Private equity firms invested in the North Sea may see cash flow from oil and gas fall by 60%

© Matteo Miliddi

INSIGHT by CarbonTracker

Private equity firms invested in the North Sea could see cash flow from oil and gas fall by more than 60% below expectations if global warming is held to 1.7°C, finds a report from the financial think tank Carbon Tracker published today.

It says many oil and gas companies are only taking into account existing climate pledges in their investments, assuming a slow energy transition consistent with a 2.4°C pathway. However, clean technologies, supported by government climate policies, are eroding global demand for oil and gas and the International Energy Agency expects it to peak by end of decade. The report warns that the energy transition is irreversible and accelerating falling demand will drive down commodity prices, and with it the cash flows and value of oil and gas companies.

Private Eyes Wide Shut – Private Equity Investments in Oil and Gas at Risk in the Energy Transition notes that companies backed by private equity are usually left with heavy debts after their purchase and “could be disproportionately at risk of financial distress if cash flows falter”. Oil and gas producers face a range of risks including falling demand, tighter climate policy, and the possibility of decommissioning liabilities coming forward.

It identifies 10 private equity-backed companies active in the North Sea: NEO Energy, Sval and Vår Energi (all backed by HitecVision); Harbour Energy and Repsol (both backed by EIG); Pandion Energy and Star Energy Group (both backed by Kerogen Capital); Neptune Energy (backed by Carlyle and CVC Capital Partners); ONE-Dyas (AtlasInvest); Wellesley Petroleum (Bluewater) and finds:

Eight companies with existing or approved projects would risk losing between 63% and 100% of their aggregate cash flow between 2024 and 2030 in a moderately-paced transition in line with a 1.7°C temperature rise compared with what they would expect in a slow transition in line with 2.4°C. (Wellesley only has unapproved projects and Star only holds a licence.)

Most companies have a significant portfolio of projects yet to be approved that are not even consistent with a slow transition. These are the only options held by Star.

Without new development most companies’ 2030s production will be under 25% of 2022 levels.


“The North Sea offers a case study of the risks that private equity backed upstream producers face from both new and existing fields. Companies are chasing marginal, more expensive barrels of oil in an already difficult cost environment. The likelihood of these higher-cost barrels remaining economic in a fast transition scenario seems to be decreasing.”

-Maeve O’Connor, author and Oil, Gas & Mining Analyst at Carbon Tracker


Private equity firms source most of their capital from investors such as insurance companies, pension funds and asset managers. The report warns investments could be at risk unless they scrutinise private equity valuations of oil and gas investments to ensure they properly account for risks in the energy transition.

North Sea production has been in decline for two decades and its mature fields are reaching the end of their productive lives. Oil majors and utilities have been selling off their assets and companies backed by the 10 private equity firms now control about 13% of all production.


“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.”

-Mike Coffin, Carbon Tracker’s Head of Oil, Gas, & Mining


Private equity firms now face decisions on whether to direct companies to increase production – a strategy the report warns is increasingly risky when these companies already face threats to cash flows from their existing projects. Investing to extend the lifetime of fields or develop new fields is expensive and new production could take three to five years to come online, and be exposed to commodity price fluctuations through the 2030s and beyond:

NEO is due to make a final investment decision in 2024 on two UK projects which are unlikely to break even in a moderate transition: the $249 million Affleck Redevelopment; and $171 million Leverett project, which also involves Harbour.

Sval, Neptune and Vår are due to decide whether to greenlight investment on two smaller projects in Norwegian waters which would not even be economic in a slow transition.

However, Pandion and Vår have significant production locked in from existing projects, leaving them particularly exposed to future falls in commodity prices.


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