Since the turn of the decade, it has been a frenetic period for M&A in the North Sea. Against a backdrop of oil price volatility and a dramatically changing corporate landscape, activity reached record levels.
The aggregate purchase price was US$52 billion. Today, these deals are valued at just US$43 billion.
Value destruction was at its worst between 2012 and 2014: a period where most buyers will have assumed higher oil and gas prices than have since been realised. Conversely, the opportunists that were willing to pull the trigger at the bottom of the market in 2015 and 2016 have benefited from the uptick in prices that followed. But it’s too simplistic to say that ‘winners’ and ‘losers’ were determined by whether they lucked out on the commodity price bet. Regardless of the cycle, there were other factors at play,
...Neivan Boroujerdi, principal analyst, North Sea upstream said.
The critical determinants of success, he said, included knowing the region and the assets, and having a value creation strategy in place.
Asset maturity was crucial, according to Mr. Boroujerdi. Pre-production assets almost exclusively destroyed value, while producing assets generally made a positive return.
Operatorship is also a factor in value creation. And those operators who took an ‘acquire-and-exploit’ approach – taking on under-loved assets, reducing costs and increasing investment – have seen results. Fundamentally, operatorship allowed incumbents more control over targeting upside,
Concluding Mr Boroujerdi advised:
You need to know what your exit strategy is too. Private equity-backed companies look to be the big winners so far. On paper things look good, but the real work is still to come – both in terms of fulfilling development plans and eventually monetising investments. Particularly with uncertainty over investor appetite for putting new money into oil and gas. Ultimately our analysis warns that firms shouldn’t let over-arching corporate goals erode value.