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Oil and gas independents living on borrowed time net zero drive

Oil and gas independents living on borrowed time net zero drive


Consolidation among independent oil and gas companies will accelerate amid the transition to a lower carbon energy system, which is likely to result in many going out of business, experts have warned.

Wood Mackenzie said the ranks of sector players are likely to be thinned out dramatically as the expected changes in energy markets leave firms facing huge strategic challenges.

“A world on a two-degree glidepath does not need thousands of Independents chasing volume,” said Luke Parker, a vice president at the Edinburgh-based energy consultancy.

Mr Parker’s comment highlights the implications of efforts to ensure that the rise in global temperatures is kept below two degrees, in order to minimise the adverse effects of climate change.

With demand for oil and gas set to decline, companies that decide to stay in the exploration and production business will have to focus on the most attractive assets in order to have any hope of retaining investor support. This will include fields that can remain profitable at low oil prices.

Some are likely to shift investment into renewable energy and carbon capture, storage and usage.

Consolidation could provide a way for firms to acquire the scale required to help them prosper amid challenging conditions or to move into new fields.

“We may come to look back on the last few months as the beginning of the consolidation that will define the oil and gas sector over the coming decade and beyond,” said Mr Parker.

The implications of Wood Mackenzie’s analysis are sobering for independents operating in the North Sea.

The plunge in oil and gas prices triggered by the coronavirus crisis has posed big challenges for firms in the area.

North Sea heavyweight Premier Oil recently agreed to merge with Chrysaor, whose shareholders are set to own the bulk of the enlarged business.

Private-equity backed Chrysaor acquired big North Sea portfolios from majors during the last downturn.

Wood Mackenzie said yesterday that private equity investors could buy listed oil and gas firms that might otherwise struggle to secure new funding.

It said independents that did not, or could not, adjust would face wind-down in the longer term. Mr Parker said mergers may prolong the inevitable for some but most would not make it to 2050.

Read the latest issue of the OGV Energy magazine HERE.

Published: 18-11-2020

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