Blockbuster Start for North Sea Mergers

PGNiG’s acquisition of Ineos’ Norwegian oil business continues what has been a blockbuster start to the year for North Sea mergers and acquisitions (M&A), according to Neivan Boroujerdi, a principal analyst at Wood Mackenzie.

“Less than three months in 2021 and value traded across UK, Norway, and Denmark has already reached $3.5 billion, nearly matching last year’s $4 billion total,” Boroujerdi said in a statement sent to Rigzone.

“It cements the region’s hot streak. But this has been largely a UK story so far. Comparatively speaking, Norwegian M&A has been slow to get moving. Deal flow has stagnated in recent times with spend in 2020 reaching a 15-year low. But this transaction could mark the start of a recovery as companies look to position themselves to take full advantage of the temporary tax terms,” Boroujerdi added in the statement.

The Wood Mackenzie analyst outlined that the $615 million deal marks a good exit price for Ineos and highlights that Norway remains one of the most competitive markets globally.

“For Ineos, the Norwegian portfolio was not immaterial – at 30,000 barrels of oil equivalent per day of predominantly gas, it contributes 50 percent of its entire upstream production base. But with output set to decline in the coming years, the business had reached a crossroads,” Boroujerdi said.

“With no operatorships from which to apply its low-cost model and mixed exploration success so far, options to grow the business were limited. The move will allow the chemicals giant to focus attention towards its operated positions in UK and Denmark,” the analyst added.

Boroujerdi highlighted that this was PGNiG’s ninth Norwegian acquisition since 2017 and noted that the move will double production at the company to 60,000 barrels of oil equivalent per day, “taking it to just outside the top 10 producers on the Norwegian Continental Shelf”.

“More importantly, it satisfies its ambition to produce 2.5 billion cubic meters per annum of gas to help fill the recently sanctioned Baltic Pipe. The project is due to start-up next year, helping Poland diversify away from a dependency on Russian gas,” Boroujerdi said.

Earlier this month, UK Continental Shelf focused NEO Energy revealed that it will acquire UK based Zennor Petroleum Limited for a total consideration of up to $625 million. Also during March, Cairn announced that it had entered into an agreement that will result in the sale of its interests in the UK Catcher and Kraken fields to Waldorf Production Limited for a cash consideration of $460 million, plus additional contingent consideration dependent principally on oil prices from 2021 to the end of 2025.

To contact the author, email andreas.exarheas@rigzone.com