Private equity firms move in on North Sea oil sector

Oct 11, 2004 02:00 AM

Rocketing crude oil prices are fuelling a new surge of interest from venture capitalists in the North Sea oil and gas industry.
Close to 90 % of London-based private equity firms have completed at least six deals in the sector in the past 12 months, according to new research conducted for Ernst & Young. More than 75 % of private equity firms are looking to do more deals in the year ahead after watching these oil investments outperform the rest of their portfolios.

Alec Carstairs, transaction advisory services partner at Ernst & Young, said: "While the price of energy continues to increase as world markets push the price of a barrel of oil over $ 40, the oil and gas sector and other energy-related sectors are attracting increasing interest from the investment community.”
"At the same time, the oil majors are refocusing their efforts on international basins such as West Africa and the former Soviet Union. This has meant that as well as traditional investors like 3i, we are seeing traditional PE houses like Candover from the UK and First Reserve from the US upping their stake in the North Sea and Europe."
He added: "Although recent increases in prices have been fuelled primarily by the political situation in the Middle East, the medium to long-term outlook is robust as the world's thirst for oil continues to grow through increased demand from developing Asian economies, particularly the Indian subcontinent and China."

North Sea opportunities for venture capitalists have dried up this year as the high oil prices have encouraged the oil majors to delay their asset sale plans. This has also put the brakes on the rash of consolidation in the exploration and production companies, anticipated in a report by 3i earlier in the year.
But Carstairs believes a number of deals could be completed in the oil services sector next year. Schlumberger, Halliburton and Weatherford are all being tipped by Carstairs to dispose of non-core assets they have acquired in the past decade of consolidation.

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