November 26, 2015 / 1:17 PM / 4 years ago

Private equity goes bargain-hunting in Norwegian oil sector

* Investors see value in Norwegian oil fields

* Many assets available thanks to tumbling oil prices

* Buyers stand to benefit if oil prices rebound

By Stine Jacobsen and Gwladys Fouche

STAVANGER/OSLO, Norway, Nov 26 (Reuters) - Private equity investors are buying up assets in Norway’s crisis-hit oil sector, betting on a recovery in crude prices and cutting deals with energy firms whose focus is elsewhere and are happy to generate some cash.

Russian billionaire Mikhail Fridman and Sam Laidlaw, former chief executive of British utility Centrica, are among those taking or seeking stakes in existing fields in the seas off the coast of Norway.

Their interest is a boon for oil firms slipping into the red after years of large profits as the slump in oil prices shows no immediate sign of ending.

“For the market that means that you bring in additional capital, which is good in today’s environment,” said Martin Borthne, head of operations and projects for Total Norway. French parent company Total last month sold a stake in a Norwegian field.

Oil firms have cut spending, axed thousands of jobs and scrapped projects as they look to protect dividend payments to shareholders.

The price of Brent crude has fallen by around 60 percent since June 2014 and some energy companies see scope to trim assets.

“When the oil price drops everyone try to assess whether the fall is temporary and the sellers remain cautious. When the oil price has fallen and stabilised ... we see more transactions,” said Erik Holm Reiso, a partner at Oslo-based oil consultancy Rystad Energy.

Private equity investors are prepared to take on the risk of investing at this point, with a view to getting their rewards if oil prices do recover over the next few years.

“It’s quite natural that they enter in a low-price environment and are willing to take the risk on increased oil price going forward,” Karl Johnny Hersvik, head of the Det norske oil firm, told Reuters.

The International Energy Agency says oil prices could return to a range around $80 by 2020, but oil prices are hard to predict and estimates vary widely.

BUYERS AND SELLERS

Fridman’s LetterOne bought the Norwegian oil assets of Germany’s E.ON for $1.6 billion last month. Total sold a 15-percent stake in its Gina Krog oilfield for 1.4 billion crowns ($162 million) to a unit of private equity-backed Sequa Petroleum in October.

In the case of Total, “the deal demonstrates (its) desperate need for reducing capex and protecting its dividend,” said Swedbank analyst Teodor Sveen-Nilsen in a note to clients. “The adjusted deal value ... (was) sensationally low.”

For the buyers, Norway currently offers better exploration opportunities than its North Sea sister, Britain.

Some of these private equity-backed companies are focused on making oil and gas discoveries to sell on, or more broadly building up a business on which they can later cash in.

“In the UK, more has been drilled, so it is more difficult to find good and big enough prospects that could be profitable to drill. In Norway there is also more acreage,” said Reiso at Rystad Energy.

Some of the sellers are firms such as utilities whose core business is not oil exploration. Others are oil companies which are focusing their exploration efforts in places including the Gulf of Mexico or the Gulf of Guinea, where the chances of hitting billion-barrel discoveries is deemed higher than in Norway.

INVESTORS PREPARE

More private equity funds are preparing to step into the breach.

Energy-focused investment firm Riverstone Holdings and Global Natural Resource Investments, formerly Barclays Bank’s energy private equity investment arm, have put in $200 million each to set up Origo Exploration, focused on exploring for oil. It has the financial backing of Temasek, Singapore’s sovereign wealth fund.

And Laidlaw, who has $5 billion to play with via his Neptune Oil and Gas private equity vehicle, has said he is eyeing the North Sea for acquisitions. He has the support of leading investors Carlyle Group and CVC Partners.

Smaller Norwegian investors are also getting involved.

HitecVision, which has made big profits developing oil companies and then selling them to international oil firms, is branching out by buying large stakes in listed energy industry supply businesses.

OKEA, with 1.1 billion crowns in capital, was set up in May by the country’s former oil minister and a former head of Det norske oil firm, to develop fields that more established companies deem uneconomical.

“We have bought a lot of fishing equipment, but we have not yet caught any fish. During 2016, we must have a concrete project,” OKEA partner Erik Haugane, himself previously at Det norske, told Reuters. ($1 = 8.6128 Norwegian crowns)

Editing by David Goodman and Keith Weir

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