UK-based exploration and production company EnQuest has informed that it is holding discussions with Israel-based Delek Group for the sale of 20% interest in the Kraken development in the UK sector of the North Sea.
Kraken is a large heavy oil accumulation located in the East Shetland basin, to the west of the North Viking Graben; approximately 125 km east of the Shetland Islands. First oil production is expected in 2017.
EnQuest confirmed on Monday that the pair has signed a non-binding memorandum of understanding and are working towards executing binding transaction documents. Delek is on Monday releasing information concerning this negotiation as part of its disclosure obligations with regard to a separate transaction, EnQuest said on Monday.
According to EnQuest, the key terms of the proposal are currently as follows:
– EnQuest to farm out to Delek a 20% working interest in Kraken.
– Delek would bear its share in the project capex from January 1, 2016.
– At completion, Delek will advance $20 million to the seller for a period of up to 5 years at an annual interest of 3% which shall be returned to Delek in the event that its costs are not covered by revenues within 5 years from the completion date.
– The parties are discussing mechanisms for additional contingent consideration, to be set out in binding transaction documents.
– The parties may, prior to completion, by agreement and subject to requisite third party consents (including that of EnQuest’s lenders), convert the transaction such that Delek may acquire a subsidiary of EnQuest which holds a 20% working interest in Kraken.
EnQuest stated that there is no guarantee that a final agreement will be reached. EnQuest announced previously that in addition to its ongoing cost reduction initiatives, it was also pursuing a range of further opportunities for debt reduction, including potential asset sales and farm outs. The transaction is subject to EnQuest’s lending banks’ consent.
EnQuest also said it 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 noted that that if the pair agrees and signs binding transaction documents, completion of the transaction would be subject to the normal third party consents.
Earlier this year, EnQuest increased its stake in Kraken to 70.5% with the acquisition, for nominal consideration, of an additional 10.5% share from First Oil, thereby increasing EnQuest’s net 2P reserves by 13 MMboe. Cairn Energy holds the remaining 29.5% interest in the field.