Not just the where and the who, but even how the sector operates is radically different from what it was ten years ago. Reserves in established fields like the North Sea are depleting, and new and nimble operators are entering the industry and looking for niche plays.
At the same time, a ‘lower for longer’ oil price is burdening many of the majors with higher levels of debt at the very moment when they need cash to find and exploit new and more challenging reserves, so it’s no surprise that asset disposal is high on the agenda.
Put all these factors together, and significant opportunities are opening up, especially in an area of the sector that’s attracted relatively little attention from external investors: the Midstream.
"It’s no surprise that asset disposal is high on the agenda and there are some very significant opportunities opening up."
• The core business of an IOC is upstream production that exposes them to oil prices
• Midstream IRRs are often insufficient to meet cost of capital requirements
• IOCs possess attractive stable, large scale, high quality midstream assets that can command high transaction values
• As the oil price decreased, IOCs used debt to make up shortfalls in capital spending and dividends
• Divestments are a key way in which to reduce debt and rebalance companies’ portfolios to high value projects
• Shell has the further need to meet the capital requirements for the acquisition of BG