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Chrysaor ups Central North Sea game

ConocoPhillips deal expands the private equity-backed producer’s position in the UKCS engine room

North Sea independent Chrysaor has splashed out almost $2.7bn to buy the UK continental shelf (UKCS) assets of US producer ConocoPhillips, vaulting its projected 2019 output to over 185,000bl/d. But it is the change in its position in the Central North Sea (CNS) that offers the best clues to its potential next steps.

Chrysaor identifies three "material assets" within the portfolio it has bought-operated interests in the J-Block and Britannia areas in the CNS and a sliver of the BP-operated Clair field in the West of Shetland (WoS). The remaining assets are broken down into East Irish Sea and "other producing assets".

"In the CNS, we will own a range of operated hub infrastructure providing access points in an area with the largest undeveloped contingent and prospective oil and gas resource base in the UK. In the WoS region, we have secured long life cashflows from two world‐class fields operated by BP," says the firm's CEO Phil Kirk.

Kirk told Petroleum Economist last December that the strategy was about "fundamentally, more focus". It is clear how the latest acquisition largely builds on that blueprint.

Expanding footprint

The J-Block deal in particular almost doubles Chrysaor's stakes in the Jasmine, Joanne and Judy fields to 67pc and in Jade to 63pc. Similarly, its March 2018 deal with Spirit Energy, a joint venture between UK utility Centrica and German midstream firm Bayerngas, built on a stake in the Armada complex that it had acquired in an asset deal with Shell in November 2017, giving it 100pc control of the asset.

This strategy of consolidating its CNS position, while also amassing, as yet non-operated, stakes in the WoS, could be extended, assuming its private equity (PE) backer, Harbour Energy, an oil and gas acquisition fund raised by EIG Global Energy Partners, has the patience.

Kirk said in December that Chrysaor was "backed by permanent capital - which means we have the same time lines or longer than most companies", which echoed entirely the words of EIG CEO Blair Thomas when it bought into the firm in January 2017.

Certainly, with more than a dozen UK and Norwegian producers funded by PE funds that may end up jostling for the exit on similar timeframes, Chrysaor's non-organic production growth, projected to be up by just 4.3pc in 2019 over the previous year, is unlikely to set it apart from its peers.

More acquisitions and a longer-term approach-and the firm's view on some southern North Sea assets, mainly gas fields that used to feed the now shuttered Theddlethorpe terminal, that come in the ConocoPhillips deal that it "values decommissioning competency as a long‐term commercial opportunity and enabler in the UK", furthers the impression that it is genuinely in for the long haul-appears to be a more sensible strategy.

Opportunities for increasing its footprint in its core areas are not hard to find. In July last year, brokerage Stifel scored the CNS 1320, or unconsolidated, on the Herfindahl Hirschman Index (HHI) for consolidation. And a number of CNS players are looking to sell, although the key question is how prepared they are to sell just what Chrysaor might want, or how prepared the firm is to take non-core assets along with its targets.

Sell off

Chevron is in the market to sell its North Sea portfolio, and Chrysaor has been linked as a potential buyer. It is the operator and 50pc owner of the CNS Erskine field, where Chrysaor already has 32pc, and of Alba, also in the CNS. And while its 85pc-operated Captain field is technically in the Outer Moray Firth, it is not far from the CNS.

Chevron also has non-operated stakes in Britannia (32.3pc), where it is a co-venturer, and its satellites, where it holds the remainder not now owned by Chrysaor in Brodgar and Callanish, and in Alder, where it is operator and Chrysaor co-venturer, and Enochdhu, where the roles are reversed. It also has an almost 20pc stake in Jade.

It further holds a 3.9pc interest in the Elgin, Franklin and West Franklin fields in the Elgin-Franklin complex, where Chrysaor has a 14.1pc stake from its Shell deal. Elgin-Franklin is also in Chrysaor's CNS sweet spot-its oil goes through the Forties system like its existing Armada, Everest-Lomond, J-Block and Britannia holdings, albeit its gas goes into the Bacton terminal, whereas Britannia is a St Fergus field and the three others beach at Teesside.

So, there is little logic against Chrysaor throwing its hat into the ring for Chevron's assets too, assuming its investor has the appetite to pay and it has the capacity to integrate another purchase.

Potential increased exposure to Elgin-Franklin offers another intriguing prospect. Its operator Total is also widely reported as looking to divest North Sea holdings. Its holding of over 46pc in Elgin-Franklin, combined with Chevron's stake and Chrysaor's existing holding would come close to 65pc and have operatorship. The French major also has attractive operatorship of the Laggan-Tormore, Edradour and Glenlivet fields in the WoS.

But it also has assets much less obviously core to Chrysaor's strategy, including the Alwyn Area, the Gryphon fields (although these are tied back to Beryl, where Chrysaor does have a holding), and the GPIII FPSO in the Northern North Sea (NNS).

Chrysaor is clearly not wedded to CNS and WoS only, as its willingness to take on ConocoPhillips assets elsewhere shows. But some of Total's apparently unwanted assets came from its August 2017 purchase of Denmark's Maersk. Would Chrysaor be prepared to swallow all of Total's UKCS position and inherit some assets its current owner never really wanted in the first place? But, equally, would Total have the stomach to sell Chrysaor the stakes that fit and try to find another buyer for fields that do not?

Clearly, flexibility from potential sellers and from Chrysaor as a buyer will be key to any further M&A. The asset purchase from Spirit was ideal in that it was focused on assets in an existing portfolio that clearly fitted the Chrysaor portfolio, and the seller was prepared to offload without bundling them into an overall exit or package also containing non-core fields.

The Shell deal looks, in retrospect, rather more scattergun. The Buzzard, Elgin-Franklin, Erskine, Everest-Lomond, Armada and J-Block CNS stakes are coherent, the NNS Beryl and Bressay holdings rather less so. Picking up Shell's operatorships of the CNS Shearwater complex and the Nelson/Howe/Bardolino fields would seem to have been more logical. Again, though, it may have come down to what the seller was prepared to sell.

Chrysaor could ask that question of BP too, another major in divestment mode. While it is unlikely to part with its WoS assets, where it made multi-billion dollar investments in recent years, or perhaps its 32pc non-operated stake in the recently sanctioned CNS Culzean gas field, its operated Etap, Andrew Area and Vorlich holdings and its non-operated 28pc share in Shearwater all look like they could be made to work with the Chrysaor portfolio.

Chrysaor also might have options from less patient PE owners looking to exit. The Blackstone and Blue Water Energy-backed Siccar Point Energy has a very WoS-heavy asset base in the Schiehallion, Corona Ridge, Northern Gas and Rockall Basin areas, as well as a small 5.6pc share in the CNS Jade field, with only its NNS Mariner Area holdings a less obvious fit.

And Hurricane Energy, AIM-listed but with PE firm Kerogen as its largest investor, is entirely WoS focused. If Chrysaor wants to get out EIG's cheque book again and add more CNS and WoS assets, albeit at the risk of picking up some non-core assets along the way, it is definitely not short of options.

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