News

11 May 2020

Siccar Point future shines a light on changing North Sea private equity strategies

11 May 2020

News article from Merger Markets

• Development spend, further acquisitions, to build portfolio value - CEO
• Hedging mitigates low oil price impact through 2021 - CEO
• RBL and bond look risky in prolonged low-price environment – bankers

"After a pulled sale attempt earlier this year, Siccar Point Energy is moving ahead with developing its portfolio and seeking new opportunities amid a historic oil market and coronavirus disruption, CEO Jonathan Roger told Mergermarket.


“The sale process was opportunistic, initiated following inbound interest, and there is no pressure for Siccar Point to be sold in the near term – we are financially well positioned to continue executing our plans,” Roger said.


The North Sea focused oil and gas company is in a strong position to move forward and create additional value, with a focus on bringing the Siccar Point-operated Cambo field to a final-investment decision (FID) in 2H21 along with field partner Shell [LON:RDSA], he said.


Siccar will also be looking at the downturn as an opportunity to build the business through acquisitions in high quality, producing assets or portfolios, he said.
“With the suspension of the corporate process our focus is fully on delivering the significant potential in our business,” Roger said.


The Aberdeen-headquartered company, which counts Blackstone and Blue Water Energy as its backers, will likely be held for longer and explore further investment before its sponsors try an exit again, bankers and advisers tracking the company told Mergermarket.


Its future is seen by market observers as a bellwether for sponsor-backed companies that will have to navigate an oil market faced with unprecedented low prices.


Oil and gas businesses are evolving in both deal structures and how generally to adapt their strategies to an ever more complex world, a sector consultant said.


The UK North Sea has seen a transition from ownership by the oil majors to new independent players, however, the basin also became an increasingly challenged place to operate due to ESG concerns and late-life costs. In the past, such a business as Siccar would be put up for sale and more than likely change hands, but this has become ever more complicated, the consultant said.


The unprecedented oil price crash has caused stress in the sector, particularly for those with debt facilities such as Siccar Point, two sector bankers following the company said.


The change in the oil market, and failure to reach valuation consensus with bidders before the downturn, leaves Siccar Point in a precarious position, the bankers said, noting that the company has bondholders and a reserves-based lending (RBL) facility that could be impacted by reduced revenue.

Although it is not in any short-term balance sheet trouble, two further bankers said, the company could see problems arise should the oil price remain at historic lows of around USD 30/bbl well into next year.


“This is just complete nonsense and is likely being driven by ill-informed or disgruntled advisors who were unsuccessful in our corporate process,” Roger said.


Siccar Point is in full compliance with all of its debt covenants, he said, has significant liquidity and generates positive cash flow after debt service even in today’s environment.


Its overall average field operating cost of production is around USD 15/boe, he said, adding that the business “is financially well positioned – there is no need to refinance our RBL, and our bonds do not mature until 2023.”


The company has an 11 bank, USD 800m, RBL facility, and a USD 200m listed bond on the Nordic Alternative Bond Market.


Siccar saw average daily production in 2019 of 9,931 boepd, from its interests in the Jade, Schiehallion and Mariner fields, with group profit for the year at USD 40m. It reported 2P reserves of 190mmboe and 2C contingent resources of 385mmboe.


“Our business is fully hedged in 2020 at over USD 67/bbl and materially hedged in 2021 at just under USD 63/bbl and we are in complete control of our future investment plans,” Roger said.


The company had cash at the end of 2019 of USD 276m and undrawn, available RBL capacity of USD 182m, according to its report. The bond, which had a USD 100m issuance in 2018 and another USD 100m issuance in 2019, last saw trading on 30 April at 74% of initial value.


“Siccar Point is a well-capitalised, free cash flow positive business with a portfolio of leading, long-life and low-cost UK North Sea fields operated by world class oil majors,” Roger said.


Developing the story, building the portfolio


Contrary to reporting at the time, Siccar remained in serious discussions with several parties right up until its decision to suspend the process in March, given the unprecedented disruption to the market environment driven by the coronavirus impact, Roger said.


The auction, advised by Rothschild and Lambert Energy Advisory, reportedly garnered bids from EIG Partners-backed Chrysaor, RockRose Energy [LON:RRE], and Equinor [NO:EQNR]. Chrysaor’s bid at USD 1.6bn, the highest on the table, fell short of the USD 3bn asking price, according to press reports in early February.


Siccar’s sponsors are experienced energy investors and strong, supportive shareholders both strongly committed to the company’s future growth, Roger said.


The advantage of Siccar Point’s portfolio is that it can pick the optimum time to monetise, whether on a corporate or asset basis, Roger said. That was one of the key attractions of these assets with the flexibility and optionality they provide, he added.


Siccar Point was founded in 2014, but its sponsors did not deploy significant equity into the business until the acquisition of OMV’s [VIE:OMV] UK business in January 2017, he said, which means that the sponsors are only three-and-a-half years into a holding period that for the sector can typically stretch to five-to-seven years.


The company’s future exploration focus will be centred on Cambo and further building up the area reserves through future drilling and tie backs to the Cambo infrastructure, he said. “There are no plans to drill this year or next year with the current focus on the Cambo development itself, but the exploration upside is very material,” he said.


The Cambo field was due to reach FID this year, however, Siccar and Shell decided to defer this to next year due to coronavirus disruption.


“Siccar Point and Shell jointly decided to defer this project until the market stabilises but remain highly committed to bringing it through development, and as operator of the development Siccar Point has significant influence over that development timing,” Roger said.


“Cambo is a very attractive project with all in life of field costs of under USD 30/bbl, including capex, opex and abandonment,” he said.


Siccar does plan to bring other investors into Cambo, Roger said, however, optimum value would be around FID. “The project received a lot of positive interest during the sale process,” he added.


Cambo and Siccar’s interests in the Equinor-operated Rosebank field are the company’s priority, Roger said, but interesting work is also being performed on the Suilven/Tornado area, where initial work has been completed to determine whether it could be commercial, and now it is being studied in terms of development concepts.

Blackstone redirected requests for comment to Siccar Point. Blue Water did not respond to requests for comment."


By Patrick Harris and Min Ho

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