AAB on why deal activity in the North Sea upstream sector is increasing

There are inspiring examples of belief and confidence in the North Sea.
There are inspiring examples of belief and confidence in the North Sea.
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Improved optimism and favourable market conditions are pushing upward momentum in oil and gas, report Alasdair Green and Callum Gray.

New levels of North Sea upstream deal activity in 2019 are providing many reasons to be positive and optimistic about the future of this basin and its supply chain.

Alasdair Green is head of E&P strategy at Anderson Anderson & Brown.

Alasdair Green is head of E&P strategy at Anderson Anderson & Brown.

Following a period of uncertainty for the sector, no-one can deny now that favourable market conditions are making upstream transaction opportunities increasingly attractive.

Much has been written on and commented about the reasons and factors for this ongoing positive trend. They include business and operational efficiency drives, continued investment in and adoption of new technology and innovation, oil price stability, the gradual North Sea exit and sell-off by majors, an internationally competitive UK fiscal regime, the role of the Oil and Gas Authority (OGA) and improved availability of data. There is also an experienced leadership workforce.

The deals we are seeing range across the spectrum from larger corporates to rapidly growing, highly entrepreneurial ventures and new entrants.

At the higher end, there are inspiring examples of belief and confidence in the North Sea, such as Ithaca’s acquisition of Chevron UK, Rockrose acquiring Marathon Oil’s North Sea assets, Chrysaor’s ongoing growth through buying the UK ConocoPhillips business – and most recently Energean’s acquisition of Edison E&P, giving them a North Sea position, and the Petrogas NEO UK deal with Total.

This trend of asset and people moving from larger firms to smaller ones is a key highlight in the North Sea market and appears set to continue. Further down the scale, there are similar levels of activity from businesses buying into development opportunities.

Active players include relative newcomers Talon Petroleum and Corallian Energy, and we are also seeing larger concerns such as CalEnergy Resources, INEOS, Equinor and Shell increasing their positions.

Behind this is a growing mass of potential deals and business plans, most of which have not reached maturity or the attention of the press yet. There are increasing levels of activity from aspiring management teams and individuals who have acquired assets or licences and who are working up plans to execute new North Sea strategies. In addition to this, the recent confidence at operator level is filtering through into the energy services sector and supply chain where there have been a number of transactions completed either directly by specialist oil and gas private equity (PE) houses and growth capital firms or their portfolio companies.

This upturn in PE confidence suggests that the current market conditions are favourable to make investments and comes hot on the heels of the sale of Aberdeen-headquartered mechanical and electrical services group Enermech to the US-based Carlyle Group for £450 million which completed in October 2018. Notable examples of PE oil and gas transactions that closed in 2019 include:

- Norwegian drilling inspection, maintenance and repair services provider WellConnection Group, which is backed by EV Private Equity acquired Scottish-based Independent Oilfield Services, a provider of storage, refurbishment and management of oilfield equipment and tubulars.

- ICR Integrity, a group concerned in the provision of repair and maintenance services to the global energy industry and a portfolio company of Graphite Capital, acquired certain trade and assets of Sky Futures Partners, a drone inspection business from MMC Ventures.

- Aberdeen-based Coretrax, a wellbore clean-up and abandonment specialist, merged with the US-headquartered Mohawk Energy, which specialises in expandable tubular well solutions. The transaction is the first by Coretrax since it received investment from oilfield service sector PE firm Buckthorn, in December last year.

- Another Buckthorn Partners portfolio company, Ashtead Technology continued its acquisition plans by buying Aqua-Tech Solutions, a subsea equipment rental and cutting services specialist based in Louisiana, US.

- Pipeline Technique, the high-end pipeline welding and spool-based services specialist, was acquired by London-based energy PE firm Blue Water Energy from Heerema Marine Contractors.

- SCF Partners-backed Centurion Group, providers of infrastructure, rental and support services to the energy industries, acquired Texas-located frac valve technology company, Totalfrac.

It is not only PE firms that are proactive in their pursuit of strategic targets as there are positive signs that larger acquisitive trade players still remain keen to acquire businesses that can expand and complement their existing services, technology offerings and/or geographical presence.

Global Energy, for example, which is concerned in the provision of production integrity and drilling marine services, were particularly active and made three acquisitions in three months. Offshore module and accommodation service provider Aiken Group and engineering consultancy Apollo Offshore were both acquired in February.

This was quickly followed in June by the acquisition of the assets of Glasgow-based non-destructive testing specialists, Axiom NDT, with each of these acquisitions growing Global’s presence to different parts of its expanding service offering.

Other notable completed transactions include the sale of safety and calibration system experts Martek Marine to Barrow-in-Furness firm James Fisher, which, together with acquiring Murjan Al-Sharq Marine contractors, took the FTSE 250 listed Group’s spending to £18 million for 2019.

In addition, Dutch-based energy personnel specialists, Atlas Professionals complemented its North Sea presence by buying technical recruitment experts Brander.

It is clear that improved optimism, coupled with favourable market conditions, are generating sustained upward momentum for deal activity.

Throughout the North Sea’s history, we have seen much of this before in the form of consolidation, entrepreneurial growth, new exploration and advances in technology. Crucially, we are now seeing the development of a stronger and more sustainable pipeline of deals and activity.

At AAB, the specialist E&P and Oil Service teams offer recent hands-on experience, knowledge and tested methodologies in many aspects of North Sea upstream transactions, transition support and management. Its advisory and outsourced solutions span payroll and benefits, full lifecycle accounting, tax and consulting services.

Alasdair Green is head of E&P strategy and Callum Gray is director and head of deal origination, corporate finance, both of Anderson Anderson & Brown.

This article appeared in The Scotsman’s Deals supplement. To find out more about the work of Anderson Anderson & Brown, visit their website.