Sirens sound for oil majors
GUSHERS under the Weald, a whopping great bid for BG Group from Shell and fevered speculation about the next oil company to be targeted has made this a fairy tale week for the energy sector.
But before anyone gets overexcited about all this, it is worth a little deconstruction.
As wonderful as it may seem that serial entrepreneur David Lenigas may have struck black gold through the Horse Hill Developments consortium, in which his UK Oil & Gas Investments holds a 30 per cent stake, the hype has to be taken with a pinch of salt.
Turning an area of natural beauty into an oilfield will face huge hurdles. Most of the alleged reserves are deeply buried and may require disruptive fracking technology to release. More significantly, oil riches, in the shape of hard-toreach reserves, are not as sought after as they once were.
Just to add to scepticism, the credentials of Lenigas do not inspire confidence. His habit of tweeting cheerful information about some of the AIM-listed companies with which has connections has raised eyebrows among the cognoscenti.
Lenigas, a veteran of Tiny Rowland’s Lonrho, has even felt it necessary to openly reject suggestions that he is ‘hiking up’ share prices.
An oil find in my native Sussex and the £47bn Shell bid might seem a world apart. But when one looks at why Shell investors are being asked to stump up for BG, including a big cheque for Helge Lund, it becomes a little clearer.
The driver of this deal is the changing shape of the energy sector.
Fracking in the US, much of it carried out by smaller-scale, lowcost producers of the kind once seen before John D Rockefeller vacuumed them up at the turn of the last century to create Standard Oil, is making the US almost self-sufficient.
Expensive-to-produce oil from Canadian sands, the Arctic and deep-water drilling in the Mexican Gulf are much less attractive for the majors.
So big oil is turning its attention to big gas, where BG has good resources, and to the downstream transport and marketing which was once seen as the tedious end of the business.
Moreover, there is increasing evidence that intense research by the big car manufacturers such as Toyota is at a breakthrough point. The internal combustion engine could, over the coming decades, gradually be superseded by fuelcell technology.
The timing of UK Oil & Gas’s much trumpeted black gold find could be out of step with what lies ahead in the rest of this century as oil suffers the same fate as coal in the advanced nations.
The changing landscape makes it more likely that there will be further agglomeration among the oil majors and some of the second-line explorers will be snapped up. BP is an obvious candidate, but more clarity on its battles with the American authorities and courts, together with its intimate relationship with Russian state firm Rosneft, might be off-putting.
More deals lie ahead but it is big gas that could be the wave of the future.
En primeur vintage
FANS of crowdfunding – the use of the internet to bring together likeminded investors – have reason to be cheerful about the £70m takeover of Naked Wines by Majestic.
A crowdfunding firm is being reversed into a more traditional retailer and taking over the controls.
It provides a sharp riposte to those who see crowdfunding as a piece of financial gimmickry or a new playground for fraudsters.
The trick to Naked Wine’s popularity is its liberal use of social media to connect customers, investors and producers and discovery of hidden jewels in viniculture run by refugees from the bigger more established producers.
The arrival of Rowan Gormley at Majestic from Naked Wines will bring some much-needed online savvy to the firm, which is one of the few sizeable chains, selling good- quality wines that has survived the challenge from M&S, Waitrose and the big grocers.
Other independent wine merchants Oddbins and Unwins disappeared into the ether during the Great Recession.
For the moment, Majestic and Naked Wines, with 900,000 customers between them, will trade separately. But a single platform must be the goal.
Cross purposes
THE debate about Osbornomics rages on.
Enemies such as Paul Krugman insist that over- enthusiastic austerity in 2010-12 drove the British economy over a cliff and it was only when the cuts were reined in that growth was restored.
Supporters of Osborne argue that through austerity he succeeded in shrinking the public sector and unleashing entrepreneurial activity.
In a new book, Mr Osborne’s Economic Experiment, veteran financial journalist William Keegan – once of this camp – seeks to demystify the debate from his own Keynesian view.
It is good election reading, even if it makes you angry.