Thursday 25 January 2024

North Sea oil investments face 60% cash flow drop

Private equity firms invested in North Sea oil and gas could see a significant drop of over 60% in cash flow if global warming is limited to 1.7°C.

That's according to a recent report by Carbon Tracker, which highlights challenges for these firms amid a faster-than-expected energy transition, contrary to their current investment assumptions.

Many oil and gas companies base their financial plans on existing climate pledges, assuming a slower energy transition aligned with a 2.4°C pathway.

However, the International Energy Agency anticipates a decline in global demand for fossil fuels due to clean technologies and government climate policies.

The report identifies ten private equity-backed companies in the North Sea, pointing out risks such as falling demand and stricter climate policies.

Analysts note that companies with existing or approved projects might face substantial cash flow losses between 2024 and 2030 if the energy transition follows a 1.7°C temperature rise, compared to a slower 2.4°C pathway.

Mike Coffin, Carbon Tracker’s Head of Oil, Gas and Mining said: "The energy transition is accelerating and will erode demand for oil and gas, with severe repercussions for the financial health of many oil and gas companies.

"Private equity firms investing in such companies at this stage of the transition are taking a serious gamble. Firms could be left holding companies whose value has cratered, with no buyers willing to take them off their hands.

"Even under a transition progressing at a moderate pace, the value of these oil and gas investments could be significantly lower than anticipated."