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Independent E&P journey ‘can be done again’

Ex-Tullow man thinks that doom and gloom about the global upstream business is overdone

“Are you asking me if a Tullow growth story could be done again in current environment? Yes, with no doubt whatsoever. And now is the best time.” So says Brian Larkin, CEO of five-year-old producer United Oil & Gas, who spent the previous five years with Tullow.

Given the short-term price collapse driven by the coronavirus pandemic and longer-term concerns about hydrocarbon demand in a low-carbon future, optimism about E&P has been in short supply of late. And the prospects that have traditionally attracted smaller E&P firms looking for growth—in more frontier or under-explored provinces—have had a particularly gloomy prognosis, with doubts that some discovered resources or promising plays will ever see extraction.

But Larkin, whose firm has assets and explorations licences in Egypt, the UK North Sea, Italy and Jamaica, is undaunted. “If you are a young, ambitious oil and gas company, there is so much opportunity,” he says. “Now is the best time to be in the sector if you are fully funded, well-structured and with serious growth appetite.  

“Now is the best time to be in the sector if you are fully funded, well-structured and with serious growth appetite” Larkin, United

“There will, undoubtedly, be consolidation. Companies will fall away, and I will be sorry to see that. But there is so much growth opportunity in the sector and capital is slowly coming back.

“From United's perspective, we are well-funded and we have opportunities. It may not make sense to do anything in the current oil price environment. But, then again, if an opportunity comes along that is too good to be true, we are well positioned to pursue it—in particular, the Greater Mediterranean area is of significant interest to us.”

Challenges

Larkin is realistic that there are also challenges, not least in the equity markets. “They are maybe the toughest they have ever been,” he says. “We raised capital at the back end of last year to complete the acquisition of the Rockhopper Egyptian business and it was the hardest equity raise that we have done. We had a fantastic deal, we had great assets, yet it was still quite challenging to raise capital.  

“There are numerous factors at play—sector sentiment, available capital in London, unsettled times globally. And that was the back end of last year, I cannot imagine how difficult it must be right now to raise capital. It must extremely stressful and challenging for anyone who does need to do it.

“But we have been in challenging markets before and we have always managed to raise capital. United was started in 2015 when the oil price was $28-30/bl and no-one wanted to invest in oil and gas. In fact, my own father thought it was insane to leave a well-paid job to start an oil company when everybody was leaving the sector!

“Thankfully, we are less reliant on the equity market now than we have been in the past, because we are a production-based business now. But, while it may be very tight right now, in my experience, good deals and good teams get finance. You might not like the price, but it gets done.”

Upstream recovery

Nor is Larkin alone in his optimism for the E&P sector. New research from energy technology consultancy Thunder Said Energy predicts a 2mn bl/d oil under-supply by 2022 which cannot be met by ramping shale back up. It expects this to bring $80/bl crude prices which, in turn, is “sufficient to unlock 20pc IRRs on the next generation of offshore projects, and thus excite another cycle of offshore exploration and development”.

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