Ithaca Energy, a subsidiary of Israel’s Delek Group, has decided to acquire Chevron North Sea Limited (CNSL) for $2 billion.
Offshore Energy Today reported back in late April that Delek Group had made an offer to buy a package of North Sea assets owned by oil major Chevron.
Ithaca Energy said on Thursday that the transaction will add a further ten producing field interests to the existing Ithaca portfolio, four of which relate to assets operated by the company, resulting in an approximately 150% increase in the proven and probable (2P) reserves of the company and a 300% increase in forecast 2019 production.
Pro-forma the transaction, Ithaca’s asset base is estimated to consist of 2P reserves of approximately 225 million barrels of oil equivalent (MMboe) plus a further 45 MMboe of proven and probable contingent (2C) resources associated primarily with additional near-field development and infill drilling opportunities.
The enlarged portfolio, encompassing 18 producing field interests in total, is forecast to deliver pro-forma 2019 production of approximately 80,000 barrels of oil equivalent per day (60% liquids) at an operating cost of approximately $17 per barrel of oil equivalent.
Chevron’s 500 employees to transfer
As part of the transaction, approximately 500 employees will transfer to the company, of which around 200 work offshore on the operated assets.
According to Ithaca, with the addition of the high quality, long life assets that characterize the Chevron North Sea portfolio, the acquisition delivers upon a number of key strategic objectives of the company and establishes Ithaca as the second largest independent oil and gas producer in the UK North Sea.
The transaction provides a material step up in the scale and breadth of the company’s producing asset base, establishes a wider portfolio of investment opportunities from which to grow the future cashflows of the business and enables accelerated monetization of Ithaca’s existing $2.2 billion of UK tax allowances.
The transaction has an effective date of January 1, 2019, and is expected to complete around the end of the third quarter of 2019 following approval of the acquisition by the UK Oil and Gas Authority. Taking into account the interim period cashflows that are forecast to be generated by CNSL from the effective date, it is anticipated that the price payable at completion will be around $1.65 billion, subject to adjustments for the transfer of working capital.
Ithaca is a wholly owned subsidiary of the Tel Aviv stock exchange listed Delek Group, Israel’s integrated energy company. The acquisition will be funded through an upsized $1.65 billion Reserve Based Lending (RBL) senior debt facility, a $700 million acquisition debt financing facility, an equity investment by Delek and existing cash resources of the company. Ithaca’s existing $300 million term loan and associated Delek guarantees will be retired as part of this refinancing.
JP Morgan is acting as financial adviser to the company in relation to this transaction. The RBL facility has been fully underwritten by BNP Paribas and the acquisition debt financing has been jointly underwritten by JP Morgan and BNP Paribas.
The deal “underlines Ithaca’s belief in North Sea”
Les Thomas, Ithaca Energy CEO, commented: “The acquisition of CNSL is a significant step forward in the long term development of Ithaca Energy and underlines our belief in the North Sea, particular in the UK Central North Sea where the enlarged business will own a range of interests in a number of key producing assets.
“We are very pleased to be acquiring a high quality portfolio of assets and experienced operational organization that fits well with our existing business. Like our current portfolio, the production and reserves base is heavily weighted towards operated asset positions, which provides us with the ability to actively prioritize and unlock the full potential of the business. We are excited about establishing an enlarged organization with a dynamic and innovative culture based on a continued commitment to safe and efficient operations.”
Asi Bartfeld, Delek Group CEO, added: “The acquisition is a key part of the Delek Group’s strategic focus on building a world class E&P business. Acquiring CNSL accelerates implementation of that strategy and further strengthens the Group’s oil and gas business. We see exciting growth opportunities in the North Sea and are looking forward to working with Ithaca to deliver upon our value and growth targets.”
Following completion of the transaction, Chevron will provide the security and remain financially responsible for the decommissioning obligations of Chevron North Sea Limited in respect of its interests in the Heather and Strathspey fields and the Cambo exploration well.
The producing field interests being acquired as part of the transaction between Ithaca and Chevron North Sea Limited:
It is worth reminding that Chevron recently tried and failed to acquire U.S. oil company Anadarko. Namely, Occidental Petroleum swooped in with a superior offer prompting Chevron to abandon its pursuit and take a termination fee of $1 billion.
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