Norwegian oil & gas industry looks north

The fast-depleting oil reserves in the North Sea have caused exploration and production companies to look further afield for new opportunities. At a time when Norway is considering whether it has reached its oil peak, recent discoveries in the Barents Sea, which is located north of Norway and Russia and represents the marginal sea of the Arctic Ocean, could open up a new window for private equity companies looking into the oil & gas sector. Says Argentum's CEO Joachim Hoegh-Krohn: "We've seen that both Nordic and international private equity firms such as HitecVision and Nord Kapitalforvaltning are positioning themselves in the Northern region." 

The Barents Sea is rapidly gaining popularity among the oil majors. Stockholm-based oil exporter Lundin Petroleum found 300 million barrels of oil in the Barents region last year. Lundin CEO Ashley Heppenstall said the findings are "sufficient to be able to justify the development of infrastructure". Following the string of new oil discoveries in Arctic waters, four drilling sites have emerged: Hoop High, Snohvit, Goliat and Johan Castberg. Drilling in the south-eastern part of the Norwegian Barents Sea is next. According to estimates from the Norwegian Petroleum Directorate, the Norwegian part of Barents region holds more than 8 billion barrels of undiscovered oil.

For Nordic private equity, the discovery of more oil could mean increased activity. "The extraction pace sets the tone and steers all other activity within the oil & gas sector, including M&A," explains Marcus Planting-Bergloo, partner at Segulah. "There is a clear trend of the Nordic oil industry moving north. It's important for all players to position themselves well to be a part of the Barents Sea boom in order to follow their clients."

And the emergence of these oil reserves is being closely monitored by private equity firms in the region. "Part of our evaluation strategy when looking for companies is to see how well they are ‘set up' for the future development in the Barents Sea," says Planting-Bergloo. "Looking forward, can they still be in the game?"

Temperature rising
The sector has already been experiencing an uptick in deal activity. Towards the end of last year Norwegian national oil company Statoil continued to optimise its portfolio and shows no signs of slowing down. In 2013, capital investment reached almost NOK 176bn ($30bn) – a 30% increase on 2012. M&A activity is set to hit sector-record levels in 2014, with the trend for larger companies to optimise their portfolios continuing, which should provide solid exit opportunities for buyout houses holding oil & gas related companies.

Within the private equity market, there were a number of oil & gas related deals on the Norwegian continental shelf in 2013. First, in January 2013, Segulah bought oil & gas services firm Beerenberg from Herkules Capital, then in December the buyout house acquired Norwegian family business Øglænd Industrier. Another notable deal occurred in December when HitecVision and Converto Capital sold oil & gas services company Stream to MRC Global, a supplier to the energy and industrial markets, for $260m.

Vinay Ghai of Robert W Baird is very positive regarding the prospects for the Norwegian continental shelf: "We are expecting 2014 activity within the offshore sector to increase on 2013's level as both corporates and sponsors are coming into the market."

While vanilla GPs don't invest in firms involved with exploration and production, companies providing services to the buoyant oil and gas industry will see a new market opening up in the Barents region over time, witness an increase in turnover and face demands for new technology. Exploiting this new market will, however, require securing the necessary local resources, including local networks. As Swedish and international players that haven't previously been active in the sector are coming in, it remains to be seen how well they can match the networks and industry know-how of the local heavyweights.

Enjoyed reading this article? View the live version at the unquote" Nordic Private Equity Forum, taking place in Stockholm on 13 May 2014. For more information on the agenda and details about attending, visit nordicpeforum.com

 

 

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