How to create value through oil and gas acquisitions in the North Sea

Since the turn of the decade, it’s 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. But have acquisitions created value so far?

We have revisited the 55 biggest deals announced between 2012 and 2018. By analysing transactions from today’s vantage point, we have quantified underlying value creation.

The headline results make for uncomfortable reading for buyers. The aggregate purchase price was US$52 billion. Today, we value these deals at just US$43 billion. That's US$9 billion of value destroyed.

Get the highlights of our research below, or visit the store to purchase the full report, "How to create value through North Sea M&A."

What do these results tell the next wave of buyers?

The oil price collapsed midway through the period was key in determining the 'winners' and 'losers'. But there were other factors that linked the good (and the bad) acquisitions.

Here are five messages that stand out:

1. Know the region, the assets and your value creation strategy

Don’t just bet on the oil price. Be willing to pay more for the ‘right’ deals. 

2. Don't let corporate goals erode value

Whether you are chasing scale or growth, pre-production assets can often tick the right boxes. But they are uncertain, so risk them accordingly. 

3. Operatorship is important

While there aren’t as many assets available as a few years ago, the Majors still hold the keys to several hubs, where there is scope to reduce costs and apply more capital.

4. The time might be right for non-operators

New operators on the shelf have big plans. Align yourself with one that shares the same ambition. 

5. Know your exit strategy

Private equity-backed companies look to be the big winners so far. But the real work is still to come – both in terms of fulfilling development plans and eventually monetising investments. 

How we uncovered these insights into value creation

Our research considered the 55 biggest North Sea deals announced between 2012 and 2018. For each deal, we compare acquisition cost to our valuation at the time of the deal and our valuation today. 

Our two valuations in this study are defined as:

1. Our at-deal model under at-deal price assumptions
2. Our current model under current price assumptions (including interim price realisations)

We then make two calculations:

• At-deal premium = purchase price minus valuation 
• Value creation = valuation 2 minus purchase price

All values are from the deal effective date (i.e. we incorporate interim as well as future cash flows), discounted/escalated at 10% to 1 January 2019. The purchase price is also discounted/escalated to 1 January 2019 at 10%.

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