Page 4 - Euroil Week 21 2020

EurOil COMMENTARY EurOil
North Sea producers struggle
to close M&A deals
Deals signed before the COVID-19 crisis assumed very a different market outlook
NORTH SEA
WHAT:
M&Adealssignedbefore the COVID-19 crisis risk falling through unless parties can agree on drastic revisions.
WHY:
The market outlook
has changed beyond recognition, hitting asset valuations hard.
WHAT NEXT:
Producers interested in divesting from the North Sea will likely put sales on hold until the market outlook is less uncertain.
THE market outlook has changed beyond all recognition since the coronavirus (COVID-19) pandemic took hold. This has hit asset valuations hard,meaningthatmanymergerandacquisition (M&A) deals signed before the crisis will have to be drastically revised to avoid collapsing.
This is particularly the case in the compara- tively high-cost North Sea, where the collapse in oil prices has cast doubt on whether some invest- ment plans are feasible.
Total-Hitecvision
France’s Total agreed in July last year to sell a package of non-core UK North Sea assets to Norwegian private equity fund HitecVision and Omani oil group Petrogas for $635mn. The assets, which Total picked up from Maersk Oil in 2018, produced 23,000 barrels of oil equivalent per day (boepd) last year.
In a statement on May 20, Total revealed that Petrogas had dropped out of the deal, and that it had renegotiated financial terms with HitecVision.
“The agreed revisions respond to the current market conditions while retaining the major- ity of the value of the transaction,” Total’s CFO
Jean-Pierre Sbraire explained. “The structure of the consideration and phasing of payments has been modified, including interest-bearing ven- dorfinancingandearnoutarrangements.”
Vendor financing will involve Total lending funds to Hitec to complete the deal, which is anticipated in the third quarter of 2020. This type of financial arrangement often carries higher interest rates than securing funds from traditional lending institutions. Hitec’s sub- sidiary NEO has also secured a $2bn under- written facility from banks BNP Paribas, DNB and ING, to refinance its existing assets, cover decommissioning liabilities and fund new acquisitions.
HitecVision emerged as a major North Sea player in 2018 when it partnered with Italy’s Eni to form Var Energi to develop oil and gas off Norway. Var almost doubled its rate of pro- duction last year when it acquired ExxonMobil’s North Sea business for $4.5bn.
HitecVision had hoped to team up with Petrogas to establish a UK version of Var. The Total-operated assets being sold include its 100% interests in the Dumbarton, Balloch, Drumtochty and Lochranza fields and its stakes
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w w w . N E W S B A S E . c o m Week 21 28•May•2020