A SIGNIFICANT shift in the credit and equity markets is increasingly becoming an issue affecting certain elements of the Norwegian oil and gas markets.
Where 12 months ago it was relatively easy to go into the equity market and raise capital, the market has now more or less shut for the least-qualified and smaller companies.
The soaring oil price is fuelling a glut of merger and acquisition activity among oil and gas service companies desperate to cash in on the high price of crude.
High-profile examples of private-equity deals in the sector include 3i’s funding of Delta Hydrocarbons and Venture Production, however, many financial sponsors do not find the sector appealing for investment.
In particular, the exploration and production segment is capital intensive and sensitive to oil price volatility. Although the service industry is less cyclical, it has been experiencing rising costs because of staff shortages, poor project management and limited resources.
Within a year, there have been considerable changes in the Norwegian government as two oil and energy ministers have gone, a cause for concern when the country’s oil fund, valued at more than £200billion, continues to be boosted by high oil prices.
Political questions continue regarding opening up new areas which will lead to increased seismic activity, albeit closely linked with environmental issues, however, we do not believe that the new appointment of Terje Riis-Johansen will change the country’s energy policy in any significant manner.
Private equity and 3i in particular, will continue to play a key role as the oil and gas industry faces new challenges and opportunities.
Hans Middelthon is a director with the oil, gas and power team at private-equity firm 3i
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