured finance Scotland, comments: "Our team's in-depth knowledge of the oil and gas sector has allowed us to develop innovative and flexible debt packages to meet the funding requirements of businesses operating both in the North Sea and further afield."

He cites the bank's approach in support of the Inflexion private equity MBO of Viking Moorings (formerly Balmoral Marine), a market-leading moorings business based in the UK and Norway. The bank also supported the acquisition of Roxar AS, a leading Norwegian provider of technology services and equipment to the oil and gas industry, by international investment firm Arcapita Bank.

"Most recently, we put in place a refinancing package for Energy Cranes International. Headquartered in Aberdeen, Energy Cranes is the world's leading offshore crane and lifting services contractor supporting the oil and gas industry."

John Berry, RBS's managing director of corporate banking in Scotland adds: "These deals are excellent examples of the types of cross-border transactions we have been involved in during what has been an exceptionally busy 18 months.

"The high price of oil recently has been driving more activity than we have seen for some time. Buyers and sellers are attracted to the high prices and this leads to an increase in the level of activity within the oil and gas sector. We've already seen good-sized deals with Abbott Group and Expro."