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Francesco Mazzagatti, Chief Executive Officer, Viaro Energy
Published 17 February 2023
Francesco, thank you for taking part in the first of our executive interview series for 2023. It is a pleasure to also have you join the advisory board of the World Energy Capital Assembly.
It’s obviously been an exciting and successful couple of years at Viaro Energy to say the least – at a time when a lot of companies in the gas exploration and production sector were struggling to stay afloat, you made what some would call a rather risky move by making two substantial acquisitions within a single year. Can you tell us how you were able to recognize these opportunities and about your risk appetite in general?
First of all, thank you for inviting me to take part in the executive interview series, it is my pleasure to be a part of your network. As for your question, I do acknowledge that the recent acquisitions make me come across as something of a gambler, but the fact is that I am quite the opposite. I believe that in order to see a path forward, be a true visionary, one must first reflect back on what others before us have learned, either through failure or success, and analyze what got them there.
Having been in this industry for over a decade now, I have come to view risk as background noise, a given. But risk-taking for the thrill of a big win is ultimately a loser’s game. Understanding the mechanics behind it, taking the larger geopolitical, socio-economic, and environmental factors into consideration – counting the cards, if you will – and placing them into the context of the fundamentals of running an energy business, is what I would consider an authentic win, even if it might be less glamorous.
I believe this is what allowed me to ensure Viaro’s continued success, which you could say skyrocketed with the RockRose acquisition. In that particular scenario, it was about recognizing that a drop in demand for oil and gas exploration and production will prove unsustainable for some companies but be a mid-to-long-term opportunity for those of us that are well-positioned to play the long game. But ultimately, cutting through the noise of risk and proper planning are at the core.
The decision to acquire RockRose Energy was well thought out and methodical, because in looking past the Covid pandemic and the accompanying economic repercussions, I recognized it as the right opportunity to expand our footprint in the North Sea, in combination with the efforts we invested in growing the company organically. In the earlier days of Viaro, we chose to focus on the North Sea precisely because it was low-risk from the geopolitical and economic perspective and we spent over a year in discussions with a financial advisor before even settling on RockRose Energy.
The RockRose Energy acquisition marked a shift in our company strategy, and the SSE acquisition came as the natural next phase of that same strategy. In 2020, we reached a turnover of $1bn and have since gone on to complete several acquisitions and the development of the Arran gas field, where we invested $120 million and which began production in September 2021. We now have working interests in more than 30 fields within the UKCS and the Netherlands, with our output reaching c. 30,000 boepd in 2022.
The commercial oil industry has forever changed the economy and culture since its discovery in the 19th century, regardless of other pandemics, plagues, or natural disasters, so it was unlikely to crumble because of Covid.
You have managed to secure a significant market share for the Viaro Group in the UK market in a relatively short amount of time, as it now accounts for more than 9% of daily gas production. Based on your response to my previous question, that no longer appears to be a mere stroke of luck. What is your advice for small-size players looking to navigate and grow in the current environment?
I cannot give a one-size-fits-all response to that question, because it very much depends on each company’s strategy and the objectives it has set for itself. What I can do is speak for Viaro and say that we have a unique strategy combining targeted M&A opportunities with careful development of existing assets. We have made some well-timed acquisitions over the past few years and have invested in the redevelopment of some of our key assets, which has led to significant organic growth.
We started investing during the pandemic, when a lot of people stopped viewing the oil and gas industry as a lucrative sector to be in. But as I said, it is important to not lose sight of the bigger picture simply because we were in the midst of a crisis that was bound to end. What I mean is that the commercial oil industry has forever changed the economy and culture since its discovery in the 19th century, regardless of other pandemics, plagues, or natural disasters, so it was unlikely to crumble because of Covid. Such a simple fact, but easy to forget in a situation like that.
I was actually one of the few saying that in two years’ time, we would see oil above $100/bbl, and that if we did not invest capital in new development, we would face an energy crisis. Many considered it unrealistic, but it would appear that I was proven right in time, as reflected by our successful strategy.
Another point that might prove valuable to other market participants is that our status as a private company also contributes to our unique strategy, as it means we can reinvest all revenues in our future growth strategies and are not beholden to the same dividend requirements of public companies.
The new geopolitical landscape, as shaped by the 2022 Ukraine conflict, has brought about uncertainty and turbulence, but it has also allowed oil and gas giants to register record profits. Seeing as you appear to be able to think a few steps ahead, what would you say that 2023 holds for the industry and yourself?
I think 2022 was an interesting year because there was a big focus on the sector, particularly from a political perspective. In the UK, the focus was on domestic energy production in light of wider global political turmoil and supply chain instability. I don’t think this focus will shift in 2023, and in fact, I believe we will see an increased emphasis on the natural gas sector, as the UK moves towards a net-zero economy. This transition is bound to be accompanied by new investments and policies, which are likely to expedite things even further.
On a global scale, there are several matters to reconcile, as upstream companies will have to decide whether their priority is to provide affordable energy or pay out shareholders. Private companies like ours are under no obligation to pay dividends to shareholders, and in fact we have a no-dividend policy at Viaro. Our own strategy remains to reinvest in the North Sea, both in our existing developments and in new projects.
We will also keep our focus on supporting the energy security of the UK while we transition towards net-zero. I believe that oil and gas still has a major role to play in this transition, while also working to lower our CO2 emissions. The majority of our portfolio is gas, which has significantly less CO2 emissions associated with it compared to other traditional hydrocarbons. Today Viaro's emissions are in line with the average of UK industry.
The EPL has obviously frustrated many across the industry and there’s been no shortage of commentators pointing out the inconsistencies and potential unintended consequences here – what’s your take on things and what behaviours are we likely to observe from our community?
Any additional tax is never welcome in what is already a highly taxed and highly capital-intensive industry. We have been very disappointed by the government’s decision to increase tax by 25% virtually overnight and then by additional 10% after a few months. This clearly shows the instability of the tax regime and will definitely make energy companies nervous to invest in UKCS. I heard the Labour Party’s Davos interview about their views on oil and gas in UKCS, which would make the outlook even more uncertain, but I hope that common sense about the energy security will prevail among the politicians.
However, we must not forget to look at this matter from beyond the perspective of additional taxation, and I believe that this is where the new tax policy will come useful to ensure that oil and gas companies are taking their environmental responsibility in the transition seriously. Given that we are working towards net-zero for our operated assets, it is appreciated that the policy at least offers investment incentives for the companies that are focused on upstream decarbonization.
We are also in the early stages of several carbon capture storage (CCS) projects in both the UK and Dutch sectors. The Sean field in the Southern North Sea, in which we hold a 50% interest is a good indicator of our sustainability strategy. The field is due to cease production by the end of 2024, and instead of going down the traditional decommissioning route which is highly CO2-intensive, we are looking to repurpose the asset as a CCS project. Projects like this will be increasingly important as we move through the energy transition and will showcase the role of Viaro and other energy companies in it.
What’s next for Viaro – what does your next phase of growth look like?
As they say, if something is not broken, why fix it? We have very ambitious plans to continue to grow our North Sea business, both organically and via acquisitions. Today, Viaro is also well-positioned thanks to its strong and debt-free balance sheet that allow to plan a medium-term production target of 100,000 boepd compared to our current production of c. 25,000 – 30,000 boepd. We are currently looking at two near-term gas development projects, which are at an advanced stage. One of these could be on-stream by the end of next year, materially adding to our current production, while the other is still in the exploration phase. We are also in discussions with our partners to develop a fifth well in the Arran fields.
Viaro Energy are a premium sponsor of the World Energy Capital Assembly 2023, held in London on 13 – 14 November.
Viaro Group’s CEO Francesco Mazzagatti has been operating in the energy sector since 2012. He established Viaro Energy as a vehicle to facilitate the wider Viaro Group’s expansion into the upstream energy sector. Since then, Viaro Energy has seen substantial additional growth through highly value-accretive acquisitions, in conjunction with strategic asset divestments. These key transactions have resulted in a signiﬁcant majority gas-weighted production base with both higher production and lower environmental impact.
Viaro Energy, through subsidiaries, currently holds non-operating working interests in a large number of producing oil & gas ﬁelds within both the UK and Dutch sectors, as well as equity in associated infrastructure. These holdings translate to Viaro Energy being a partner in key terminals, such as the Shetland Gas Plant (UK) and the Den Helder gas plant (NL), in addition to being a material contributor to each country’s energy security. At present, Viaro Energy holds aggregated working interests in UKCS ﬁelds which provide over 9% of the total daily UK gas production on a gross basis and over 3% of the total UK daily gas production on a net basis.
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