2020 Year in Review - Energy Sector

21 December 2020

Frustrating and Fascinating! 

In the Energy industry, it would be safe to say that we all agree 2020 has delivered us some of the most challenging times for the upstream oil & gas (E&P) and oilfield services sectors (OFS). 

From a global pandemic and deep economic slowdown to increasing climate change concern and changing investor sentiment, to low commodity prices and geopolitical price wars – on Hogmanay, let’s just draw a line under the year that was 2020! 

But despite severe difficulties at every level, from investors to corporate to individuals and society, it has been a fascinating, albeit highly frustrating year in our sector.   

Fascinating on one hand to see plenty of long-view confidence in our E&P sector.  In July, many were surprised to see a relatively unknown newcomer, Viaro Energy, scope up Rockrose Energy at 1,850p a share, 3,700growth for shareholders who invested at IPO in 2016.  We were even more surprise and very pleased to then see Rockrose’s founder, Andrew Austin re-emerge just four months later to launch his new Energy vehicle, Kistos on the AIM market. 

When rumours started to pass around in September that Chrysaor may be looking to do a deal with Premier Oil, not many would have predicted that the deal would have been a reverse merger into a ready-made Main Market London listing.  The deal, when completed will deliver an enlarged group with more than 250,000 boed and will become the London Stock Exchange’s largest independent E&P operator.  It will include significant assets such as Solan and Tolmount in the North Sea and prospective Sea Lion field in the Falkland Islands.   

The industry is awaiting eagerly to see who will win the bid of Exxon’s UK divestment.  From what has been reported in the press, it appears to be hotly contested – and will reward the successful buyer with 37,000 boed.  We expect to see the winner announced any day now.  For whoever wins the bid, it will without question be a transformational transaction. 

Energy Transition  

Beyond traditional E&P company strategies, it has been fascinating to watch how some of the majors continued to re-invent themselves by showing much greater commitment to energy transition than anyone might have anticipated prior to 2020.  Led by BP and Shell, we have also started to see other significant E&P operators such as Equinor and Total changing their strategies and corporate image by pursuing green objectives in hydrogen development, carbon capture, use and storage (CCUS) and offshore wind. 

Whilst activity levels and new opportunities will always have a knock on effect to the OFS sector, it has been interesting to see this part of the Energy sector adapt strategies, services and purpose towards energy transition.  Notable changes include Global Energy Group’s plans to build what has been described as the UK’s largest offshore wind fabrication facility at the Port of Nigg.  This is reported to initially create 150 new jobs with £100m of investment being underpinned by the UK and Scottish governments. 

The subsea sector in OFS is also embracing change and adapting towards a growing energy transition market.  Many subsea services companies have changed their identity and purpose to include traditional oil & gas markets, but also to embrace exciting developments and new industries in offshore wind, production of both green and blue hydrogen and carbon capture and storage.   

On the other hand, it has been a frustrating year for many.  For some, such as Shell and Siccar Point Energy, final investment decisions on large projects have been delayed until next year.  For a few others, anticipated deal activity in January and February has yet to come to fruition, hampered by the unprecedented obstacles that began to emerge in March.   

The knock-on effect in OFS is all too easy to predict and see.  Less activity from traditional oil & gas markets – particularly in hydrocarbon specific services, means the supply chain is increasingly stressed, strained and squeezed. 

2020 has had far more pressing consequences for many in the sector, such the inability to continue with strategic ambitions, disappointing and changing investor sentiment and the hardest aspect of all – job uncertainty and job losses. 

Looking to 2021 

Will 2021 be any better?  The hugely encouraging Covid19 vaccine developments taking place in the UK in the final month of 2020 point the way to a return to normal, possibly towards the end of H1 2021.  Whilst economic recovery is expected to be slow, we will be coming out of the crisis and no longer in the midst of it.  Economies are expected to  start to grow again, travel is anticipated to increase and global demand for energy will increase, and not stagnate.   

For companies who are well funded, patient and who believe in the long game, there is still so much to play for.  This will require a view of E&P and OFS as being crucial contributors in our long term insatiable demand for energy and as an enabler for energy transition.  It will require persistence against the odds, efficiencies, cost control and an outlook that succeeds in finding an agreeable balance with the green agenda.  Whatever 2021 holds in store for the Energy sector, there is no doubting it will continue to be challenging, exciting, dynamic and diverse! 

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