Aker BP deal could presage more PE interest in the Norweigan Shelf, bankers say
Last month’s Aker BP ASA deal could set the stage for additional private equity interest in the Norwegian Continental Shelf (NCS), said two industry bankers.
Under the 10 June deal, BP’s [LON:BP] BP Norge unit is to be combined with the Norwegian operations of Det Norske [STO:DETNORO] to form Aker BP for USD 140m in cash, working capital adjustments, and 30% equity.
The combination would create a USD 5.9bn company by enterprise value focused on the NCS, and is expected to close in 3Q16 pending shareholder and regulatory approval.
Private equity is increasingly interested in the region given the profitability of assets relative to those located in the UK, a third banker said. Cash-strapped oil and gas companies currently operating in the NCS face decommissioning liabilities to cut costs that could bring them to the sellers table, the first banker said.
The commodities rout creates an opportunity for PE vehicles like Neptune Oil & Gas, the first banker said. Neptune was launched by Carlyle Group, CVC and industry veteran Sam Laidlaw in 2015, with the aim of targeting acquisitions of up to USD 5bn (GBP 3.8bn). The fund could be the kind of well-capitalized fund that answers difficulties faced by current operators, the banker reasoned.
While the fourth banker noted oil and gas leveraged buy-out could be tough to finance in the current environment, the second banker argued several funds were targeting NCS assets.
BP noted that its sale process for BP Norge drew cash offers from several private equity funds. The company opted for the equity-for-asset structure instead of a cash payment to realize upside from the deal, BP CEO Bob Dudley said on a conference call.
However, BP Aker’s deal structure may make it an exception, the first and second bankers noted. Many NCS operators trade at a discount to NAV, creating an opening for PE funds to make acquisitions, the first banker said.
Leading NCS producers include Total [EPA:FP], Statoil [STO:STLO], ExxonMobil [NYSE:XOM], Shell [LON:RDSA], Eni [BIT:ENI], and ConocoPhillips [NYSE:COP]. Other producers generating lower volumes than the new Aker BP include DEA, BASF’s [ETR:BAS] Wintershall, Engie [EPA:ENGI], OMV [VIE:OMV], Dong Energy [CPH:DENERG], Centrica Energy [LON:CAN], Lundin Petroleum [STO:LUPE], Petroro and Hess [NYSE:HES].
L1 Energy’s DEA has a NCS profile, which could make it an ideal target for PE interested in the region, said a fourth banker. The Hamburg, Germany-based exploration and production company ranks just below a combined Aker BP in terms of millions of barrels of oil per day of production, according to the companies’ presentations. The company might attract significant interest, the fourth banker noted. DEA posted nearly 50% EBITDA margins on EUR 2bn in external sale revenues in 2014, the most recent figure provided.
Lundin Petroleum could also be a candidate for an NCS divestiture, the third banker said. The group might be open to a recapitalization given a similar deal with Statoil [STO:STLO] last month, the third banker said. Lundin sold a stake that increased Statoil’s holding to 20.1% in exchange for equity stakes in oil assets and a USD 64m cash payment.
Lundin currently trades at a 6.9% discount to a SEK 160/share risk adjusted NAV/share calculated by a Bank of America in a March analyst note.
Other NCS producers facing decommissioning liabilities could also see interest from PE funds, the first banker said, declining to specify further targets. Oil majors capable of funding liabilities have largely taken a pass on additional investment in the shelf, the first banker added.
Lundin and DEA did not respond to requests for comment. Neptune was not immediately available for comment.