Deal in Focus: Norvestor defies oil & gas downturn with HydraWell

Despite a tumultuous global oil and gas market, Norwegian lower-mid-market GP Norvestor has acquired a 60% stake in HydraWell Intervention – an oil well integrity services provider based in Norway's oil capital of Stavanger.

The buyout followed a structured process and comes as the result of an extended effort by the private equity firm to find an attractive asset in the well integrity sector, which it had identified as an attractive space.

Norvestor partner Per-Ola Baalerud tells unquote": "HydraWell fits very well with our investment strategy and is in a sector we had been looking to invest in for some time. We like the combination of the stable market it operates in and the interesting opportunity HydraWell represents in terms of a non-oil-price driven investment."

At current oil price levels, few oil fields on the Norwegian Continental Shelf are profitable operations and the country's oil and gas industry – along with the related services sector – has been hit hard. Thousands of redundancies are expected, as well as a huge slowdown in new services contracts.

Permanent plugging and abandonment is one area that will not be affected negatively by the current oil market, and when oil prices come back up, infill drilling, slot recovery and well-repair will be in demand" – Per-Ola Baalerud, Norvestor

As a result, private equity firms have generally been wary of investing in the oil and gas sector in the past 12 months, compared to previous deal activity levels in the space.

However, Baalerud says HydraWell and the industry it operates in has not been hit by the crisis. "Permanent plugging and abandonment is one area that will not be affected negatively by the current oil market, and when oil prices come back up, infill drilling, slot recovery and well-repair will be in demand to get closed wells back in production," he says.

Steel-clad strategy
Norvestor has been a long-time investor in the Norwegian oil and gas sector and Baalerud says the GP will not be deviating from its roots any time soon. The firm closed its most recent fund, Norvestor VII, on its NOK 4.9bn hard-cap in early February and the remit to invest in North Sea oil and gas service companies has carried over from its previous vehicles. HydraWell is the second investment from Norvestor VII, which invests in deals with EVs between NOK 150m-1.5bn.

"Norvestor has been very consistent in its strategy and quite contrary to perception, we see good opportunities in the current market, so we are sticking with our strategy," Baalerud says. "We have been investors in oil and gas since the '90s and that is a really important part of what we do. Though there are slightly depressed markets these days in certain segments, and quite a lot of restructuring and capacity reduction happening, HydraWell has been growing consistently since inception and has continued to do so in the current market conditions."

The success of HydraWell also allowed Norvestor to tap the banks for leverage, which may not have been possible with more oil-price sensitive deals. Baalerud says the GP has taken a conservative approach to leverage in its past and that remains the case with HydraWell, which was financed with an all-senior package.

He also expects to be able to find growth financing for the company within the current debt market, with no need for alternative lending sources.
For HydraWell, the future is focused on international expansion. Founded in 2008, many employees are shareholders in the relatively young company and as a result, founders and employees wanted to retain a substantial stake in the business post-buyout.

"HydraWell has been successful in its current markets and is looking to establish abroad, which is part of the reason they were looking for partners," says Baalerud. "So far it is predominantly operating on the Norwegian Continental Shelf, but is looking to internationalise, taking the company first and foremost onto the UK Continental Shelf as well as other international markets."

People
Norvestor Equity – Per-Ola Baalerud (partner).

Further reading

• Investments

Oil & gas services still poised for investments, despite price fall

• 13 Feb 2015

• Industrials

Drilling down: time for PE to explore oil production?

• 03 Dec 2014

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