* Pipelines, processing plants, terminals sought
* Pension funds interested in non-operating stakes
* Oil majors need to unbundle assets for quick sale
By Claire Milhench
LONDON, July 1 The ageing oil and gas network of
the UK North Sea is seeing a welcome rise in interest from
infrastructure specialists and pension funds, giving oil majors
a chance to offload unwanted assets and ultimately improve
recovery from mature fields.
Britain's North Sea infrastructure has developed in an ad
hoc fashion over the years, and still tends to be owned and
operated by the original producers.
Now, with their own output on the decline, oil and gas
majors are unwillingly turning into service providers for
smaller producers who need access to these pipelines and
platforms to get their output to shore.
But oil majors want to reduce their stakes in these non-core
assets to free up capital for use elsewhere. This provides an
opportunity for independent midstream owner-operators, pension
funds and infrastructure funds to step in.
To date, there have been just a handful of transactions in
the UK midstream sector - most recently June's sale by BG Group
of its majority stake in the CATS gas pipeline to
France's Antin Infrastructure Partners.
This follows the 2012 sale of the Teesside Gas Processing
Plant (TGPP) to North Sea Midstream Partners (NSMP), which is
backed by ArcLight Capital Partners, a private equity firm
focused on energy infrastructure.
Such transactions have been more common in the Norwegian and
Dutch sectors, but industry experts say there is no structural
reason why more deals cannot occur in the UK basin.
Andy Heppel, chief executive of NSMP, said the firm is keen
to grow by targeting acquisitions across the infrastructure
spectrum, including oil and gas pipelines, onshore
processing/stabilisation plants and terminals.
"We are also thinking about new gathering platforms we could
invest in on behalf of a number of smaller fields, which on
their own couldn't fund and invest in the required
infrastructure," he said.
Attracting midstream players to Britain's North Sea was one
of the tasks Sir Ian Wood set for the new industry regulator in
his strategic review of the offshore oil and gas sector.
Wood pointed out that existing hub owners typically view the
provision of processing and transportation services to third
parties as a low value activity. There is little incentive for
them to take on business which could ask risks to their own
operations and use up capacity in their facilities, he said.
By contrast, independent midstream specialists don't have
distractions or alternative uses for their capital or people. As
a result, they can focus on investing in the infrastructure and
enhancing the services provided, Heppel said.
"Consistent with the Wood Review, we believe we can
encourage the development of the substantial remaining reserves
in the UK basin in a quicker, more transparent and
customer-focused fashion, without the distraction of an upstream
position," he said.
"An open network can create massive value because ownership
of the network is no longer a blocker," agreed Philip Whittaker
at the Boston Consulting Group (BCG). "An oil company really
competes on reservoir drilling and geoscience. Midstream is
often an inconvenience."
NEED TO UNBUNDLE
Pension funds and infrastructure funds are also taking an
interest in non-operating stakes. Antin's purchase follows
investments by Dutch pension fund PGGM and Pension Danmark in
Dutch gas pipeline networks Nogat and NGT in 2013.
Infrastructure appeals to pension funds because of the
stable, inflation-linked returns. At the time of its purchase,
Pension Danmark said it expected to invest a further 1.21
billion euros in infrastructure over the next four years, the
majority of which would be in the energy sector.
However, if this ownership model is to gain traction,
sellers will have to unbundle infrastructure stakes from
reserves, allowing buyers to target the assets they want.
Talisman, Shell and Marathon all
have North Sea assets on the block, but buyers are getting
picky. In June, Marathon failed to sell its Brae facilities,
saying it had received no "acceptable offer".
"They didn't budge on the price as they are not a distressed
seller and they didn't desperately need the cash," said Sam
Wahab, an oil and gas analyst at Cantor Fitzgerald Europe. "We
believe they probably need to split the assets up and then sell
to various independent companies."
Traditionally, producers have packaged sale assets together,
so buyers wanting access to reserves might also have to take on
platforms, pipelines and a share in a processing terminal,
whether they want them or not.
And whilst there is likely to be plenty of interest in
pipeline stakes, the more dilapidated platforms in the North Sea
present bigger challenges. There is already a restricted pool of
buyers for these assets and industry experts say asking prices
must fall if oil majors expect to offload older rigs.
"The seller has to have realistic expectations about the
price that can be achieved," said Erin Moffat, an analyst in the
UK upstream research team at Wood Mackenzie.
Neil McCulloch, president of the North Sea business at
EnQuest, which specialises in extracting value from mature
assets, added that some ageing assets don't offer sufficient
value for a buyer.
"There has to be a sensible attitude by the seller as to
what they expect ... they have to be realistic about the
depreciation. If they've enjoyed all the proceeds from the
original reserves why would people take all the liability for
getting rid of the infrastructure?"
(Reporting by Claire Milhench, editing by David Evans)