The protracted low oil price environment is forcing changes in the United Kingdom Continental Shelf (UKCS) infrastructure, as more oil and gas companies divest pipeline assets to rationalize their portfolios.
Given the fact that these assets have delivered solid and consistent returns over the past five years, there is a sizable market among private equity and specialist infrastructure funds. Indeed, business advisory firm Deloitte's latest European Infrastructure Investors Survey noted that pipelines have performed well compared with other infrastructure, providing an internal rate of return (IRR) on pipelines of 14% in the period 2013-2016.
Shaun Reynolds, Director of Deloitte Transaction Services, said "the ownership model has evolved, driven by the maturity of the basin and the low oil price. Established players are divesting to shore up their balance sheets, and infrastructure is comparatively less complex to value and sell, with a ready market at the right price."
In 2015, BP sold its stake in the Central Area Transmission System (CATS) to Antin Infrastructure Partners in a £324 million deal. Antin had bought BG Group out of its stake the previous year, giving it near-complete ownership of the asset.
As global oil production is predicted to rise to 97.6 million a day in 2020 (U.S. Energy Information Administration), placing additional pressure on prices, more operators will likely seek to rationalize their oil and gas infrastructure. According to Reynolds, "deals are brewing in the UKCS – and we’ll see more on the infrastructure front in the short- to medium-term.”