* Pipelines, processing plants, terminals sought
* Pension funds interested in non-operating stakes
* Oil majors need to unbundle assets for quick sale
By Claire Milhench
LONDON, July 1 (Reuters) - The ageing oil and gas network ofthe UK North Sea is seeing a welcome rise in interest frominfrastructure specialists and pension funds, giving oil majorsa chance to offload unwanted assets and ultimately improverecovery from mature fields.
Britain's North Sea infrastructure has developed in an adhoc fashion over the years, and still tends to be owned andoperated by the original producers.
Now, with their own output on the decline, oil and gasmajors are unwillingly turning into service providers forsmaller producers who need access to these pipelines andplatforms to get their output to shore.
But oil majors want to reduce their stakes in these non-coreassets to free up capital for use elsewhere. This provides anopportunity for independent midstream owner-operators, pensionfunds and infrastructure funds to step in.
To date, there have been just a handful of transactions inthe UK midstream sector - most recently June's sale by BG Group of its majority stake in the CATS gas pipeline toFrance's Antin Infrastructure Partners.
This follows the 2012 sale of the Teesside Gas ProcessingPlant (TGPP) to North Sea Midstream Partners (NSMP), which isbacked by ArcLight Capital Partners, a private equity firmfocused on energy infrastructure.
Such transactions have been more common in the Norwegian andDutch sectors, but industry experts say there is no structuralreason why more deals cannot occur in the UK basin.
Andy Heppel, chief executive of NSMP, said the firm is keento grow by targeting acquisitions across the infrastructurespectrum, including oil and gas pipelines, onshoreprocessing/stabilisation plants and terminals.
"We are also thinking about new gathering platforms we couldinvest in on behalf of a number of smaller fields, which ontheir own couldn't fund and invest in the requiredinfrastructure," he said.
Attracting midstream players to Britain's North Sea was oneof the tasks Sir Ian Wood set for the new industry regulator inhis strategic review of the offshore oil and gas sector.
Wood pointed out that existing hub owners typically view theprovision of processing and transportation services to thirdparties as a low value activity. There is little incentive forthem to take on business which could ask risks to their ownoperations and use up capacity in their facilities, he said.
By contrast, independent midstream specialists don't havedistractions or alternative uses for their capital or people. Asa result, they can focus on investing in the infrastructure andenhancing the services provided, Heppel said.
"Consistent with the Wood Review, we believe we canencourage the development of the substantial remaining reservesin the UK basin in a quicker, more transparent andcustomer-focused fashion, without the distraction of an upstreamposition," he said.
"An open network can create massive value because ownershipof the network is no longer a blocker," agreed Philip Whittakerat the Boston Consulting Group (BCG). "An oil company reallycompetes on reservoir drilling and geoscience. Midstream isoften an inconvenience."
NEED TO UNBUNDLE
Pension funds and infrastructure funds are also taking aninterest in non-operating stakes. Antin's purchase followsinvestments by Dutch pension fund PGGM and Pension Danmark inDutch gas pipeline networks Nogat and NGT in 2013.
Infrastructure appeals to pension funds because of thestable, inflation-linked returns. At the time of its purchase,Pension Danmark said it expected to invest a further 1.21billion euros in infrastructure over the next four years, themajority of which would be in the energy sector.
However, if this ownership model is to gain traction,sellers will have to unbundle infrastructure stakes fromreserves, allowing buyers to target the assets they want.
Talisman, Shell and Marathon allhave North Sea assets on the block, but buyers are gettingpicky. In June, Marathon failed to sell its Brae facilities,saying it had received no "acceptable offer".
"They didn't budge on the price as they are not a distressedseller and they didn't desperately need the cash," said SamWahab, an oil and gas analyst at Cantor Fitzgerald Europe. "Webelieve they probably need to split the assets up and then sellto various independent companies."
Traditionally, producers have packaged sale assets together,so buyers wanting access to reserves might also have to take onplatforms, pipelines and a share in a processing terminal,whether they want them or not.
And whilst there is likely to be plenty of interest inpipeline stakes, the more dilapidated platforms in the North Seapresent bigger challenges. There is already a restricted pool ofbuyers for these assets and industry experts say asking pricesmust fall if oil majors expect to offload older rigs.
"The seller has to have realistic expectations about theprice that can be achieved," said Erin Moffat, an analyst in theUK upstream research team at Wood Mackenzie.
Neil McCulloch, president of the North Sea business atEnQuest, which specialises in extracting value from matureassets, added that some ageing assets don't offer sufficientvalue for a buyer.
"There has to be a sensible attitude by the seller as towhat they expect ... they have to be realistic about thedepreciation. If they've enjoyed all the proceeds from theoriginal reserves why would people take all the liability forgetting rid of the infrastructure?" (Reporting by Claire Milhench, editing by David Evans)
