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Speedwell Energy — strategically adding value, successfully attracting investment

From BP selling assets to Premier, ExxonMobil eyeing a North Sea exit, and Chrysaor acquiring ConocoPhillips’ North Sea assets, it’s not been hard to find news about oil and gas deals in this part of the world over the past 12 months

That activity’s good to see, of course, but what’s particularly refreshing is when a business comes along to challenge the traditional industry approach to acquisitions.

And that’s exactly what’s happened with our client Speedwell Energy and its recently announced sales and purchase agreement with RockRose Energy for the Cotton gas discovery.

What’s different?

Many E&P companies raise funds before looking for an asset to buy. Speedwell turned this approach on its head by first identifying a discovery and, through self-funding, taking it to a stage where it has a draft field development programme and delivery team in place. The Cotton field is now ready for market.

And while it’s not unusual for small companies to be acquired by larger ones, in the current market it makes all the difference for those like Speedwell to be nimble enough to get out and focus on so-called ‘small pools” and add value so projects are ready for investment from larger companies.

And this agreement’s no mean feat, particularly in a climate where there’s little appetite for development risk. This often makes it difficult to attract finance for less conventional development projects, like Cotton which is tight gas, especially when the commodity price is challenging.

So it’s good to see Speedwell chief executive Richard Strachan getting well-deserved kudos for the sheer tenacity he’s shown in getting this over the line.

Getting the groundwork right

What can businesses similar to Speedwell do to position themselves well in the current market?

Small companies must ruthlessly use their limited finance to best effect and attempt to leverage required services based on successful outcomes.

Speedwell, for instance was self-funded. It’s very hard to raise early finance in such cases without going to private equity. Accounts should be transparent, and decision-making should be, in my view, centralised and coherent. As in all companies, goal-driven, dynamic leadership is vital. We certainly had that with Speedwell.

Plus, as deals of this type progress, challenges are commonplace.

Firstly, you have licence deadlines, commitments and regulatory oversight with the Oil and Gas Authority (OGA). Technical issues can arise and funding deadlines need to be met.

There’s always the chance too that investors or oil service companies may prove difficult and demanding and ultimately you could end up accepting a compromise that doesn’t tick everything on your wishlist.

That’s where access to top level expertise proves crucial, from areas such as downhole interpretation/seismic and engineering to the legal side of things.

What happens with Cotton now?

Before a final investment decision’s made, RockRose says it’s planning further studies to make sure the project economics are “robust” given the current challenging gas price. A change of control will take place when the RockRose deal completes.

So all-in-all great news, and watch this space.

Peter Murray

Peter is an experienced commercial lawyer who regularly advises clients on contract law, commercial corporate governance, international ventures, mergers, acquisitions and company formation.

Posted, 24 February 2020 by Peter Murray
Categories: Corporate | Insights | Litigation