As rumours of Aberdeen’s NEO Energy going up for sale circulate, analysts say “there’s definite potential there but this does come with risk”.
There has been speculation that Norwegian private equity firm HitecVision is looking into its options for the north-east business with a potential sale being on the cards.
There is potential for a UK player to pick up the Aberdeen-headquartered firm, senior analyst for Wood Mac James Reid explained.
If a domestic firm did decide to pick up NEO Energy, it could “utilise the investment allowances under the Energy Profits Levy so we feel it could probably benefit a UK taxpayer.”
However, he did add that a deal to takeover NEO Energy will need to be undertaken by a firm with “deep pockets.”
NEO Energy’s previous M&A success
NEO Energy formed in 2019 and has seen “rapid growth” since opening its doors, Mr Reid added.
After a series of acquisitions and a year of high oil and gas prices, NEO’s profits more than doubled during 2022, while revenues skyrocketed.
The firm formed through the “acquisition of a package of assets from Total[Energies] for about $600 million,” Mr Reid said.
He added: “In 2021 we saw a real ramp up in their M&A [Mergers and acquisitions] activity, they acquired a package of assets from Exon, they acquired Zennor Petroleum and they acquired JX Nippon’s UK upstream assets.”
These deals add up to around “$3.2 billion worth of spend in 2021” the senior analyst commented. This has resulted in a “fairly stable production profile,” through to 2030 Mr Reid explained.
Cost risk presented by NEO’s assets
NEO Energy’s portfolio is made up of a balance of oil and gas may be seen as a good thing by potential buyers, however, the maturity of its projects could prove to be a deterrent.
James Reid said: “There’s a fairly even split between oil and gas in oil weighting but on the downside, a lot of NEO’s future production is tied up in these economically viable or justified for development, i.e. pre-production assets.”
This presents “risk” as these projects will need to be sanctioned before going ahead and for the firm to realise any value from these projects.
“There is an awful lot of CAPEX associated with the NEO portfolio,” Mr Reid added. This will present production growth for the firm, however, it will result in extra costs for any potential buyer.
NEO Energy has submitted environmental documents to the UK Government for the redevelopment of the Buchan field, 93 miles off Aberdeen.
This redevelopment of a former Repsol Sinopec field in the Moray Firth, Buchan has an estimated 162m barrels of oil equivalent (gross 2C).
NEO Energy acquired the Western Isles FPSO on behalf of the Buchan joint venture, which includes Serica Energy and Jersey Oil and Gas (JOG), in November last year.
It is currently operating on the UK Western Isles fields and will come-off station in the second half of 2024.
According to documents submitted to OPRED, NEO will commission modification work to enable the vessel to be electrification-ready from 2030.
NEO reduces risk by partnering with experienced players
Of NEO’s currently operating assets, few are operated by the firm. This removes a degree of control from the firm, but it reduces risk as well.
“The non-op really dominates the UK portfolio,” Mr Reid said, “however, a lot of these assets are operated by the major companies in the basin, the likes of TotalEnergies, Harbour, and Equinor.
“Although there’s not potentially a huge level of control in a non-op position, it does give degree of de-risking in the fact that these assets are high quality and high value assets, the likes of Penguins and Mariner, but they’re operated by really experienced companies that know the basin well and know these assets well. That is a definite upside for the portfolio.”
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