Ithaca Energy Inc. announces that the Company has entered into an agreement to acquire a 28.46% non-operated interest in the Cook oil field (“Cook”) and a 7.41% non-operated interest in the Maclure oil field (“Maclure”) from Hess Limited (“Hess”) for a consideration of US$74.5 million and the transfer from Ithaca to Hess of a 10% interest in each of exploration Blocks 42/25b, 43/16a and 43/21c (“the SNS blocks”) in the Southern North Sea (the “Acquisition”).
Cook, operated by Shell, lies in Block 21/20a in the Central North Sea. Gross average production from the field for 2010 was 7,940 barrels of oil equivalent per day (“boepd”) of mainly oil (2,260 boepd net to Hess interest).
Maclure, operated by BP, is located in Block 9/19 in the Northern North Sea. The field produces mainly oil; gross average production from the field for 2010 was 5,857 boepd (434 boepd net to Hess interest) .
Maclure production is temporarily suspended. Production is routed through the third party owned Gryphon Floating Production Storage and Offloading vessel (the “FPSO”), which broke some of its moorings in February 2011. The operator of the FPSO is taking measures to investigate and repair the mooring system. The acquisition of Maclure is subject to pre-emption within 30 days of notification of the transaction by other parties in the Maclure field.
The Company has commissioned Sproule International Ltd (“Sproule”) to provide a Reserves Audit Opinion on Cook and Maclure. The opinion from Sproule is anticipated in approximately 40 days from this announcement and, on receipt, the Company expects to make a further, more detailed announcement including information on reserves and other potential upsides associated with the Acquisition together with details, if any, of pre-emption by any Maclure parties. Following completion of the transaction, Ithaca plans to engage Sproule to undertake a further comprehensive valuation of the new assets in accordance with the Canadian Oil and Gas Evaluation Handbook (“COGEH”) reserves definitions and evaluation practices and procedures as specified by National Instrument 51-101 (“NI 51- 101”).
Terms of the Acquisition
The Acquisition will be effected through a sale and purchase agreement (“SPA”) between Ithaca Energy (UK) Limited, as the purchaser, and Hess Limited, as the seller. The SPA contains customary provisions for a transaction of this nature in the oil and gas sector and is subject to DECC and co-venturer approvals.
The Acquisition is expected to complete in Q3 2011 with an effective date of January 1, 2011.
Financing of the Acquisition
The Acquisition will be funded from existing cash. Evaluation of the Acquisition with Lloyds Bank Corporate Markets (previously referred to as ‘HBOS’) indicates that the Acquisition should support an increase in Ithaca’s debt capacity of approximately US$45 million. In line with previous announcements on the Company’s debt facilities, the overall size of the Company’s debt facility is reasonably anticipated to increase from US$140 million to US$185 million. The Company has not drawn from this facility.
Iain McKendrick, CEO, commented:
“This acquisition strengthens the Company’s portfolio of producing oil assets and diversifies Ithaca’s existing UK North ea production base, whilst keeping decommissioning liabilities to a minimum. Significant non-operated interests, particularly in the Cook field, are highly strategic for the Company. It permits the Company to focus on extracting value from its existing operated portfolio, whilst being underpinned by additional non-operated production and cash flow being generated though the acquisition. Final negotiations to crystallise the transaction were conducted after the recent changes to the UK Fiscal system. Once again this demonstrates our capability to be opportunistic, execute accretive deals and build value for our shareholders”.
Source: Ithaca, April 4, 2011; Image: Maersk