North Sea entrepreneur Andrew Austin has found a new way to capitalise on the strength of demand for gas in the UK after warning the windfall tax will stifle investment in production in the country.
The Kistos Holdings venture led by Mr Austin has clinched a multi-million pound deal to buy onshore gas storage assets which it said would be of strategic importance amid the drive to boost the UK's energy security.
Kistos has agreed to pay French energy giant EDF £25 million for two storage sites that can be used to help respond to variations in demand while supporting the energy transition.
Mr Austin noted the potential to adapt the sites for use in the storage of low carbon energy sources such as hydrogen.
As the deal will involve Kistos acquiring two businesses which made total profits of around £32m in 2022 the company may be able to recoup its investment fairly quickly.
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Describing the move as interesting, analyst Jason Turner at joint house broker Berenberg said the acquisition had the potential to generate long term value for Kistos.
He noted the deal would give Kistos exposure to an asset class whose importance is not widely recognised.
Gas storage facilities can be used to respond to fluctuations in demand. They may have an important role to play in ensuring gas-fired power plants are able to respond to variations in renewable energy production associated with weather conditions.
“Flexible and storage assets remain under appreciated and although we believe 2023 will be a peak year, profitability is expected to remain materially above levels seen before the energy crisis,” said Mr Turner.
Mr Austin has acquired a reputation as one of the North Sea’s most successful deal-makers after using acquisitions to build significant businesses quickly.
He founded Kistos in 2020 months after selling North Sea-focused RockRose Energy for £250m to Viaro Energy.
Kistos became a significant UK producer by acquiring stakes in giant gas fields West of Shetland from TotalEnergies in February 2022, for an initial $125m.
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The deal signalled confidence in the long-term potential of the UK North Sea as a gas basin.
However, Mr Austin has been a vocal critic of the windfall tax the Government introduced in May 2022 following the surge in oil and gas prices fuelled by Russia’s war on Ukraine.
In April last year Kistos reduced its reliance on the UK North Sea by expanding into Norway through the acquisition of Mime Petroleum.
Mr Austin said then that the imposition of “punitive windfall taxes” and a lack of fiscal certainty in the UK and the Netherlands made it harder to invest in either country.
Industry leaders are concerned that the outlook for investment in the UK North Sea has become more uncertain in recent weeks.
This month the Labour party reignited the windfall tax furore by proposing to increase the total tax rate payable to 78% from 75%. Labour also said it would scrap the investment allowance that was introduced alongside the windfall tax.
The party dropped its plan to invest £28 billion a year in green energy projects amid concerns about how it would be funded.
"The UK political establishment are failing to understand what is required to achieve the energy transition in a sustainable way which protects investment, jobs and energy security," said Mr Austin yesterday.
The gas storage deal indicates that Mr Austin believes that demand for the commodity will remain strong in the UK for some time.
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Mr Austin said the Hill Top and Hole House facilities that Kistos is acquiring will complement its UK upstream assets and diversify the company’s presence across the energy value chain.
The storage facilities lie beneath working farms in Cheshire.
Kistos said Hill Top could deliver up to 11% of the UK's flexible daily gas. The Hole House facility offers significant additional capacity but is currently non-operational.
Ashley Kelty at Kistos’ joint house broker Panmure Gordon noted the profits generated by the storage operations would only be taxed at 25%.
Mr Austin said Kistos will evaluate all options to expand operations via other energy storage sources such as compressed air or hydrogen.
He added: “In essence, Kistos will own one of the most flexible "batteries" in the UK, vital for energy security and supply."
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