U.S. energy company Hess Corporation has made an agreement to sell its oil and gas interests in Norway to the Norwegian oil company Aker BP for total proceeds of $2 billion.
In addition to the sale of Norwegian assets and as part of its strategy to further focus the company’s portfolio and allocate capital to higher return assets, Hess also started a process to sell its interests in Denmark and is working on implementation of a cost reduction program expected to deliver annual cost savings of more than $150 million starting in 2019.
The transaction with Aker BP includes Hess Norge’s interests in the Valhall (64.05 percent) and Hod (62.5 percent) fields. Aker BP will also assume Hess Norge’s tax positions, which include a tax loss carry forward with a net nominal after–tax value of $1.5 billion, as booked in Hess Norge’s 2016 annual accounts. The Valhall and Hod fields produced an average of 26,000 barrels of oil equivalent per day net to Hess over the first six months of 2017.
Aker BP said on Tuesday that the transaction will be financed through its existing long-term Reserve Based Lending bank facility, and by the issuance of $500 million in new equity. The issue price will be determined through a book building process. Aker ASA and BP plc will subscribe for 40 percent and 30 percent of the shares to be issued, respectively, at the price determined through the bookbuilding process, or minimum NOK 155 per share. In addition, Aker and BP will underwrite the remaining shares to be issued at NOK 155 per share.
Through the transaction, Aker BP becomes the sole owner of the Valhall and Hod fields, where the company sees a great value creation potential through increased oil recovery and flank developments. Aker BP said it intends to increase shareholder dividends following the transaction. The company added it will subsequently seek to sell or swap a minority interest in the fields to partners.
Aker BP’s Chairman, Øyvind Eriksen commented: “The acquisition of Hess Norge is another move as a part of our ambition to grow the company. This investment allows Aker BP to raise the dividend level to $350 million per year with first uplift planned for fourth quarter of 2017. Through the equity issue, we are enabling Aker BP to grow further on the Norwegian Continental Shelf.”
Debt reduction & Guyana focus for Hess
“With the continued success of our asset sale program, we are focusing our portfolio on higher return assets and reducing our breakeven oil price,” CEO John Hess said. “Proceeds from these asset sales, along with cash on the balance sheet, will prefund development of our world class investment opportunity in offshore Guyana, where we have participated in one of the world’s largest oil discoveries of the past decade – positioning our company to deliver more than a decade of cash generative growth and significant value for our shareholders.”
Hess’ sale of interests in Norway combined with the company’s previously announced divestitures of its enhanced oil recovery assets in the Permian Basin and interests in Equatorial Guinea have captured approximately $3.25 billion in cash proceeds year to date. These reshaping moves including the planned sale of interests in Denmark will also extinguish approximately $3.2 billion in future abandonment liabilities. Speaking of Denmark, Hess said on Tuesday it would start a process to sell its interests in Denmark, where it holds a 61.5 percent interest in the South Arne field. This sales process is expected to be completed in 2018. The South Arne Field produced an average of 11,000 barrels of oil equivalent per day net to Hess in the first six months of 2017.
In addition, with a portion of these cash proceeds, the company expects to reduce Hess Corporation debt (excluding midstream) by $500 million in 2018. Together with the planned $150 million annual cost reduction program, these actions are expected to reduce cash unit production costs by approximately 30 percent – to less than $10 per BOE – by 2020.
Hess Norge AS has 19 employees. The board of Hess Norge AS consists of Johan Nic Vold (chair), Anders Nymann, Brian Truelove, Martin Edwards, Helena Deal and Gerbert Schoonman. Martin Edwards is managing director.
The transaction is subject to customary conditions for completion, including approval by the Ministry of Oil and Energy, Ministry of Finance and relevant competition clearance. The effective date of the transaction will be January 1, 2017, and closing is expected by the end of 2017.
In an effort to raise cash for its offshore development project in Guyana, Hess is also selling its assets in Equatorial Guinea to Kosmos Energy.
Offshore Energy Today Staff