The UK oil and gas sector is “ripe for consolidation”, an analyst said following Chrysaor’s announcement that it was merging with Premier Oil.
Greig Aitken, principal analyst on Wood Mackenzie’s corporate analysis team, said the UKCS had not gone through a period of “mega-consolidation” since the late-90s.
According to Mr Aitken, the number of producers in the region had remained broadly the same in spite of production falling substantially in the last two decades.
He said: “Bigger, more efficient producers that are resilient enough to see through the cycles – but small enough not to be weighed down by internal competition for capital and high G&A costs – are better equipped to collaborate with the supply chain, maximise recovery and deliver consistent returns to shareholders.”
Colleague Neivan Boroujerdi, principal analyst, North Sea upstream, said the major transaction announced yesterday may result in a rethink for Premier on its efforts to divest its stake in the Zama field in the Gulf of Mexico.
Mr Boroujerdi said: “The addition of Premier gives Chrysaor international growth options with delopment assets in the Falklands/Malvinas (Sea Lion) and Mexico (Zama), even if its medium-term outlook is similarly in decline.
“Premier had been trying to sell its stake in Zama but the addition of Chrysaor’s cash generating asset base could prompt a change in heart.”
On the logic behind the Chrysaor-Premier merger, he said: “Premier’s balance sheet has been heavily debt laden since the last oil price crisis, a result of investment in growth projects as the cycle turned. It was in the process of refinancing when the Chrysaor approach was made.
“For Chrysaor there are several drivers. The company has a strong balance sheet and solid cash generation, but it needed to take advantage of this strength, as its portfolio was in steep decline.”
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