EXTENDED EDITION
North Sea new wave player Verus makes debut
Bridge Energy has been re-engineered and its UK business has emerged as Verus Petroleum. The principal investor in the new company is Norwegian private equity firm HitecVision.
Led by North Sea veteran Alan Curran, Verus starts out debt-free and with a facility that will enable it to invest $500-700million over the next few years in UK North Sea acquisitions.
It is the third new name to debut the North Sea stage over the past few weeks, the other two being Siccar Point Energy with a $500million facility and Origo Exploration with a $525million war-chest available.
They too are private equity funded and are also led by teams with extensive prior experience of the North Sea.
Curran’s medium-term objective is to build Verus into a nimble, UKCS-focused independent producing some 20,000 barrels oil equivalent per day with a reserves base target of about 40million barrels.
This compares with 1,000 barrels of equity production today from an assets base which is set for a weeding out.
The emphasis will be buying producing assets with significant upside, including further development. Near-asset exploration is on the cards, as is a preparedness to operate.
Like Siccar Point and Origo, Verus is hitting the North Sea market at a time when companies with money can pick and choose.
It is a buyer’s market and so is in their favour.
It is only just over a year since Aberdeen-based Bridge was taken out by Norwegian junior Spike Exploration for around $170million (£103million).
The dual-listed exploration and production firm was quickly withdrawn from its London and Oslo stock markets listings.
Bridge’s CEO at that time was Tom Reynolds. The company’s biggest shareholders included specialist energy investor Lime Rock Partners and a number of Norwegian institutions.
It had been set up in 2010 through the merger of Bridge Energy and Silverstone Energy.
Spike, whose main investor is also HitecVision, immediately set about stripping out Bridge’s Norwegian Continental Shelf assets. The plan was that the UK side of the business would be parcelled under Bridge, which would then be reconfigured. The combined asset portfolio held 19 licences.
Curran was approached in November last year, just two months after the takeover of Bridge by Spike was agreed. He climbed aboard in June, having left Iona Energy, and quickly forged a new management team.
“We started into the business plan immediately; got it approved by the end of June,” he told Energy.
“One of the things we wanted to do was change the name. It was a new company with a different business plan. There was fresh funding and a clean balance sheet.”
Verus is a Latin word and means true, genuine, real. Verus was also a well-known gladiator during the reigns of the Emperors Vespasian.
“The name resonates with what we want to achieve, which is to deliver sustainable value and create a real, credible UKCS oil and gas company,” said Curran.
“HitecVision is the majority shareholder; senior management are also investors. It’s a classic private equity model.
“We’re planning to build up the business, spending $500-700million over the next couple of years building the portfolio.
“We’re going to build a business delivering in excess of 20,000bpd, compared with 1,000bpd today, with a reserves base in the range 35-40million barrels oil equivalent. Portfolio building will be initially led with production acquisitions . . . that’s important as we intend to monetise our tax loss.
“As we generate profit from the initial investments, we will fold that back into the business, re-inventing to build a stronger development portfolio.”
He agreed that now is an excellent time to buy in the North Sea.
“When I first started thinking about this role, I thought there weren’t many assets in the North Sea that didn’t have at least one shareholder that was thinking about or actively selling their stake in that asset on the UKCS.
“I am now of the opinion that there are barely any assets not for sale. There are so many changes afoot; 80% of the assets are owned by 15 companies and a large number of these companies are at least thinking about a change in strategy. Many are actively marketing, some are aspiring to market.
“Single assets or whole portfolios, it couldn’t be a better time for ourselves to be starting out on this journey. There are lots of stranded AIM-listed companies. Some will remain stranded for a good reason.
“This new wave of companies coming into the North Sea are not about to displace the old order. But I genuinely think there’s a changing of the guard that we will see over the next couple of years.
“It strikes me that this wave, Siccar Point and Origo included, seem to have a clearer purpose, have highly experienced people who are going around again and which are financed by private equity.
“I have a score card of the number of private equity backed companies that are coming into this space. My back of the envelope calculation is that there is $4-6billion of P/E money and associated debt coming into the UKCS. This is key to the next wave in the North Sea.
“We’re part of that. It’s invigorating. It’s exciting, It’s fresh.”
Curran said he is fed-up with hearing all the tired stuff coming out of the conventional industry’s trade organisations over the last year or two and that the Verus team is absolutely going to take advantage of the opportunity that’s on our doorstep.
But he warned: “We need some help from government; we need fiscal stability and we need to be inspired to invest. But companies that have money to spend on assets require a material return.”
Turning to the current Verus portfolio, Curran said it generated cashflow but that it “has no bearing whatsoever on the future”.
He said that it was not possible to create a 20,000 barrels per day company from its existing asset base. This includes the Vulcan gas discovery, which was talked up during the Bridge era, but which appears not to be as material as some had thought.
“It has the potential to be developed,” said Curran. “We see the Vulcan satellites as legitimate development opportunities. But we have no reserves booked against them.
“We have the opportunity to do the right thing with Vulcan; that’s one of the attractions of private equity. We’re not pandering to the public equity markets
“But I’d say about 80% of my team’s focus is on the deal pipeline; building a new business on the foundations of the exiting assets.”
“We’re not going to move dollars around the table for the sake of doing a deal. There has to be upside in any transaction we conduct.
“My business model is to develop and produce, with production-led exploration. So we will explore where we can see quick conversion of an exploration success into production.
“So you won’t see us drilling ultra HP/HT, or in deep water West of Shetland. We’re not scared of some WoS opportunities, but we won’t be taking on deep pocket, capital-intensive opportunities that could take 12 years from discovery to first oil.
“We want to do smart deals, innovative development and be an effective operator and efficient producer. We will operate where it is necessary; but we won’t be driven by dogma.
“If there’s a high quality operator at work already, or a partner where we would be happy that they were operator, that’s fine by us.
“We believe that we don’t have to operate to be successful. There are too many people running around Aberdeen historically with that attitude.”
Curran sees the Verus complement of 18 … 12 staff and six consultant … doubling by the middle of next year and reaching 35-40 maximum.
He added: “I certainly don’t see us having more than 35 staff, even if we’re operating multiple large platforms, because we will outsource duty holdership, outsource wells operatorship.
“I’ve worked on both sides of this interface. I know where the experts are. We are an informed buyer of services and we will work very closely with our suppliers. I happen to believe that is the way forward for the UKCS.”
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