Piper Sandler offers guidance on mergers and acquisitions in the energy industry

In recent years, significant transformations have unfolded in the UK’s energy sector and financial landscape. Evolving regulations and policies have heightened market volatility, leaving many seeking clarity in uncertain times.

Labour initially set out goals to position the UK as a leader in renewable energy by focusing on offshore and onshore wind, hydrogen, and solar investments instead of issuing new exploration licenses. This shift in government policy has prompted investors and industry players to reassess their strategies for energy production and financial allocation.

Equinor and Shell, as well as Ithaca Energy and Eni, have announced plans to combine their UK offshore oil and gas assets, signaling a consolidation trend in the industry. NEO Energy and Repsol have also revealed a strategic merger in the North Sea region, with Repsol planning job cuts as part of their operational restructuring efforts. Conversely, Apache has declared its intent to cease all North Sea operations by 2029, attributing this decision to the UK energy policy and tax regime.

While the Labour government envisioned renewable projects driving job growth, boosting domestic production, and stimulating the economy, the industry remains cautious. The UK trade body OE UK emphasizes the necessity for government support in investing not only in renewable sources like wind, hydrogen, and CCUS but also in homegrown oil and gas to prevent an energy import gap.

With Labour’s Spring Statement lacking substantial references to energy policies and expenditures, concerns arise regarding the achievement of clean and low-carbon power targets by 2030 due to potential underinvestment. Additionally, the UK Treasury’s contemplation of funding cuts for GB Energy raises uncertainties about the government’s commitment to its energy initiatives.

Acknowledging the discontent within the traditional energy sector, Labour has pledged to reassess the windfall tax regime post-2030 and engage in dialogue with operators to enhance the effectiveness of the EPL for the North Sea’s sustainable future. Notably, the approval of the Jackdaw and Rosebank oil and gas developments signifies Labour’s commitment to honoring existing North Sea licenses despite past legal challenges.

In light of mounting pressure and industry adjustments, the UK appears poised for a transitional phase in energy policy, steering away from the turbulence and unpredictability of previous years. Although EPL taxes have rendered the UK oil and gas markets less appealing, ongoing M&A activities in offshore equipment and energy services underscore the resilience of the UK’s energy supply chain.

International businesses with transferable expertise continue to engage in transactions, facilitated by financial advisors like Piper Sandler. Recent acquisitions such as Sentinel Marine by Cyan Renewables, ROVOP by The Chouest Group, and Seatronics & J2 by Ashtead Technology demonstrate a continued flow of investments within the sector.

Overall, the evolving landscape in the UK’s energy industry, characterized by regulatory transformations, strategic partnerships, and shifting governmental priorities, signals a potential turning point towards stability and sustainability in the nation’s energy future.