Maersk Oil triumphed at the Oil & Gas Council’s Africa Assembly Awards in London last night, jointly winning with Africa Oil Corp for “Deal of The Year” for its farm-in deal in November 2015.
Ebbie Haan, Chief Growth Officer, collected the award, having been involved in an East Africa panel session at the conference alongside partners, stakeholders and government representatives earlier in the day.
The deal was the acquisition of 50% of Africa Oil Corp share in three onshore exploration licences in the Turkana region of northern Kenya and two licences in Ethiopia. The licences cover an area of ca. 100,000 square kilometers and include nine recent oil discoveries, with ongoing exploration and appraisal activities. Four of the blocks are operated by Tullow Oil and one by Africa Oil.
Ebbie Haan, Chief Growth Officer (right) holds the Deal of the Year award aloft in London.
Deal Delivery
The deal stood out, Ebbie says, for a number of reasons.
“Firstly, there is the industry backdrop to the timing of the deal. We completed in the middle of a big slide in oil price – during which a lot of people had anticipated a raft of deals coming thick and fast. However, aside from Shell-BG, there were very few – the gap between buyers and sellers expectations was just too large in most cases.”
Indeed, M&A activity 2014-15, rather than accelerating, was almost in paralysis, with sellers refusing to discount and buyers convinced assets and opportunities were not being priced at reasonable levels.
In addition to the deal materialising, the way the deal was structured was a product of that particular moment in time.
“Africa Oil had a lot of faith and expectations for the potential size of the asset. However, a large part of that anticipated upside is not yet proven. So, as is often the case, the lack of a satisfactory agreement over the value could have been the end of the deal and both parties would have walked away.
“However, we found a way, through a novel construct, which involved a base consideration for the money Africa Oil had spent on the asset so far and, if the asset proves as good as the more positive expectations suggest, then further payments as the resource is proven.
“The deal with Africa Oil overcame the backdrop of the low oil price and bucked the M&A market malaise. It was also competitively priced and is an example of how counter-cyclical investment in a distressed market can add real value,” explains Ebbie.”
Intelligent investing
To further de-risk the investment from a Maersk Oil perspective, future contingent payments aren’t cash either. “We agreed to carry Africa Oil through the exploration and development phases. So that money is deployed to shore up the development. It is the commercial construct, and that we were able to reduce the gap between buyer and seller in an innovative and equitable way – coupled with a really good relationship developed between the two commercial teams – which made this deal rather special,” says Ebbie.
There is, Ebbie says, the potential to use a similar model in the future. “This kind of construct could be another avenue for us to do more deals – particularly with smaller companies because they need the short-term cash and they don’t want to lose out on the upside because they have taken the risk. So we can reward that risk taking and we still gain access without further funding until resources are proven or development stage gates fulfilled.”