By Rhodri Morgan
The energy transition could hit private equity (PE) firms with North Sea fossil fuel portfolios with a 60 per cent cash flow loss, a financial think tank has predicted.
A report out from Carbon Tracker today identifies ten PE-backed firms active in the North Sea, including The Carlyle Group, EIG Partners and CVC Capital Partners, that could be “disproportionately at risk of financial distress,” if the energy transition progresses at pace.
Eight of the ten firms carry existing or approved projects with producers such as Harbour Energy, Wellesley Petroleum and Repsol.
The report contends that these investment firms risk losing between 63 per cent and 100 per cent of their aggregate cash flow between 2024 and 2030 in a moderately-paced transition in line with a 1.7°C temperature rise compared with what they would expect in a slow transition in line with 2.4°C.
North Sea production has been in decline for two decades and its mature fields are reaching the end of
their productive lives.
Oil majors and utilities have been selling off their North Sea assets over the past 20 years in line with the fields reaching their capacity limits, despite the record efforts to find more production sites.
And despite the government still trying to push through new exploration licenses for the region, the fossil fuel fate of the North Sea is sealed.
The UK’s commitment to a 50 per cent cut in emissions from oil and gas production by 2030 will therefore likely require operators to make costly investments to end flaring of gas and improve
efficiency.
Additionally, should Labour leader Keir Starmer win this year’s general election, he has pledged to ban all new oil and gas exploration.
Carbon Tracker contends that firms with North Sea fossil fuel ties now face the expensive decision to push for production increases that would not likely come online for three to five years.
Mike Coffin, Carbon Tracker’s head of oil, gas, & mining said firms investing in such projects are “taking a serious gamble.”
“They could be left holding companies whose value has cratered, with no buyers willing
to take them off their hands. and even under a transition progressing at a moderate pace, the value of these
oil and gas investments could be significantly lower than anticipated,” he added.
