A cluster of high-profile hedge funds are hoping to turn round the fortunes of a beaten-down North Sea oil and gas firm in which they have built sizeable positions as energy prices soar.
Taconic Capital, CQS and Kite Lake Capital are among funds that own positions in Norwegian Energy Company (Noreco), the second-largest oil and gas producer in Denmark, whose shares have collapsed by more than 99 per cent since their pre-financial crisis high.
Taconic and Kite Lake between them own more than 50 per cent of the company. CQS, one of London’s biggest funds, in March disclosed a stake of just under 13 per cent, with some of the position held in the fund personally run by billionaire founder Michael Hintze.
Caius Capital and Astaris Capital, a hedge fund launched last year by Martin Beck, former co-founder of Sothic Capital, also have positions, while York Capital has also been a shareholder.
Noreco has a market capitalisation of just 3.14bn Norwegian krone (£270m), and is unusual for having such a high concentration of hedge funds on its shareholder register.
Last week, the funds further tightened their grip on the firm, as Peter Coleman of Taconic and Jan Lernout of Kite Lake were voted on to the board at the firm’s annual meeting.
Noreco was once Norway’s second-biggest oil and gas company by production, but was hit by the slump in the oil price during the financial crisis. The firm has also suffered after cracks were found in one of its oil platforms in 2009. In 2018, it lost the court case for some $470m it had brought against 20 insurance companies it hoped would pay out over the cracks.
But later that year Taconic, Kite Lake, CQS and York helped fund Noreco’s purchase of Shell’s Danish upstream assets, making it the second-biggest oil and gas producer in Denmark.
Hedge funds are now pinning their hopes on what the company predicts will be a near-doubling of production by the second half of 2023, helped by the redevelopment of one of the fields it took a stake in as part of the purchase of assets from Shell.
The move to take seats on Noreco’s board was designed to support management in increasing gas production, said one of the funds.
The price of Brent crude slumped from $66 at the end of 2019 but fell below $20 last April as the coronavirus pandemic forced economies into lockdown. However, prices have rebounded to hit $70 this week, their highest in two months, as traders bet on higher demand as economies open up and international travel slowly resumes.
Funds are also hoping they can benefit from M&A in the energy sector, which has included Chrysaor’s reverse takeover of Premier Oil late last year and Waldorf Production’s purchase of North Sea assets from Cairn Energy in March.