Gas Companies to Dominate Norwegian A&D Activity

Norwegian energy companies will continue to engage in acquisitions and divestiture (A&D) activity as financial difficulties remain a concern for many in 2010.

Andreas Hildeng, commercial manager at Lundin Petroleum, suggested that the year would be characterised by a slight increase in A&D activity within Norway, with gas companies dominating the action.

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"In the Norwegian shelf, I don't foresee any of the majors doing many acquisitions in Norway," he said. Hildeng, however, suggested that they may divest some of their non-core assets and perhaps acquire some if they are central to the business.

"It will be utility gas companies doing acquisitions I assume, minor players will be acquired. Companies running into financial difficulties still will be sold off and the companies needing money will sell assets," Hildeng continued.

Production is likely to be a focus for major companies as they struggling to meet their targets. Any businesses that are able to do so will therefore aim to get their hands on as many of these assets as possible through A&D activity.

"And for that reason I don't think they will sell that much production either," he said.

Aggressive A&D Activity

Natural gas has been a hot topic within the energy sector of late, with many executives highlighting the environmentally-friendly potential of the fuel. The interest in this resource is no less significant in Scandinavia.

"For the new players, new gas companies in Norway, they will obviously be aggressive still for gas and will try to get everything which is out there," Hildeng commented.

The strength of shale gas is also changing the nature of the market, he suggested.

"It seems like the shale gas is getting more attention so I think people will try to get more into that rather than try to get more gas discoveries in Norway," he said.

Gas prices are influencing these A&D decisions. They have dropped in recent months and although they are expected to rise again, gas remains "interesting for companies but it's not that high value" in the short and medium-term.

"At least for the smaller players, it's going to be difficult to develop because of the low gas prices," Hildeng continued.

Investment Moving Abroad

Some A&D activity is therefore moving abroad, as major players aim to exploit the seemingly massive potential of shale gas in the United States and Canada.

Andreas Hildeng pointed to recent activity by Statoil in this market. The company signed a deal with Spectra Energy Corp in December to expand the US firm's existing Texas Eastern Transmission and Algonquin Gas Transmission pipeline systems.

This work is currently still at the proposal stage, with the idea being to construct a new, 16-mile pipeline that connects Texas Eastern's existing pipeline in Staten Island, New York, to a new interconnect with Con Edison in New York City.

Hildeng said that other major players within the Norwegian market will adopt a similar focus for A&D.

"But obviously, we who are based in Norway would like to develop our own shelf now. It will still be the core area for many," he added.

Domestic Activity

The resources are still there to exploit, with the Norwegian ministry of petroleum and energy just this month deciding to award 38 offshore exploration licences in the 2009 round for predefined, mature areas on the Norwegian shelf.

It granted 25 for the North Sea, 10 for the Norwegian Sea and three for the Barents Sea.

"There is still interest in the North Sea, there is still interest in the Barrents Sea, I would say there is still interest all over the place," Hildeng stressed. "There is no specific area; all companies have their own viewpoint."

A&D is not necessarily the driving force behind this, however.

"There are still a lot of companies in the world that are looking for opportunities in Norway, but it's more organic growth rather than huge acquisitions," Hildeng explained.

"Acquisitions are done when companies are in financial problems, or for strategic reasons when they want to optimise their portfolio and divest some of their assets," he added.

All in all, A&D activity is likely to be largely similar in 2010 to last year.

"I don't think there will be a huge increase but I don't think it will be a decrease either. If I had to choose a direction I think it would be an increase," Hildeng concluded.