British-Borneo Oil & Gas PLC

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British-Borneo Oil & Gas PLC

9th Floor, East Wing, Bowater House
68 Knightsbridge
London SW1X 7BN
United Kingdom
Telephone:+ 44 (0) 20 7590 6400
Fax: +44 (0) 20 7590 6499
Web site: http://www.british-borneo.co.uk

Public Company
Founded: 1912 as The British-Borneo Petroleum Syndicate
Employees: 131
Sales: £133 million (1999)
Stock Exchanges: London
Ticker Symbol: BBOR.L
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 211112 Natural Gas Liquid Extraction

Formerly known as The British-Borneo Petroleum Syndicate, British-Borneo Oil & Gas PLC is one of the United Kingdom’s oldest oil companies. It is also the U.K.’s third largest independent oil company (following Enterprise Oil PLC and LASMO PLC), the U.K.’s sixth largest overall oil company (adding Shell Transport and Trading Co. PLC, Premier Oil PLC, and Cairn Energy PLC), and one of the leading oil and gas exploration and production companies in the world. The company is active on six continents, with a core focus in the United States, the United Kingdom, and Australia, particularly in deep-water drilling in the Gulf of Mexico and on low-risk exploration on the U.K. Continental Shelf in the North Sea.

Gas Progenitors: 1792-1948

As far back as 1792 in England, William Murdoch (1754-1839) piped gas into his home at Redruth to light it. Employed as an engineer at Cornwall-based Boulton & Watt, Murdoch moved shortly thereafter to Birmingham to develop gas lighting commercially. Together with another former Boulton & Watt employee, Samuel Clegg (1781-1861), who became his assistant in 1801, Murdoch began installing commercial plants in 1805. Fredrick Albert Winsor (1763-1830) meanwhile, who had seen gas lighting experiments by Philippe Lebon (d. 1804), began giving lectures on the subject at the Lyceum Theatre in 1804, as well as demonstrations at Pall Mall and Carlton House Terrace in 1807. This led to Winsor’s attempt to create a national company to produce gas at central stations and pipe the gas to users all over England, which Murdoch opposed. In 1810, Winsor secured an Act to create The Gas Light and Coke Company, which was financed and commenced operations in 1812, and Preston became the first city to be so lit, in 1816.

Thus began over 150 years of stiff regulation of the gas industry by the British government, including The Gas Works Clauses Acts (1847, 1871), The Sale of Gas Act (1859), the founding of The Gas Workers’ Union (1889), The Gas Regulation Act (1920), and The Gas Act (1948), which nationalized the gas industry in England, Scotland, and Wales.

British-Borneo Petroleum Syndicate: 1912-88

Founded in 1912, British-Borneo Petroleum Syndicate was created to oversee oil and gas licenses in British North Borneo and Brunei, where it also carried out exploration operations until 1925. Exploration continued in other areas of the world until World War II. By this time, there were over 1,000 local gas interests in the United Kingdom. With the institution of The Gas Act in 1948, they were divided into 12 Area Boards, all of which reported to the newly created Gas Council (1949), which was to act as a liaison to The Ministry of Fuel and Power. With the stringent regulations and nationalization of the industry, British-Borneo left the active exploration of the industry and entered into a period of relative dormancy—running for more than half a century—in which it operated as an investment company with a bias towards the oil sector, investing in other firms such as British Petroleum, Royal Dutch/Shell, and Ultramar.

The Gas Council was abolished in 1973 and replaced by The British Gas Corporation (BGC). With the passing of The Oil and Gas (Enterprise) Act in 1982, the British government allowed BGC to carry third-party gas to users. In turn, this led to the privatization of the industry on August 24, 1986, when the government transferred the assets of BGC to British Gas PLC, then owned entirely by the government. Shares were offered for the first time in December 1986.

Acquisitions and Changing Core Competencies: 1989-99

With the privatization of the gas and oil industries, British-Borneo began to come out of the cocoon of safe investments it had wrapped itself in. In 1989, the company, which until that time had no full-time employees, hired Alan J. Gaynor, formerly of Whitehall Petroleum, a North Sea exploration company which was later acquired by Amerada Hess, and also a former executive of British Petroleum (now BP Amoco PLC). Gaynor, who had just sold his own company, GB Petroleum, was charged with helping the company liquidate its £20 million in investments in other companies and put the proceeds into safe oil exploration assets, thus avoiding large capital gains taxes. Gaynor turned British-Borneo’s focus back to direct participation in the oil and gas industry, as the company, during the next three years, began extensive efforts to expand its business in the United Kingdom, most notably through the £55 million purchase of Norsk Hydro’s U.K. assets, as well as acquiring a ten percent stake in the Victor gas field and Unocal’s remaining U.K. business. Gaynor also brought in more talent, securing Steve Holliday, formerly of Exxon, as international director in charge of managing international expansion, and Peter Hill, Hardy’s former exploration director, as technical director, to oversee the company’s exploration efforts.

In 1995, the company acquired the deep water Morpeth field from Shell Oil, making British-Borneo the only independent in the industry with a deep water presence in the Gulf of Mexico. In conjunction with Houston, Texas-based firm Atlantia, the company created a new mono-hull tension leg platform called SeaStar.

In 1997, the company purchased an eight percent interest in Australia-based Petroz, giving British-Borneo assets in the cooperative zone between Timor, Indonesia, and Australia. Also that year, the company received a 17.5 percent stake in two highly prospective areas in the Shetlands region of the United Kingdom.

More growth occurred in September 1998, when British-Borneo acquired 62.8 percent of rival U.K. independent Hardy Oil & Gas. The merger strengthened British-Borneo’s position in the United Kingdom, as well as gave it entrance to the Australian market and the emerging Pakistani market; Hardy, meanwhile, received funding for exploration and appraisal efforts, easier financing for development projects, and access to the Gulf of Mexico deep water fields. The combined company, now known as British-Borneo Oil & Gas PLC, placed itself in the top ranks of independent British oil and gas firms.

Later that year, a major field was discovered in Pakistan, and a joint-venture between British-Borneo’s Hardy division, Pakistan Petroleum Limited, and Exploration GmbH began to develop it. Also during 1998, the company began utilizing its SeaStar platforms off the coast of Brazil in joint ventures with Amerada Hess, PETROBRAS, and Odebrecht.

The Bayu-Undan liquids and gas development project (of which British-Borneo owned 6.72 percent), located in the Zone of Cooperation between East Timor and Australia, made significant progress in 1999. In November of that year, the partners (which included Phillips Petroleum Company) sanctioned development of the first (liquids) phase of the project (comprising the offshore facilities) to produce and process 1.1 billion standard cubic feet per day of raw gas, extraction of 110,000 barrels per day of condensate and liquid petroleum gas, and the re-injection of the resulting dry gas. Total cost for this first phase was estimated to be US$1.4 billion, with British-Borneo footing US$92.9 million of that, and production was scheduled to begin in late 2003 or early 2004. In the second phase of the project, Bayu’s significant gas resource would be exported to shore near Darwin, Australia, where the company continued to make progress developing options for both domestic gas sales within Australia and possible export.

Another example of British-Borneo’s drilling success in 1999 was the company-operated Woollybutt, Australia oil field—of which British-Borneo owned 30 percent—where a successful appraisal well was drilled in 1999. The “rationalization” of the company’s Australian portfolio was completed in early 1999, with the sale of its producing interests in Harriet and East Spar for US$80 million, together with interests in a number of exploration leases in the Gulf of Mexico. Finally, the company was awarded a 50 percent interest in a deep-water block in the Canning Basin, offshore Western Australia, during that year; the other 50 percent went to U.S.-based Kerr-McGee Corporation.

During 1999, British-Borneo’s oil and gas production more than doubled from 1998, to 43,233 barrels of oil equivalent (boe) per day, and the company had proven and probable reserves of 262 million boe. Total revenue for 1999 climbed to £133 million, up from £62 million in 1998, and net profit on the year climbed back into the black, reaching £16.9 million, following 1998’s net loss of £81 million.

Company Perspectives:

We are an independent oil and gas exploration and production company with booked reserves of 254 million barrels oil equivalent (boe). We aim to combine the best practices of a major with the innovation and rapid response of an independent.

However, things were not coming up all roses. A number of setbacks plagued the company. Delivery of Morpeth development wells was slow, resulting in what CEO Gaynor called in the fiscal 1998 annual report “a substantial cost overrun and delayed peak production.” A sustained fall in world oil prices during 1997-98, which brought them to their lowest levels for 12 years, combined with what CEO Gaynor called in the fiscal 1998 annual report “a slower than anticipated build-up in production at [the] Morpeth field in the deep water Gulf of Mexico” significantly “reduced cashflow and increased [the company’s] borrowing requirement.” Early abandonment of the Durward and Dauntless fields in the North Sea cost the company some £14 million and operational problems led to lower productions than forecast at both the Allegheny and Morpeth fields. In the latter half of 1999, difficult sea conditions known as “loop currents” shut down operations on both the Morpeth and Allegheny platforms for nearly three months, increasing costs and delaying planned drilling and completion work. Around October, Allegheny went back on stream, but only had three producing wells, two of which did not perform as expected, and one of which was shut pending rededication in 2000.

By the end of 1999, the company was facing a total debt of £525 million and, according to the company’s fiscal 1999 annual report, “cash flow and debt level [were] adversely affected, greatly reducing the company’s financial resilience. Consequently the Board has been seeking purchasers for its Gulf of Mexico business and certain other assets to reduce borrowings and restore financial flexibility.”

To that end, in September 1999 British-Borneo entered into an agreement with Jehan Energy Limited to sell the entire share capital of Hardy Exploration & Production India Inc. to Jehan. Under the terms of the agreement, Jehan took over the entire business of Hardy in India with the exception of the interest in the contact area known as CB-OS/1. All national staff continued in their positions and expatriate management was supplemented by Jehan personnel.

Changing Hands: 2000

As the company moved into its new headquarters at Bowater House, Knightsbridge, London in March 2000, British-Borneo agreed to an offer to be purchased by Agip (U.K.) Ventures PLC, a division of Italian energy group ENI S.p.A., for approximately £788 million in cash and debt acquisition, ending nearly a century as an independent British oil and gas company.

One of the world’s largest oil and gas operators, ENI was also one of Italy’s largest companies. Based in Rome, ENI operated natural gas networks, electric power plants, refineries, service stations, and engineering firms. The acquisition of British-Borneo allowed ENI’s hydrocarbon production group to double its production in the Gulf of Mexico, as well as strengthen its position in Australia and Brazil, and provide the Italian concern new entry into the emerging Asian markets.

Principal Competitors

Enterprise Oil PLC; LASMO PLC; Shell Transport and Trading Co. PLC; Premier Oil PLC; Cairn Energy PLC.

Key Dates:

1912:: British-North Borneo Petroleum Syndicate is founded.
1925:: The oil and gas management and exploration firm begins a lengthy period of shelved operations, choosing instead to function as an investment company.
1989:: British-Borneo resurfaces, liquidating its £20 million investment cache and ultimately pursuing oil and gas exploration once again.
1998:: Name changes to British-Borneo Oil & Gas PLC after merger with U.K. rival Hardy Oil & Gas.
2000:: British-Borneo agrees to be purchased by Italian energy group ENI (Ente Nazionale Idrocarburi) S.p.A.