By Kristy Dorsey
Woodside Petroleum has opted to cut in on a deal that is set to generate millions in returns for shareholders in Edinburgh’s Cairn Energy.
The Australian group has exercised its right to match a $400 million offer from Russia’s Lukoil for Cairn’s 36.4 per cent stake in the giant Sangomar oil project in Senegal, taking Woodside’s share in the offshore joint venture to approximately 68%. Woodside will remain as operator on the $4.2 billion (£3.2bn) project.
Cairn originally announced in July that it would sell its stake in Sangomar to Lukoil, with “at least” $250m of the proceeds to be returned to shareholders.
READ MORE: $400m Senegal deal puts Edinburgh oil firm in strong position
However, Woodside has now exercised its right to pre-empt on the same terms and conditions in a move that will remove “the potential uncertainty of US sanctions” applying to the development. Lukoil is on a US list of sanctioned Russian firms that includes transactions related to deep-water oil projects.
If no other existing partners in the joint venture pre-empt before the deadline of August 26, Woodside will acquire Cairn’s share of the project. The deal is expected to complete in the fourth quarter of this year.
As per the previous terms with Lukoil, Cairn will receive $300m in cash upon completion. A further consideration of up to $100m will be paid dependant on the timing of first oil and the average price of Brent oil during the first six months of production.
“We look forward to completing the transaction with Cairn and working with all stakeholders, including potential new joint venture partners, to successfully deliver Senegal’s first oil project,” Woodside chief executive Peter Coleman said.
READ MORE: Cairn faces snag in plan to develop oil field
The deal will allow Cairn to reduce its dependence on Senegal while avoiding the hefty costs that would be involved in developing the Rufisque, Sangomar and Sangomar Deep finds it made there between 2014 and 2017.
Cairn has previously said it could use the proceeds from the deal to invest in growing its operations in other areas. The industry has been struggling with the plunge in commodity prices following the sharp reduction in global demand during the Covid-19 pandemic, leaving buyers for oil and gas assets in short supply.
Cairn expects to end the year with approximately $600m of net cash at a time when many in the sector are labouring under massive debts.
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