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Interview: UK minnow Verus touts nimble approach in North Sea

Increase font size  Decrease font size Date:2019-06-25   Views:396
Verus Petroleum is part of a new wave of small private equity-backed companies helping revive UK oil and gas production, aiming to stay nimble even as it builds up its uptream assets, CEO Alan Curran has said in an interview.

Verus was created from two smaller companies in 2014 by Norwegian fund HitecVision, itself an offshoot from an upstream technology company.
One of a string of entrants shaking up the industry, Verus lacked the financial fire-power of rival Chrysaor, which bought a chunk of Shell assets for $3.8 billion in 2017 and recently most of ConocoPhillips' UK business for $2.7 billion.

But Verus has made "stepping stone" acquisitions, mainly minority stakes, which lifted its output to 18,000 b/d of oil equivalent by the end of last year, on an equity basis.

Purchases have included Boa, the slither of Norway's Alvheim field that lies in UK waters near the two countries' dividing line, which it bought from Maersk Oil in 2017, and last September the UK business of Japan's Itochu, for which it paid $400 million.

The latter deal gave it a 23% stake in the Western Isles oil complex, operated by South Korea's Dana Petroleum, and a small stake in the Brent pipeline. The Western Isles fields, Barra and Harris, produced around 36,000 b/d last year.

Verus expects its production to total 15,000 boe/d this year. But with production declining at several assets -- Western Isles is due for some in-fill drilling in the next couple of years -- it wants to add a development component to its portfolio.

Thanks partly to a $500 million reserves-based lending facility it has built a war chest of "many hundreds of millions of pounds," Curran said from Aberdeen.

"The business is [generating] a lot of cash," he told S&P Global Platts. "We're a production business, it's a declining resource, so what we're looking to do is to fill the medium- and longer-term production profile... We're looking to bring in opportunities that have a stronger development content."

He added that taking on more of an operating role would hold no fear for a management team he described as "steeped in experience" in various parts of the North Sea industry. But he also made a virtue of Verus' low headcount -- just 17 staff at last count -- and noted a contrast with Norway's industry and the resistance in that country to outsourcing to the service sector.

"I think we'll have done something wrong if I have 40 staff in this business, even if we're much bigger because I do believe in the outsourced model," he said.

Curran confirmed that South Korea's KNOC intends to bring in a minority investor to Dana, but said Verus was not after a stake as it seeks to diversify its UK portfolio.

NORTH SEA TRANSFORMATION
He went on to praise the transformation brought about partly by a new UK regulator, the Oil & Gas Authority, evident in higher production levels and some promising discoveries. UK oil production has risen by around 30% in the last five years.

Predecessors to the OGA such as the Department of Energy & Climate Change were "grossly under-resourced and the small number of people were being expected to do a ridiculous amount of work, so getting a properly resourced regulator in place is important and after a bedding-in period and teething issues, and building up the team... I've been favorably impressed," he said of the new body, created in 2015.

"They're becoming progressively assertive, progressively helpful... pulling people up if they've not been doing what they need to be doing."

Curran also highlighted recent UK exploration successes such as Glendronach and Glengorm, by Total and CNOOC International (formerly Nexen) respectively. Despite a slump in the number of exploration wells drilled, UK discoveries totaled 239 million boe last year, according to the OGA.

The UK may be regaining ground by comparison with a drop-off in Norwegian exploration success, Curran suggested. "The more measured and targeted exploration seems to be beginning to yield some dividends -- something to watch I would say," he said.

And while the North Sea revival looks likely to re-inflate prices in the supply chain, a "pendulum swing" to pre-crisis levels remains unlikely, Curran said.

Demand pressure "will translate into increasing rates, whether it's rig rates, boat rates, people rates, and the challenge for the industry is to keep the lid on that," he said.

"In previous recoveries, the costs have gone out of control and the dash for resources has become the primary driver and people got sloppy with cost control. The recession that we've been through in the last few years has left such a deep impression that I would be surprised if we saw a complete pendulum swing back."
 
 
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