Blackstone likes Siccar Point story
The global giant came to London almost five years ago and is enjoying the journey so far
Blackstone Energy Partners, a subsidiary of the global investment firm, entered the North Sea in 2014 with an investment in Siccar Point Energy alongside fellow private equity (PE) investor Blue Water Energy (BWE). It followed up in January this year by again partnering with BWE in Mime Petroleum, with a focus on the Norwegian continental shelf (NCS).
The firm's senior managing director Mustafa Siddiqui, who transferred from Blackstone's New York office to London in 2014, spoke recently to Petroleum Economist's editor-in-chief Peter Ramsay. Edited highlights follow.
PR: Would you agree that PE investment should be seen in a positive light for the industry?
MS: I would, and I would say that the reception has generally been positive. We have come in looking to unlock high-quality, low-cost resources that have been overlooked or under-invested and bring to bear our capital and human resource to create value for everyone. Siccar Point is a case in point; we have built a portfolio of world-class assets. If you take Cambo, which had not previously attracted investment relative to its full potential—it is now a major new addition to the UK continental shelf (UKCS) landscape.
PR: What has brought PE in general, and Blackstone specifically, into North Sea E&P? Will the trend slow or even halt in the current sustained higher oil price environment?
MS: When we entered the UKCS in 2014, we took a view that this was a basin that still had attractive assets. With some of the historically active players exiting or reducing their portfolios, intuitively that suggested to us that there was an opportunity, and indeed we found opportunities. We were able to acquire a set of assets which we feel good about and to create a new, full-cycle UK independent in Siccar Point.
I think opportunities remain. A number of players, either as new entrants or existing firms making M&A moves, have been active over the last year. What we are seeing is a rejuvenation of the basin, in which private equity-backed companies are participating alongside the majors and other independents.
PR: Many of the PE-backed firms have a specific geography or technology USP. Does Blackstone see value in a tight focus?
MS: If you look at Siccar Point, concentrated in the west of Shetland area, there is a very real excitement and real strategic value. There is a different tone around the west of Shetland compared to the UKCS in general—it's a dynamic province with a lot of development and growth opportunities.
You need a differentiated view to create value and deliver a return for investors as a new player. You are not going to create value by doing the same thing over and over again. The easier opportunities soon get exhausted.
For our Siccar Point investment, the west of Shetland was a real focus area. We identified and targeted that sector of the UKCS and were fortunate to assemble a very high-quality portfolio with some of the largest remaining oil fields in the UK. But we were also able to put together a team with great credentials, capable of achieving operational and technical firsts within the North Sea environment. That operational excellence was important, because in a basin that has been producing as long as the UKCS has, there isn't much low hanging fruit left.
PR: A number of the PE actors have stakes in more than one company, most often one on the UKCS and one on the NCS. What are the advantages of this portfolio diversification approach compared to the one vehicle across geographies approach that was more common among PE investors in the 2000s?
MS: We like to back management teams that are "best in class", be it in a basin, a technology or a particular competency, and ask them to do what they are great at. If they know the UKCS inside and out, then it makes sense for them to focus on that. The same goes for the NCS. By focusing on specific themes, it helps to keep management focused and it also gives the company a real equity story, certainly more so than if it is seen as a jack of all trades or just an aggregator of assets without a coherent strategy or focus.
While there are differences between the UKCS and NCS, the overall ambitions around Mime are similar to Siccar Point—to build a full-cycle E&P company, concentrated in production and development with some potential growth from exploration.
PR: What are options and timescales for exit for PE generally and Blackstone in particular?
MS: We are flexible on timescales. While a typical investment might be around five years, we are comfortable investing for longer if that is what is needed. If you look at Kosmos, where we built one of the few genuine mid-cap independents, we have held that investment for more than a decade. We typically look at exiting when we have done what we set out to do. When we make an investment, there is an investment thesis around what we aim to do to create value over, say, a five-year period, usually involving de-risking the portfolio and moving development opportunities into the production phase. And, after that, we look to put the business into the hands of a new owner, either via an IPO or a sale to a strategic buyer. That process drives the timing—as we reach the milestones and the valuation of the business rises in line with that progress, we reach a point where we have accomplished what we want to do, even though there is often still more to do which we can leave to the new buyer.
PR: Is there a risk of a lack of potential buyers—given the retreat of European utilities from the upstream, the majors' gradual withdrawal and the US independents focused on shale—if a sale was the preferred exit option?
MS: Talking to the industry generally, there seems to be a consensus view—which is nice to hear—that Siccar Point, of all the PE investments that have been made in the sector, is the premier growth vehicle of scale. It has a high-quality portfolio in a key growth area on the UKCS. Siccar Point's story is very different compared to players that have more mature assets which are managing declining production. If we were looking at an IPO route, it has a great organic growth story for the public markets. On the other hand, we feel pretty confident that, in terms of a strategic buyer, Siccar Point would be a great fit for anyone looking to enter or expand in the basin or to rejuvenate an existing portfolio where production is in decline.