Sources of investment drying up for oil firms

Energy: Fund managers turning away from fossil fuels, says Hurricane CFO

Medium-sized oil companies are finding it more difficult to secure investment as fund managers’ attitudes to fossil fuels worsen, an industry stalwart said.

Hurricane Energy chief financial officer Alistair Stobie added the “story” that oil and gas is not part of the future energy mix had “significant resonance”.

Mr Stobie urged the oil industry to show it has a role to play in the energy transition as the clamour

“Emissions cost us, so that means we are focused on reducing them”

for investors to ditch fossil fuels grows.

He believes steady oil prices and success for Hurricane and other mid-cap exploration and production (E&P) companies could help restore some investor “faith” in the sector.

London-listed Hurricane is close to achieving first oil from the initial development phase of its 500 million-barrel Lancaster field west of Shetland.

It is also carrying out a drilling campaign on the nearby Greater Warwick area this year.

Mr Stobie struck a chord with many people at a recent event in Aberdeen when he said opposition to investment in fossil fuels had gone beyond Swedish climate change activist Greta Thunberg and was “mainstream City of London”.

The capital markets expert later told Energy Voice that, although the UK oil and gas sector was still finding favour with private equity investors, doors were slamming shut in public markets.

That trend could have a “knock-on effect” on the UK North Sea, where North American oil majors are making way for newer operators, often backed by private equity.

Mr Stobie said the “changing of the guard” had been easy so far but that there was “still some way to go”.

If public markets don’t open up again, private equity could struggle to find an exit route, as initial public offerings become less feasible. Mr Stobie said he was increasingly dealing with “generalist” investors who spread their bets across several industries.

The “old order” of specialist natural resources investors was “wiped out” during the worst years of the downturn, he said.

Most mid-cap E&P companies have failed to generate returns over the past decade, which makes it difficult for them to “get a hearing”, he added.

Mr Stobie said fund managers were now placing more importance on environmental, social and governance considerations when picking stocks, meaning companies like Hurricane – about one-fifth owned by private equity firm Kerogen Capital – were facing “impediments”.

“There are fewer oil and gas experts available and the pressure not to invest is greater,” Mr Stobie said.

He said Hurricane’s own investment case was made more complicated by its focus on naturally fractured basement reservoirs.

These were “less well understood” than sandstone, where most of the world’s petroleum reserves are found.

But he said Hurricane’s expertise and knowledge lay in fractured basin projects and the company had no intention of branching into renewables.

Many large integrated oil companies (IOCs) are spending more on lowcarbon and renewable energy technologies, while making pledges to lower emissions.

But IOCs still seem to be falling short in the eyes of fund managers. A recent poll from the UK Sustainable Investment and Finance Association showed only two out of 39 investors felt IOCs failing to respond to climate-change risks within 10 years were attractive investments.

Nearly a quarter did not see IOCs as attractive at any time.

Though Hurricane is unashamedly an E&P company, Mr Stobie said he understood the importance of reducing harmful emissions from oil and gas operations.

But he also said the current state of the UK’s energy infrastructure meant a rapid switch to 100% renewables provision was not viable, while the country still needed oil revenues.

Petroleum is also needed for the manufacture of products made from plastic, though these would become less prevalent over time, the Hurricane CFO said, adding: “We have to show that we are producing at the lowest possible carbon dioxide level per barrel.

“We measure, monitor and report – and emissions have a cost to us, so that means we are focused on reducing them,” added Mr Stobie.

INVESTMENT POTENTIAL: Medium-sized companies are increasingly forced to rely on private equity investors said the CFO of one E&P firm