EnQuest, the UK’s biggest independent operating in the North Sea, is poised to agree a farm-out worth $20million (£15m) on a key asset.
The buyer is a subsidiary of Delek Group, the Israeli conglomerate, which would grab a 20per cent interest in the giant Kraken field in the East Shetland basin.
EnQuest has a 70.5 per cent stake in the Kraken licence, one of the largest development projects in the North Sea, while Edinburgh-based Cairn Energy has the remaining 29.5 per cent stake.
In May EnQuest chief executive Amjad Bseisu revealed it had been holding talks with lenders about potential asset sales and cost-cutting as it looked to reduce debt in light of the challenges facing the oil and gas industry.
The company said yesterday it had signed a non-binding memorandum of understanding with Delek and was working towards executing binding transaction documents.
The key terms of the proposal are that EnQuest farms out a 20per cent working interest, reducing its stake to 50.1per cent, with Delek bearing its share in the project’s capital expenditure backdated to January 1 this year.
At completion, Delek will advance $20m (£15m) to EnQuest, but structured as a five-year loan at three per cent, as an insurance against Delek’s costs in the project not being covered by revenues within five years.
The companies are discussing mechanisms for further contingent payments.
However, subject to agreement by EnQuest’s lenders, the deal may convert to a straight sale of the 20per cent working interest through Delek acquiring an EnQuest subsidiary which holds it.
The company said: “The transaction is subject to EnQuest’s lending banks’ consent. EnQuest continues to closely monitor and manage its funding and liquidity position in light of the current market environment and is engaging as appropriate with its credit facility providers (including banks and bondholders) in this regard.”
EnQuest took its stake to its present level when it picked up the 10.5per cent held by First Oil Expro, for a nominal consideration, after the Aberdeen company led by Ian Suttie went into administration in February. Cairn Energy took the remaining 4.5per cent held by First Oil.
A month ago EnQuest stressed that it was “not in any company-specific talks” with the Oil & Gas Authority, following a report that the authority’s contingency team was weighing up possible support for the company in the light of the importance of the Kraken development to the UK economy.
EnQuest said it “routinely engages with the OGA and with the UK and Scottish governments on industry matters”. That announcement spurred the shares 11per cent to 32.5p.
The shares were at 41.75p a year ago, and slumped to below 15p in March but climbed to 40p again in April. They slipped 0.25p to 29.5p yesterday, valuing EnQuest at £236m.
EnQuest has interests in 30 UK production licences, operating 25 of them. Earlier this month it reported "excellent" in its drilling programme in the central North Sea, with a discovery on the Eagle prospect and a small reserves upgrade on the Scolty and Crathes fields.
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