More infrastructure deals expected

Private equity to chase North Sea assets

Shaun ReynoldsThe North Sea will see a rise in infrastructure deals this year, with private equity funds playing an increasing role in midstream assets, according to a new report.

Against the backdrop of a low oil price, more oil and gas companies are looking to rationalise their portfolios and divest non-core assets in the UK Continental Shelf (UKCS),  with private equity and specialist infrastructure funds likely purchasers.

Deloitte’s latest European Infrastructure Investors survey found that pipelines, in particular, have provided a solid and steady return over the last five years.

They were highlighted by investors as performing well compared with other infrastructure, including fuel storage, ports and renewables; the internal rate of return on pipelines reached 14% in the period 2013-2016.

Shaun Reynolds (pictured), director, transaction services, said: “Historically, big oil and gas operators developed and owned what they needed, transporting their major discoveries through proprietary pipelines and refining it in their own processing plants. That’s largely remained the case, until the last two or three years.

“The ownership model has evolved, driven by the maturity of the basin and the low oil price. Established players are divesting to shore up their balance sheets, and infrastructure is comparatively less complex to value and sell, with a ready market at the right price.

“Private equity firms and specialist energy infrastructure funds are likely buyers – specifically those with a solid grasp of the UKCS. They’ll look to take a number of assets under management, create a portfolio, maximise their potential and then look to divest; most likely to a pension fund aiming for steady returns from a stable asset.”

Mr Reynolds said: “There’s a strong appetite from investors for North Sea infrastructure – but only at the right price. As the oil price continues to take its toll and pressure mounts on balance sheets, more operators will have to look at rationalisation and infrastructure tends to be a logical sale.

“Deals are brewing in the UKCS – and we’ll see more on the infrastructure front in the short to medium term.”

 * The report coincides with a survey showing the UK’s subsea industry is defying the slump in the oil price by maintaining its investment in technology and looking to increase exports.

While 90% of respondents to a survey said sales had fallen, almost 80% are still investing in new technology and see this as an area of focus in the long-term to secure future growth.

Similarly, eight in 10  felt that the financial institutions have lost faith in the sector. However, only 5.7% were looking to refinance and 7.7% are actively seeking new investment.

Recruitment has taken a back seat with 70% of companies saying they were not actively recruiting and 28% were recruiting fewer people than last year.

More than 20% of respondents said that they were still employing apprentices to support their business, however recruitment on the whole has dropped, with only 8% of companies reporting that they are looking to employ more people than they were 12 months ago.

Neil Gordon, chief executive of Subsea UK, which conducted the survey, said: “The decline in the oil price and subsequent industry-wide downturn has seen a massive reduction in CAPEX and OPEX budgets worldwide which have impacted on the subsea sector where we are seeing job losses and the collapse of companies, putting the UK sector’s enviable world-leading position under threat.

“The findings from our survey underline the negative impact on revenues and recruitment but they also reveal positive signs of the sector adjusting and adapting to the lower for longer oil price environment which will ensure we are well-placed for the future.”

Some 80% of respondents hope to drive growth by increasing overseas sales and exploring new markets with a focus on the Asia, the Middle-east, North America and Africa. Other countries of interest are Australia, China, Brazil and Norway.

Mr Gordon said: “Thankfully our survey shows that subsea companies are increasing their export efforts, exploring new geographic markets where their services and technology are in demand.”

More than 44% of respondents said that the lower oil price environment has led to the industry becoming more receptive to new ways of working and adopting different techniques and innovations.

Mr Gordon added: “The industry is more receptive to new ways of working and new technologies and we are starting to see the benefits of real collaboration towards reducing costs and driving efficiencies. It is encouraging that, against this backdrop, subsea companies are continuing to invest in the development of new technology.”

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