INEOS, which runs the Grangemouth refinery, has said it expects to be a major player in the North Sea for decades after announcing a bumper acquisition that will give it a significant presence West of Shetland.
The chemicals giant has agreed to buy the North Sea oil and gas portfolio of Denmark’s Dong Energy for up to $1.3 billion (£1bn).
The purchase will give Ineos stakes in giant fields off Shetland, Norway and Denmark and result in a dramatic increase in the scale of its North Sea business.
Owned by billionaire Jim Ratcliffe, Ineos said the deal positions it as a top 10 North Sea company and the biggest private business operating in the area.
It is eyeing more deals there.
Mr Ratcliffe said Dong’s oil and gas business is a natural fit for Ineos as the company continues to expand its upstream interests. The portfolio includes producing fields and finds that may be developed.
“This business is very important to us at this stage of our growth plans and we are delighted with the expertise that comes with it,” he noted. Some 440 Dong employees will transfer to London-based Ineos following the acquisition. Most work outside the UK.
The acquisition is the fourth Ineos has made in the North Sea since 2015, when it started developing an oil and gas business.
It provides a vote of confidence in the emerging West of Shetland area, which is attracting strong interest from majors.
The portfolio includes a stake in the giant Laggan Tormore development that Total brought onstream off Shetland last year following delays, and two fields that are under development in the area.
Asked why Ineos was expanding in spite of fears the oil price could remain under pressure for years, corporate affairs director Tom Crotty highlighted the appeal of buying into assets like Laggan Tomore. The field was developed using modern production technology.
Noting the portfolio also includes stakes in older fields, Mr Crotty said Ineos had shown it could generate value out of assets that others did not want to invest in. It is used to operating complex facilities.
“We have bought a lot of assets from people that did not really want them and reinvested in them, nurtured them,” said Mr Crotty.
Dong put its oil and gas assets up for sale after deciding to focus on its renewable energy business, which invests in windfarms off the UK. It will book a 2.5 billion krone (£0.3bn) gain on the sale.
Mr Crotty added that Ineos expects to be active in the North Sea for decades.
The acquisition of the Dong portfolio would help secure feedstock for Grangemouth but that was not the main driver of the deal.
Ineos has become increasingly convinced of the benefit of developing a rounded production and development business.
The costs of operating in the North Sea have fallen amid the crude price plunge.
The bulk of the output from the Dong assets will be sold on by Ineos’s global trading arm.
The acquisition will have no impact on its programme to import ethane from US shale fields to Grangemouth.
Mr Crotty said Ineos remains keen to explore the potential to develop onshore shale production in the UK.
A moratorium on unconventional oil and gas development in Scotland has been in place since January 2015.
The Dong portfolio includes stakes in the giant Ormen Lange and Siri area fields off Norway and Denmark respectively.
The assets contain around 570 million barrels oil equivalent (boe) commercial and potential reserves.
They produce 100,000 boe daily. Ineos produces 20,000 boe daily currently.
In October 2015 Ineos bought a North Sea portfolio from Russian billionaire Mikhail Fridman’s LetterOne group. This included a stake in the Clipper gas field. It acquired an additional interest in Clipper from Fairfield Energy the same month.
Last month Ineos agreed to buy the North Sea Forties Pipeline System and Kinneil terminal from BP for $250m.
Subject to regulatory consent, it will pay Dong $1.05bn, plus $150m depending on work on an oil terminal in Denmark and up to $100 million subject to the development of the Rosebank field West of Shetland.
Ineos operates Grangemouth and the Lavera refinery in France through the Petroineos joint venture it formed with PetroChina in 2011.
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