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Maersk Oil Turns Its Focus to North Sea

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Confusion reigned after losing flagship project in Qatar — but new chief executive maps out a path to the future

Maersk Oil is looking to focus on “low capital” growth as it sets a new course to regain scale after a restructuring by its parent and the loss of its flagship Al Shaheen project in Qatar.

New chief executive Gretchen Watkins, who took over from Jakob Thomasen in September, told Upstream that the North Sea is an area that the Danish oil producer will continue to “home in” on in the years ahead.

Two months ago, Danish conglomerate Maersk said it would concentrate on developing its transport business and split off Maersk Oil and related units such as Maersk Drilling into a separate energy division.

This came after future oil and gas growth plans were dealt a massive blow earlier in the summer when Qatar said it would not renew Maersk Oil’s 25-year production agreement for the Al Shaheen field, which provides 40% of production, when its licence runs out in 2017.

Maersk has vowed to find solutions for the energy businesses within 24 months and, as things stand, all options are on the table, including separate listings, mergers with other companies or joint ventures.

However, hinting that a broad direction of travel has already been chosen, Watkins said: “I see us very much focused on growth opportunities that are low-capex in nature, particularly leveraging our skills around excellent asset operations, particularly around mature assets and project delivery.

“The North Sea is a place we really will continue to home in on. We see the UK as a great place to look. I think Denmark is as well. I think Norway is as well. The North Sea is our focus.”

Maersk has major upcoming developments in the North Sea.

In the UK the company is looking to bring its marquee Culzean high-pressure high-temperature development on stream in 2019.

Off Norway, it has a significant non-operating position in the giant Johan Sverdrup scheme and, assuming tax issues can be sorted out with Danish authorities, a large redevelopment of the Tyra field in home waters also looks likely.

One option Maersk could pursue — indeed, one long-touted by analysts — is a merger with the oil and gas operations of compatriot Dong Energy.

The pair reportedly held talks last year but failed to agree on a price, and this week Dong confirmed it has “decided to initiate a process with the aim of ultimately exiting from our oil and gas business”.

The Aker-BP venture, formed in September by BP’s Norwegian unit and local operator Det Norske Oljeselskap, has also been flagged as a potential model Maersk Oil could imitate.

Earlier this year, Maersk Oil was also linked as potential buyer of some of Shell’s UK North Sea assets though, according to people familiar with the process, it is no longer seen as interested.

Watkins declined to elaborate. “We just can’t give any specifics about what sorts of things we are looking at. We have not made any decision yet, but we are certainly screening opportunities.”

She repeated that the company was “actively considering low capital growth solutions that generate value”.

Marcus Bellander, an analyst at Stockholm-based investment bank Carnegie, said: “Regarding the fate of the individual units in the energy division, one can only speculate.

“Merging Maersk Oil with Dong’s oil and gas unit would make a lot of sense, as there would probably be plenty of cost synergies.

Carnegie had in September expressed disappointment that Maersk was talking of increasing the oil business through acquisitions. “Maersk has thrown too much money after oil assets gone bad. We would rather have heard it say that it would milk Maersk Oil for cash,” he said when the restructuring was announced.

However, Bellander said this week a revised plan of “low capital” growth looked more appealing.

He said: “The reason they want to be capital light is that if they were to rebuild Maersk Oil to its former glory, they would probably need to use the vast majority of Maersk’s balance sheet potential and, since they are splitting the company, they obviously don’t want to leverage up too much.”

He added: “Because we don’t know what the restructuring is going to look like, it is difficult to predict what the balance sheet will look like afterwards. Right now, Maersk, as a conglomerate, has about $10 billion of debt capacity.

“The question is, of course, what the ratings agencies will do if they do a complete break-up, so if Maersk Oil and Maersk Drilling are listed separately, for example. Their credit ratings will almost certainly deteriorate.

“I think what they would need to do is (ensure) that Maersk Drilling, and probably Maersk Oil too, are debt-free after the break up. Given where the industry is, they couldn’t sustain that amount of debt.”

Watkins said Maersk produced a “really strong” third-quarter, despite a slight drop in production to 295,000 barrels of oil equivalent per day from 300,000 boepd in last year’s third quarter.

Full-year production is expected to be between 320,000 and 330,000 boepd, up from 312,000 boepd last year.

Maersk has also cut its production cost to below $40 per barrel of oil equivalent, which Watkins called “a good place to be”.

It has also said it will exit the Repsol-operated Buckskin project in the US Gulf of Mexico, but intends to launch a four-well exploration campaign in Kenya and Ethiopia before the end of the year.

Watkins told Upstream that Maersk Oil will be “absolutely the cornerstone” of the new energy division.

A clearer picture is likely to emerge when the Maersk group holds its capital markets day on 13 December in Copenhagen.

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