Private Equity Firms Scouting North Sea Oil and Gas Assets


March 23, 2015

A number of companies consider the North Sea oil and gas industry to be a risky industry, with many companies trying to get rid off their current assets in the field. But for many private equity firms, North Sea is currently providing attractive investment opportunities. The recent changes in UK’s legislation could even further boost interest in the sector.


‘Exodus of Explorers’
The Telegraph reported on Sunday that North Sea is currently suffering from ‘an exodus of explorers’. The newest company to announce its possible exit is the German energy giant E.on. According to the report, the company is considering to get rid off nearly £1 billion worth of oil fields in the North Sea. The specific locations could be on the coasts of Scotland, England, the Shetland Islands and Norway where the company is involved.


Furthermore, the newspaper shared data by the oil and gas consultancy group 1 Derrick. The group’s research indicated over £6 billion worth of North Sea assets are on sale now. All of the major oil groups in the region from Total to Shell and BP have plans to leave the region as the oil prices continue to suffer from the current slump.


Opportunity for Private Equity
The exodus of companies is helping private equity firms to find investment opportunities. The Australian Financial Review said that among the big firms, Carlyle is looking to invest around $2.4 billion from its first international energy fund. The fund, which managed to raise well over $10 billion in total, is the firm’s biggest first-time capital raising. Carlyle is set to invest the money in the North Sea. According to the report, the firm is “prepared to take operating stakes in fields, but will be looking for assets that have many years of production left”.


Other private equity firms are also looking for opportunities in the region. KKR and Warburg Pincus raised $4 billion last year to a fund dedicated in the energy industry and sources say the firms are looking for opportunities in the North Sea. Many private equity firms are also backing more traditional exploration and production companies.


The Lure of North Sea
One of the reasons why the North Sea oil and gas sector is proving so lucrative for private equity firms is to do with the budget changes the UK government announced last week. The government decided to slash taxes on industry profits, while also introducing an investment allowance as it tries to boost exploration and keep the industry going. This is good news for investors and private equity firms, which are currently sitting on a lot of equity on energy-specific funds. Yet some analysts warn the region still has issues with access to infrastructure and in sharing decommissioning liabilities.


The Australian Financial Review quoted an unnamed investment banker saying deals look potentially lucrative now, but the problem is that finalising the deal could take much longer, allowing prices to rise up. The banker was quoted saying, “Anybody who has a mature position is desperately trying to get out. But it is extremely difficult to get out.” It remains to be seen how the situation develops and which private equity firm makes the first move.

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