Siccar Point banks on quality
The North Sea new entrant is relying on its assets base
Siccar Point Energy entered the UK North Sea as recently as 2016 with the acquisition of a stake in the Mariner field from Japan's JX Nippon. It substantially expanded its portfolio later that year with a deal to buy Austrian OMV's North Sea business, giving it, amongst other assets, stakes in the Schiehallion and Rosebank fields and several west of Shetland discoveries.
Siccar Point, backed by private equity (PE) firms Blackstone and Blue Water Energy (BWE), has also worked on fine-tuning its holdings—selling its stake in the Jackdaw discovery to the Netherlands' Dyas, farming out a stake in its Lyon prospect to UK chemicals firm Ineos and selling a portion of its interest in the Cambo discovery and Blackrock prospect to Shell. The firm's CEO Jonathan Roger talked recently to Petroleum Economist's editor-in-chief Peter Ramsay.
PR: Would you agree that PE investment should be seen in a positive light within the industry?
JR: Absolutely. Precisely at the time of most need in the 2015-17 downturn, the influx of PE investment was hugely important. Assets moved into the hands of companies that were looking to invest in them with new ideas and ways of working. The Cambo field is a great example of that—where after years of stagnation and partner misalignment Siccar Point has successfully appraised the field and unlocked a major new development, as well as bringing in Shell as a non-operated partner, clearly demonstrating the quality and scale of the opportunity. We will also be one of the most active explorers in 2019 when we will be drilling the material west of Shetland Lyon and Blackrock prospects. Hence, in addition to the significant initial acquisitions, we have been actively investing follow-on capital in our own operations, as well, of course, as the Schiehallion redevelopment and Mariner and Rosebank developments.
PR: What is the "value add" strategy for Siccar Point—in particular around optimising recovery in existing assets, undeveloped resources, exploration prospects?
JR: Our focus is on material opportunities that have real reserves growth potential. Our approach to unlocking that value is pretty simple. We have a small core experienced team across the technical disciplines with a 'can do' culture developed from our previous experience in unlocking stranded assets, which had often lain undeveloped for decades. If you take a different mind-set and work with the supply chain at the earliest stages of an idea or opportunity you can find ways of doing things that conventional approaches just do not deliver.
PR: Siccar Point has a tight geographic focus on the West of Shetland and Greater Mariner Area and the trend seems to be for more concentrated spheres of activity than in previous cycles (e.g. only Neptune and Chrysaor straddle the UK/Norway boundary). Are there benefits to having a tighter focus?
JR: We are focused on quality, long-life, low-cost assets and have explicitly targeted the areas in the UK that we see as material in the long term. The west of Shetland region in particular is recognised by many as the UK's last key growth region and Wood Mackenzie is predicting over 50pc of UK production to come from this region within the next decade. Our geographical focus on these areas and the growth nature of our quality assets is what makes our business highly differentiated. Quality is what is therefore driving our focus areas and, with assets that will produce out to the 2040s and '50s and over 400mn bl of oil equivalent (oe) of discovered resources, we do not need to dilute that focus to seek further growth.
PR: Given Siccar Point has secured stakes in four of the largest UK assets by remaining reserves, what does that say about the accessibility of the most productive and prospective acreage on the UKCS?
JR: It is extremely tough, and our start-up timing and financial firepower were critical. We were able to get our hands on a fabulous portfolio of growth assets at a time when companies were having to make very difficult decisions—in particular reducing capital outlays on 'in-flight' projects during the oil price downturn. We had an experienced team and a material equity line with blue chip investors in place and hence were able to move decisively to secure assets that would typically never have been for sale. I don't think it would be possible to replicate building the type of portfolio we have now given the scarcity of these quality assets in the UK.
PR: You have been involved with PE ownership previously with 3i as a stakeholder in Venture. What are the advantages and challenges of a PE investor?
JR: Our PE investors, Blackstone and BWE, bring strength to the board in terms of strategic advice, networks, access to resources, and credibility, on top of patient and substantial financial firepower. In considering how to finance Siccar Point, it was these factors that I saw as key in funding the business with the right PE investors, who also needed to have significant energy investment experience. PE ownership also allows us to take a longer-term view on how we create value through organic portfolio investments without the public market quarterly or annual pressures that typically exist. I believe that drives better decision making and ultimately a higher quality portfolio. Alignment at the board level on the business strategy and plans is critical, even more so where there are multiple PE investors, as we move forward as a unit. Having that alignment in Siccar Point is something that has been crucial in our success so far.
PR: As a previous seller into the "utility move upstream" trend which seems to have stalled and reversed, are there any concerns over lack of prospective buyers when the latest wave of PE investments look to exit?
JR: Not from a Siccar Point perspective. We believe that our business is uniquely positioned in terms of the quality of our assets, growth potential and geographic focus to be highly appealing to numerous potential buyers in the future. With regard to the other PE-backed businesses you really need to look at them individually to determine how appealing they are likely to be to future potential investors, as they are all very different businesses.
PR: Does Siccar Point have any views on the likely exit strategy for its PE investors?
JR: The focus of my team is to continue to build a great business, as this is what will ultimately deliver a successful exit for our investors. Both our investors are fully behind our future plans and we are under no time pressure regarding an exit—indeed we have access to more equity should we see the right opportunity to build our portfolio further. We believe our business would appeal in the future to both private and public investors given the uniqueness of our portfolio in terms of asset quality and growth potential, so we have a number of routes open to us at the right time.