ONE of the biggest players in the North Sea, Chrysaor, has slashed around $1 billion (£0.7bn) off the valuation of assets it acquired in the area to reflect the plunge in oil prices triggered by the coronavirus.
Chrysaor became a major force in the North Sea after buying up big portfolios from majors in multi-billion deals before the fallout from the coronavirus sent the sector into crisis.
The company revealed yesterday that it fell deep into the red last year, during which the crude price fell to an 18-year low of less than $20 per barrel.
While the price has rallied in response to the rollout of coronavirus vaccines, oil market turbulence has given fresh impetus to a shake-up in the North Sea. This has involved big companies selling North Sea portfolios at what appeared to be knock-down prices in recent weeks.
READ MORE: Why are North Sea oil and gas assets suddenly in demand among overseas investors?
The developments may have raised questions about the decision Chysaor made to expand so rapidly during the last downturn, with backing from US private equity investors.
However, Chrysaor bosses have indicated their belief in the potential of the North Sea remains unshaken.
They have underlined the company’s appetite for more acquisitions in the area and its willingness to do exploration and development work.
In the annual report for 2020 which Chrysaor released yesterday, the company said it was a long term participant in the North Sea and would target “growth and development across all asset lifecycle phases”.
Chief executive Phil Kirk said the company was beginning an exciting new chapter in its history.
The company is set to become the largest independent oil and gas business listed on the London Stock Exchange by completing a merger with North Sea-focused Premier Oil.
READ MORE: Surrender of North Sea stalwart underlines scale of upheaval in area
The merger deal struck in October allowed Chrysaor to capitalise on the change in market conditions seen last year. London-listed Premier had been planning to refinance its hefty borrowings and to raise money from shareholders to fund the acquisition of North Sea assets from BP. However, it decided the all-share deal offered by Chrysaor represented a less risky option.
Shareholders in Chrysaor will own the bulk of the enlarged business, which will be renamed Harbour Energy. The merger is set to complete around March 31.
Mr Kirk said: “Harbour Energy plc, will offer investors an independent oil and gas company of significant scale with a diversified UK asset base and an international footprint - together providing the basis for growth and returns.”
Premier has acreage containing finds made off Mexico and the Falkland Isles and producing assets in Asia.
The company expanded rapidly in the North Sea amid the downturn that started after oil prices peaked in 2014, as supplies ran ahead of demand. It bought North Sea assets and invested heavily in the development of the Solan field West of Shetland and Catcher east of Aberdeen.
Premier faced big challenges on Solan, which came onstream in April 2016, around 18 months later than hoped. Premier noted yesterday that it cut the valuation of its assets by $144m last year. It said the charge primarily related to Solan and reflected a cut in the company’s oil price forecast.
READ MORE: Shetland oil field start up delayed again amid bad weather
Chrysaor acquired a big North Sea portfolio from Shell for $3bn in 2017 and one from US giant ConocoPhillips for $2.7bn in 2019
The company cut the book valuation of goodwill associated with acquisitions by $411m last year. It cut the valuation of its oil and gas assets by $644m. It said the cuts resulted primarily from a reduction in its commodity price assumptions, rather than a fundamental change in the nature of the producing assets.
After the resulting non-cash charges, Chrysaor made a $977m loss, compared with a profit of $455m in 2019.
The company made $1.8bn underlying profit in 2020, up from $1.7bn in 2019. It generated $562m cash from operations last year, net of spending on new assets, interest and tax.
Chrysaor changed its price assumptions to $60 per barrel for crude oil and 40p per therm for natural gas, from $65/bbl for crude oil and 50p per therm for gas previously.
The company used hedging to limit the impact of commodity price movements on revenues.
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