A North Sea minnow that is leading work on a pioneering gas development after a dramatic improvement in its fortunes has highlighted the long term potential of the area.
Independent Oil & Gas (IOG) is set to start work on a £700 million North Sea gas project after winning the backing of US billionaire Warren Buffett in July.
The company had faced an uncertain future early this year after it became embroiled in the fallout from the collapse of the London Capital & Finance investment business. IOG then received a bid approach that directors slammed as an opportunistic attempt to buy it on the cheap.
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However, a firm owned by the famed Sage of Omaha decided there was enough potential in London-based IOG’s plan to develop a major new North Sea production hub to justify paying £40 million for a 50 per cent stake in the project. It also agreed to cover up to £125m of IOG’s costs.
The decision provided a stunning vindication for Independent’s chief executive Andrew Hockey, who led the firm’s successful effort to overcome multiple challenges during months of turbulence.
“A lot of people did not give us a lot of chance of doing that but over time we’ve done it all so I’m proud of the team,” observed the North Sea veteran.
He noted that London-based IOG expects to generate pre-tax cash flows of £500m, net of its costs, from the project Mr Buffett has backed. This involves bringing a cluster of undeveloped gas finds onstream.
The company could use the resources generated to expand in an area which seemed set for rapid decline as firms slashed spending amid the crude price plunge from 2014.
Mr Hockey, 60, reckons the work done since the report on the future of the North Sea by oil services tycoon Sir Ian Wood in 2014 has given the basin a good fighting chance.
“I do believe that there are still investible projects that make good returns in the North Sea.”
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He sees great potential in gas as the fuel that could support the global transition to a greener energy system.
While the Southern North Sea is a gas rich area, Mr Hockey notes there is also plenty to go for further north.
“There are still good projects in the Central and Northern North Sea which are getting sanctioned that demonstrate that oil projects are still viable”
The Oxford university-educated geologist is looking forward to an exciting period for Independent after the firm found itself in what he describes as a difficult position at the start of the year.
Independent’s then main funder, London Oil & Gas, was backed by London Capital & Finance, which went into administration in January after raising £236m from investors through the sale of mini-bonds
RockRose Energy then made an approach for Independent valuing the firm at £27m, which the company’s board spurned. It went on to make an unsuccessful attempt to buy debts owed by IOG.
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Mr Hockey said Independent pulled through by keeping calm and taking a methodical approach.
“I have this equation: Stress equals something happened plus it shouldn’t be like that. What you have to do is take away the bit that shouldn’t be like that and deal with it.”
The response involved looking at one piece of the jigsaw at a time.
Independent managed to restructure the debt it owed to London Oil & Gas then confounded doubters by raising £17m from City investors. This gave it a breathing space in which to work up plans for the North Sea development far enough to interest the CalEnergy Resources operation owned by Mr Buffett’s Berkshire Hathaway.
Independent approached CalEnergy after analysing a universe of potential backers, without relying on investment bankers to broker a deal.
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The company wanted a partner that could invest off its own balance sheet and knew CalEnergy planned to increase its exposure to UK.
Asked if CalEnergy drove a hard bargain, Mr Hockey said: “I think both sides are happy with the deal we have done.”
It is understood this required approval from the Berkshire Hathaway board.
If the project goes to plan, CalEnergy should get a good return.
Investors in IOG could be in line for gains. The firm currently has a stock market worth of around £85m.
Mr Hockey and other members of the management team will benefit from increases in the firm’s share price after trading some of their salary entitlement for share options to help IOG save cash.
On the possibility of Independent potentially attracting fresh bid interest, he noted:“We accept that we could end up being an attractive proposition. Our business is to build the business as best we possibly can and to deliver returns for our shareholders, if that’s through being a target we have to look at that when it happens.”
After enduring some anxious moments since joining IOG in 2017, Mr Hockey appears to be relishing the prospect of the firm becoming a significant producer in the North Sea.
With around 30 years’ oil and gas experience, he was drawn to IOG by the prospect of working on a big gas project after leading on the bumper Clipper development in the North Sea at Fairfield Energy.
The “truly meritocratic” industry has given Mr Hockey the chance to do interesting work in countries ranging from Greece to Vietnam.
He has also found time to make regular visits to Glasgow. His wife hails from the city, which he describes as a lovely open place with lots going on.
Q&A
What countries have you most enjoyed travelling to, for business or leisure, and why?
For business, the two years I spent living in Vietnam as Fina’s Chief Geologist from 1992-1994 – vibrant country with friendly people and I was there at a time of great progress.
For leisure, I am gradually ticking off the Greek Islands, I’ve always loved the relaxed feel, the weather and the people.
When you were a child, what was your ideal job?
As a small child I always thought I’d work in a lab in a white coat! Then I discovered geology and never looked back – the blend of the subject (understanding the earth) with commerce in the oil and gas industry was compelling.
What was your biggest break in business?
Taking on the chief executive’s role at IOG – we have faced some huge challenges over the past couple of years and
I’m immensely proud of the way the team, supported by the board , have delivered a fully funded AIM listed gas company with an exciting future.
What was your worst moment in business?
It would have to be recently when we were closing our recent funding deal and £2m went missing in cyberspace for a full hour.
It was just a slow transfer, but you can think the worst while you’re waiting!
Who do you most admire?
My wife Mary, without whom I’d not have achieved much in life!
What book are you reading, what music are you listening to? What was the last film you saw?
Book – A Legacy of Spies by John Le Carre
Music – I have very broad tastes – Stevie Wonder always tops the list though.
Film – Ex Machina – I’ve a sci-fi soft spot
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