North Sea Capital Making Inroads
It might be peak IPO season (Forbes), and technology investors may be looking elsewhere (say fintech), but two years of venture capital investments in the North Sea are rounding on stranded North Sea value.
The old investor pattern of looking for worn out companies to freshen up with funds appears to be giving way to a search for value to unstick. Investments in tail-end production, aging infrastructure with value or valuable operators unable to grow due to a lack of sufficient scale — techy suppliers, but also operators.
It’s been years since anyone like Omani oil tools outfit Petrogas and its venture capital partner HitecVision managed to capture so much value nowhere near being realized. The partners’ deal to buy Total’s field stakes aims to tap reserves where infrastructure slated for decommissioning will instead process area reserves.
It’s been about 10 years since that kind of value was seized from the jaws of ignominy — not since Abu Dhabi International Petroleum Investment Corp. paid about $2.2 billion for pipeline company Canadian Nova Chemicals Corp., has this kind of “reversal” of fortune been seized by an investment fund. Nova had stalled for want of funds just short of realizing the value of its gas pipeline product, just as arctic gas was about to connect to it.
That acquisition by venture capital 10 years ago kept Canadian arctic gas flowing south. Today, Norwegian funds advocacy NVCA says around oil and gas is still a Top 3 creator of fund-backed value creation, and institutional investors focused on the North Sea are said to wield around $3 billion in available capital: buyout funds wield the lion’s share, but about $300 million is still in the hands of venture capitalists.
Today’s tech-savvy venture capitalists would be forgiven for going all-in in the seemingly endless disruption many a start-up appears poised to capture. Yet, there’s a sure thing, to some, in North Sea oil and gas, where value in-place needs only to be tapped by existing knowhow.
HitecVision has a history in Norway of unsticking stuck value and getting operators and suppliers past an operational hurdle. The venture capital investor oversaw a merger in 2018 between its portfolio company, Point Resources, and Eni Norge that created Vaar Energy in Norway, freeing Eni of perceived risk.
In the UK, Hitec is associated with its shares in Neo E&P and Verus Petroleum. In Stavanger, suppliers Agility Subsea Group, Ross Fabrication and Apply Soerko, among others, know HitecVision as owner and potential white knight.
The success of HitecVision — now several funds — has given it sufficient financial weight to impart scale on those it partners with. Word is, Petrogas and Hitec will form a new operator in the UK from the fragments of Total’s sold business or via Neo E&P.
In Norway, observers are already suggesting international versions of Hitec — or of Abu Dhabi International — could soon move in to acquire the producing field stakes and massive found reserves of a withdrawing ExxonMobil. From stuck — or in need of moving resources abroad — ExxonMobil can count on either a fight between Equinor, Aker BP and Lundin for its spoils or a venture alliance of some kind to buy the massive value it has decided to shed.
And the North Sea offers other value for institutional investors. Norway’s gas pipeline infrastructure — long the bane of foreign entrants for having regulated rather than negotiated access — happens to provide a steady fixed, future return akin to bonds. So much so, that Danish Pension Funds PKA and a “minnow” of overqualified former oil and gas execs — the company North Sea Infrastructure — are banking on gas throughput stakes to make their capital venture a success.
NSI wants to become a “financial partner” to offshore operators not interested in fully owning gas infrastructure but wanting access. After buying from ExxonMobil a 3.7 percent stake in the piped-gas process plant, Nyhamna JV, NSI appears keen to form JVs with operators that’ll spare them having to splurge too much for pipeline access or ownership.
For those in the North Sea who see value obscured behind convention or aging infrastructure, there’s likely an institutional investor for you. Be it buyout fund, pension fund or equity investor.