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Screenshot of a breaking news alert e-mail from Q2 2017
EnQuest PLC announced an agreement to acquire from BP an initial 25% interest in the Magnus oil field representing c.15.9 MMboe of additional net 2P reserves (gross reserves of 63.4 MMboe) with net production of 4.2 Mboe/d in 2016 (gross production 16.6 Mboe/d) as well as a 3.0% interest in the Sullom Voe oil terminal and supply facility (SVT), 9.0% of Northern Leg Gas Pipeline (NLGP), and 3.8% of Ninian Pipeline System (NPS) (collectively the “Transaction Assets”).
EnQuest currently has existing interests of 3.0% in SVT, 5.9% in NLGP and 2.7% in NPS.
EnQuest will become the operator of the Transaction Assets.The transition for the change in operatorship is anticipated to take between 6 and 12 months.
The consideration for these interests is $85 million (subject to working capital and other adjustments), which will be funded by deferred consideration payable from the cash flow of the Transaction Assets. There are no requirements for cash from EnQuest other than as generated from the Transaction Assets. In addition, EnQuest has an option to acquire the remaining 75% of Magnus and BP’s interest in the associated infrastructure. EnQuest also has the option to receive $50 million from BP in exchange for undertaking the management of the physical decommissioning activities for Thistle and Deveron and making payments by reference to 6% of the gross decommissioning costs of Thistle and Deveron fields.
Some of the highlights include:
- Operatorship and acquisition, from BP, of an initial 25% interest in Magnus oil field and interests in infrastructure assets, including the Sullom Voe terminal
- Adds 15.9 MMboe of net 2P reserves and net production of 4.2 Mboepd (based on 2016 production)
- Good operational fit, close to other EnQuest operated assets
- Builds on efficiency programmes at SVT, increasing predictability of cost and extending facility life
- Recognises EnQuest as a leading operator for maturing assets with significant remaining resource potential
- Sharing the benefits of cash flow improvements and field life extension made by EnQuest as operator
- No cash requirements other than from the Transaction Assets and no exposure to cumulative negative cash flows maintains EnQuest’s near term financial position while enabling longer term growth and profitability
- Limited economic exposure in relation to decommissioning costs. In relation to the Transaction Assets this is capped at the cumulative positive cash flows received by EnQuest from the Transaction Assets
- The option to acquire an additional 75% interest in Magnus and BP’s interest in associated infrastructure
- The option to receive $50 million in cash in exchange for undertaking the management of the physical decommissioning for Thistle and Deveron reflects the industrial logic for the natural operator for the decommissioning phase of Thistle and Deveron, including an alignment of interests of parties involved in the production and decommissioning phases
EnQuest CEO Amjad Bseisu said:
This transaction capitalises on EnQuest’s strengths in realising value from the management of maturing oil fields, as underlined by BP’s confidence in proposing a change of operatorship to EnQuest. Magnus is a good quality reservoir; it has large volumes in place, with potential for infill drilling and for the revitalisation of wells, and scope for field life extension. It is a producing asset that would materially increase EnQuest’s reserve base. We are a natural strategic partner to BP for maturing assets and this innovative structure represents a natural evolution of EnQuest’s business.