Is this changing corporate landscape a good thing?
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The UK and Norway upstream sectors have historically been dominated by the Majors, but lately the peer group is focusing its attention elsewhere. With North Sea investment by the Majors falling 60% since 2013, private equity–backed companies are entering the fray, drawn in by widespread cost reductions, particularly in supply chain. Will this change in corporate landscape be a positive one?
Over the last 12 months, a new wave of North Sea mid-caps — including independents and private equity (PE) backed companies — have entered the region. These companies have an appetite to invest, and we estimate there are close to 20 PE-backed vehicles with war-chests approaching US$15 billion for North Sea acquisitions.
Just as PE's entrance into the US Lower 48 brought fresh impetus and renewed direction to exploration and production, private equity is bringing a different operational approach to the North Sea. Their nimble nature could mean a quicker timeline for projects and more scope for innovation. PE strategies are also changing, stretching project horizons beyond the typical 3-5 year period before an asset is sold again. It is positive for the North Sea to have a new group of companies with plans to invest substantially in the region, but these companies will still face challenges.
The Majors have two primary advantages: decades of experience with a backlog of global data to reference and deeper pockets. Less financially robust companies may struggle to absorb potential delays and cost overruns; successful project execution will be key.
However, the value proposition in the North Sea is strong, with both Norway and the UK sitting in the top 20 countries for remaining value. With 15 billion barrels of undeveloped resource in the UK and Norway, this presents a huge opportunity for the new North Sea mid-caps.