In a matter of 22 months, First Reserve Corp. bought Highland Energy and sold it for four times its original investment. The buyer, RWE-DEA, a German oil and gas company, paid about $156 million for Highland, a British gas-producing company that was initially created to acquire and develop natural gas reserves in the Southern North Sea.
After taking 67% ownership in Highland in April 2000, First Reserve didn’t expect to exit the gas company so quickly but the right time.
“Sales in the oil and gas business depend on the commodity cycle. There is a very precise timing as to when you buy and when you sell. You don’t get that much choice,” said Tom Denison, a managing director at First Reserve. “While we were prepared to stay on with Highland, it was the right time to sell. We got a very acceptable price.”
Denison went on to say that there were other parties interested in buying Highland and while RWE was not the highest bidder, it was able to accommodate the capital structure most efficiently.
In the Beginning
First Reserve initially made an investment in Highland because it saw the opportunity to gain a leadership position in the Southern North Sea. At the time, the partners at First Reserve thought there was unrealized oil potential in the area, and they was right.
While under First Reserve’s direction, Highland managed to acquire fields from Statoil, CalEnergy and others. It also acquired Wintershall’s U.K. energy and petroleum subsidiaries. Additionally, Highland purchased interests in four producing fields, four development projects and various exploration blocks. After Highland made these acquisitions, it identified unrealized gas reserves that the sellers hadn’t even known about. Highland soon became the seventh largest holder of Southern North Sea gas reserves.
“Our management team was able to find some reserves. We wanted to complete the development of Highlands’ reserves ourselves but RWE’s offer just made more sense,” Denison said.