UK: UK Upstream Independents In 2014: A Year In The Balance

Last Updated: 7 April 2015
Article by Graham Hollis

Most Read Contributor in UK, August 2017

About 12 months ago, we wrote that UK upstream oil and gas independents had a "challenging" 2013. That was then. If 2013 was considered a challenge, then 2014 presented all manner of new difficulties – but opportunities too for those in a position to seize them.

Upstream independents are vitally important to the future of the UKCS, as well as oilfields overseas, playing a key role in the development of reserves. Yet, the issues the industry as a whole has come to face over the past nine months have impacted disproportionately on these small and medium-sized companies.

With weaker balance sheets, the drop in the price of oil has had an adverse impact on investor confidence and share price. Across the upstream independents sector, our sixth annual UK upstream independents league table found that the total market cap of the top 25 companies dropped by 47% in 2014, from £22.5 billion to £11.8 billion.

Amid all this doom and gloom however, there are some reasons for oil and gas firms to remain positive about the year ahead – provided the right steps are taken.


Challenge: Access to finance was a challenge even before the price of oil began to drop in June 2014. This has, in part, been down to a lack of major oil discoveries in recent years, forcing many independents to farm out part of their assets or sell off non-core operations to fund further exploration. Tough financing conditions could see an increase in the number of "distressed sales" as companies struggle to meet their monetary obligations.

Opportunity: These distressed sales could lead to cash-rich players buying high quality assets at reduced prices, stimulating deal activity in the short to medium-term. Similarly, National Oil Companies (NOCs) looking for resources and entrepreneurial management could view now as a good time to invest, with assets and talent more likely to be available.

Uncertainty in the North Sea

Challenge: Last year saw big changes to the UKCS's fiscal regime, designed to reflect the maturity of the basin. That period of transformation has led to uncertainty over the future of the North Sea and firms adopting a "wait and see" approach to investment, although there is now some clarity over its immediate outlook. According to our North West Europe End of Year Review 2014, 40 exploration and appraisal wells were drilled offshore UKCS last year compared with 50 in 2013. Field start-ups also dropped from 13 to six.

Opportunity: Despite challenges, the North Sea continues to attract oil and gas operators. The 28th offshore licencing round was successfully completed, which included new licences for two UK upstream independents: EnQuest and The Parkmead Group. Meanwhile, a dozen new companies entered the UKCS for the first time – a sign, if ever there was one, that there is still opportunity to be had in the North Sea.

Outlook for 2015

Challenge: Times are undoubtedly still tough. There are large disparities concerning how long oil prices will remain at current low levels. Bank debt is only likely to be available to the most promising companies and projects. Renegotiating finance could be even more challenging, especially for those with high levels of debt. On the whole, it will be a difficult time for all oil and gas operators and will test their ability to respond quickly to prevailing conditions.

Opportunity: While it was a difficult year for the industry, we saw two new entrants to the league table through IPOs – Hurricane Energy and Nostrum Oil & Gas. It remains to be seen how the IPO market for oil and gas firms will play into 2015, with diminished demand from investors for equity. Yet, two firms bucked the trend by increasing their market cap between 2013 and 2014. LGO Energy increased its value seven-fold, catapulting itself up to 18th place in our league table. Roxi Petroleum also climbed to 23rd, up 12 places on 2013. A company's ability to cut costs meaningfully, sustainably and without harming future growth will be critical to survival and success in these treacherous times.

What do you think 2015 holds for the UK's oil and gas independents? Download a copy of the full report, get in touch for more information or tweet us on @DeloitteScot.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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