Petrogas banks on Dutch experience
The Omani firm hopes to bring learnings from its Netherlands’ acquisition to bear on its entry into the UKCS
Privately-held Omani oil producer Petrogas teamed up in July with Neo E&P, a vehicle of Norwegian private equity (PE) firm Hitec Vision, to buy a swathe of assets on the UK continental shelf (UKCS) from Total for $635mn. The stakes in 10 fields, seven with operatorships, had previously belonged to Denmark's Maersk and were acquired by Total in 2018.
Petrogas' CEO Usama al Barwani spoke to Petroleum Economist about how the firm was aiming to leverage its experience in the Dutch sector of the North Sea to grow its new UKCS business.
There have been relatively few recent international new entrants into the North Sea, with players preferring US shale or frontier deepwater. Why is Petrogas bucking this trend?
Petrogas has been operating in the Netherlands' North Sea for about five years, and before that for 20 years in the Middle East. In this recent deal, we saw an opportunity to naturally extend our operating capabilities. I do not doubt there are great opportunities in shale or frontier deepwater—but they are not necessarily where our capabilities and operating expertise can add a lot of value.
The assets you bought are the parts of a Maersk portfolio that its buyer Total did not want. What makes these mature assets attractive?
Petrogas has always acquired mature assets. The most value we created during the last 25 years was in mature assets we bought from firms including Elf, Jepex, Chevron and Total. It is not that Total does not see value in these projects, it is just that the upside does not meet their cut-off thresholds.
The North Sea assets are not the ones that prompted Total's purchase of Maersk and were nowhere near being its key global products. But, as we have shown from what we achieved with Chevron's assets in the Netherlands, we can achieve lower overheads, lower costs, and get returns at volumes that make sense for us—but would not necessarily make sense to Total.
Is Petrogas interested in further acquisitions?
We are looking at acquisitions. We see an opportunity in the North Sea as a whole and the Middle East—but our focus is on the Central North Sea. This is a strategy that will play out over the next three to five years.
Is Petrogas also hoping to grow via the drill bit? Is your focus on exploration and development of smaller acquisitions close to existing assets, or is there also appetite for wildcat drilling?
Petrogas will definitely be focused on exploration. We have certainly done a lot better in what I would call near-field exploration appraisal—we have a deep understanding of the process and have built a strong team.
We have tried wildcat exploration, and have had exploration licences in India, Mozambique and Tunisia. The company has spent something like $200mn on wildcat exploration, but it is not our focus.
As a new entrant to the North Sea, what is your view on decommissioning liabilities?
During our work in the Netherlands over the past five years, Petrogas has built a great team that can accurately value decommissioning liabilities. The company looks very carefully at the liabilities that we take over and only close acquisitions when we are comfortable.
Petrogas has been relatively successful in the Netherlands in ensuring decommissioning costs are lower than originally planned or expected. For instance, we took down a Dutch platform last year at a much lower cost than was initially envisioned.
You teamed up with a PE-backed vehicle, which is also working on the NCS with Eni. What are the advantages of this model?
Petrogas and our PE partner each have our own strengths. Our operational capability is a great complement to their financial muscle, and this enables both of us to do much more than we could on our own. Hitec Vision has done some very successful transactions in Norway— we are definitely looking at the Vår Energi model.
Is there scope to add the portfolio of Verus Petroleum, a UKCS firm also backed by Hitec Vision, into the Petrogas Neo joint venture?
Perhaps. It is a little bit early to say, but who knows? We will continue to assess bolt-on opportunities that make sense value-wise, which will help to contribute to a strong central position.