The turmoil in the North Sea triggered by the fallout from the coronavirus crisis will create opportunities for bargain hunters according to entrepreneurs who built one of the most successful independents in the area.
Longboat Energy directors reckon they could use acquisitions to help them repeat the success they achieved at North Sea-focused Faroe Petroleum, which was acquired by DNO for £640 million in January last year.
Former Faroe chief executive Graham Stewart formed Longboat with colleagues in May last year only to find the outlook for oil and gas firms worsened dramatically within months.
The slump in demand caused by the coronavirus sent the price of Brent crude plunging to an 18-year low of less than $16 per barrel in April, from around $70/bbl in January.
Longboat chief executive Helge Hammer said yesterday: “Business development activities were curtailed by the onset of the coronavirus pandemic as the sector entered a period of huge uncertainty and market volatility.”
However, noting encouraging signs of recovery in the market he indicated that Longboat directors’ faith in the company’s strategy may only have been reinforced by recent developments.
Longboat said the current “market dislocation” presents an exciting opportunity.
“As a result of policy changes and strategic shifts by existing players, we believe there will be increased opportunities to secure quality assets on attractive terms in the period ahead,” said Mr Hammer.
His comments reflect the belief that the downturn will encourage majors to accelerate a retreat from the North Sea that has been in process some time. Giants have sold North Sea assets in recent years to free up funds to invest in areas in which they see better prospects, including shale fields in the US.
BP and Royal Dutch Shell have said they will increase investment in renewable energy assets significantly amid efforts to reduce global carbon dioxide emissions, to help slow climate change.
Longboat would expect to be able to generate good returns from investing in assets that bigger fish may not regard as material.
Directors seem confident that there will be long term demand for oil and gas output from the North Sea.
Longboat echoed claims that oil and gas will continue to play a vital role in the global energy mix for some time. The company said; “As long as demand for hydrocarbons continues to be significant, it will be crucial to maximise, responsibly, economic recovery value from North Sea production, minimise greenhouse gas emissions and reduce reliance on hydrocarbon imports.”
In its interim results announcement, Longboat said it had talks about a range of deals in the first quarter before the coronavirus crisis erupted. Active opportunities were put on hold by vendors, as there was too large a gap between buyer and seller value expectations.
However, Longboat noted that commodity prices have started to stabilise following the easing of some lockdown measures around the world, in a way that should help narrow the expectations gap. Brent crude traded up $0.28/bbl yesterday afternoon, at $41.72/bbl, in spite of concerns about a potential second wave of coronavirus.
“It is likely that the Company’s financial resources will be invested initially in either a small number of projects or one large investment, which may be deemed to be a reverse takeover,” said Longboat, which raised £10m from investors when it floated on the Aim market in November.
The company is chaired by Mr Stewart, who helped establish Faroe Petroleum in 1998.
Source: The Herald
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