Hurricane Energy buyer Prax Group is targeting a growth surge in the UK North Sea, aiming to become a 50,000 barrel-per-day business.
That would mean increasing production more than six-times that of Hurricane’s current production of 7,710 barrels per day (as of March).
Prax, which is UK-based and largely focused on midstream and downstream assets, completed a £250m deal earlier this month to acquire the west of Shetland operator as it makes a shift into upstream.
Head of exploration and production, Alessandro Agostini, said the move was part of billionaire CEO and co-owner Sanjeev Kumar’s “vision”.
“The blueprint for the company, and if you hear Sanjeev you’ll hear it a million times, has always been we want Prax to be an integrated company along the value chain.”
© Supplied by Prax GroupMargins for different part of that value chain can fluctuate, so spreading that risk was a big driver for Prax’s shift into upstream.
Prax is also one of the largest suppliers of petroleum products in the UK, so as an integrated company it can “overlay the trading capacilities of Prax on top of everything”.
Mr Agostini, who came aboard the team in April 2022, says Prax had been on the hunt for an upstream acquisition in the UK (as the brunt of the Prax structure is based in London) and Hurricane was among a “handful of names” on the shortlist.
On the flip-side, Prax was one of five strong offers made for the Hurricane business. Hurricane’s board said it would see shareholders “better off” than a planned wind-down or an unplanned end to production, with significant upside through a revenue-sharing mechanism.
It was Hurricane’s Formal Sales Process, and the discretion that provided, that led to Prax going in.
“It was about doing a deal that was possible within the limitations that were surrounding it, and getting access to a great team that could help us grow the company,” says Agostini.
‘We are looking at other acquisitions right now’
What does growth look like going forward? Prax’s stated objective is 50,000 barrels a day in the mid-term, says Agostini. The firm doesn’t have a fixed timing for this, but says “two years or four years” could be the goal.
“The 50,000 barrels I think is a realistic objective that, once reached, we could reassess and say ‘OK, we want to grow more, we want to grow further, we want to grow in different geographies’ or. ‘we’re happy with this, we’ll keep it going, we’ll maintain this level’.
“Prax is not an only E&P company, it’s an integrated company, so we do not want to grow one part predominantly to the detriment of the other.
“We need to be careful at building everybody together. So, I think the initial target of 50,000 bopd I think fits well with the current size of Hurricane. If we want to grow more, it will done in concert with the rest of the company.”
Lancaster, Hurricane’s only asset is producing less than 8,000 barrels per day so it’s going to take more acquisitions to hit that goal.
Agostini says Prax is “looking at other acquisitions right not that are currently only focused in the UKCS (UK Continental Shelf)”.
However, the firm also has bases in Houston and Singapore and doesn’t have a geographic mandate “so, there will be a day where we will be also looking at different geographies, but for the time being, we are definitely concentrated on the UKCS and Northwest Europe”.
More drilling possible in the West of Shetland
That doesn’t necessarily mean Prax won’t drill more in the West of Shetland – potentially it will.
Hurricane said earlier this year it projects that production at its sole Lancaster asset could continue into 2024.
Agostini says Prax will do “whatever we can to make that asset go further, produce more,” adding that “if it makes economic sense and it gets the permission that it needs to get, we will certainly look at drilling more wells on the Lancaster field”.
In terms of strategy, he describes the choices posed as a “balancing act” and the “wiser choice is to probably to acquire some more production before going and drilling more wells in Lancaster”.
He adds: “But I also have to consider that I don’t have 20 years in front of me on Lancaster to drill more wells, the time frame is much, much shorter so it’s a balancing act. It may be that we will drill more wells on like it may be that we won’t.
“There isn’t, obviously, a decision now, but we will certainly look at doing more on Lancaster if it makes economic sense.”
UK licensing
Prax is not participating in the current North Sea licensing round because, as it was building up an upstream team, it hadn’t the capacity to bid.
However Agostini points to the fact that, should a firm win acreage it is interested in, Prax may engage in farm-in talks.
“Our view was acreage will be licensed in the round and if there is acreage that we would like to have, there will be opportunities after the round to go and speak with the companies who got the acreage to see if we can farm in.
“For us it’s not that we didn’t want to do the round – we didn’t have the ability of doing it and we thought we could have opportunities after.”
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