It’s that time of year when people look back over the past 12 months, then get the crystal ball out to guess what might happen in the year ahead.
For good reason, though, I want to start a little further back. At the beginning of 2022 Covid restrictions were on their way out and the M&A market in upstream oil & gas was red hot – good times to be an energy M&A lawyer in Aberdeen.
We had investors with funds available to invest in the right assets, independents eager to grow their portfolios and at the same time large corporates looking to divest. The biggest challenges were Final Investment Decisions (FIDs), and keeping in line with Paris Agreement commitments, but the outlook was optimistic.
There were, at the time, quiet murmurings of a UK windfall tax on energy profits, but this was maybe not seen as high risk. And then war broke out in Ukraine. The energy trilemma – sustainability, security of supply, cost – was turned on its head.
In May 2022, the energy profits levy followed and this immediately would wreak havoc on companies’ investment plans, financial models and restrict access to cash. This was raised again in November (not long after the infamous Truss/Kwarteng Mini-Budget and record UK inflation). And so, we entered 2023 considerably more subdued, with an acute case of fiscal and political instability.
Maybe things would calm down…
As we know, the war in Ukraine continued, and the later part of 2023 saw the armed conflict between Israel and Hamas.
To select just a few of the other notable things that occurred this past year: BP scaled back its emissions targets and later saw CEO Looney leave; the Department for Energy Security and Net Zero (DESNZ) was created, recently announcing a second HQ in Aberdeen; Nicola Sturgeon resigned as First Minister in Scotland; King Charles was crowned; there was a coup in Niger; wildfires in Maui; the EPL price floor was introduced; Acorn CCS was approved; offshore wind cooled as the CfD auction flopped; the UK Government gave Rosebank – the biggest undeveloped oil field in the North Sea -– the green light; the Labour Party visited Aberdeen to reassure the industry of its place in the party’s ‘energy mission’; Petroineos said it would end refining operations at Grangemouth; COP28 took place in Dubai with the CEO of Adnoc presiding. And of course, perhaps most bizarrely of all, Barbenheimer (the simultaneous release of Barbie and Oppenheimer) saved cinema.
Individually, all of these things have implications for the energy sector (apart, perhaps, from Barbie) but where do you start as an energy lawyer in Aberdeen looking ahead? Perhaps the lesson of such an unpredictable year is that you have to deal with what is in front of you right now.
For what it’s worth, I think conditions are such that I expect to see an increase in M&A activity, both upstream and in the services sector. On the upstream side, farm ins to bring new partners into fields to share the capex burden and IOC’s continuing to divest and diversify into new energies. Such deals won’t come without their challenges. We’ve already seen an uptick in services sector deal flow at the end of 2023, with a number of large sale mandates in the market. The industry needs the services sector to do the work, and there’s a number of high calibre companies considering a sale process – the biggest challenge for them being where to find buyers and investors, particularly for those where revenues are primarily from traditional hydrocarbon activities.
I believe that there is a lot to play for in the Aberdeen market. There is still significant underinvestment but we are beginning to see that change and the market begin to heat up once more.
It will be another rollercoaster of a year, undoubtedly, but if we can survive 2023, then we can survive just about anything. Watch this space…
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