NORTH Sea-focused EnQuest is buying a stake in a bumper oil field development for up to $375 million (£275m) in a deal the company said underlined its commitment to the area amid challenging times for the industry.
EnQuest has agreed to buy a near 30 per cent interest in the Golden Eagle area assets from Canada’s Suncor.
The deal comes as the industry grapples with the fallout from the coronavirus crisis, which has taken a heavy toll on the North Sea.
READ MORE: North Sea heavyweight gives up on two fields as oil price plunge buffets sector
Firms have slashed investment in the area in response to the resulting plunge in oil prices.
EnQuest last year decided to decommission two fields sooner than had been expected as it moved to cut costs.
However, EnQuest’s decision to buy the Golden Eagle stake reflects confidence in industry circles that there is still plenty of money to be made in the area by firms that focus on the right assets.
READ MORE: US oil giant in talks to sell bumper North Sea portfolio
The deal continues a shake-up in the North Sea that has been given fresh impetus by the fallout from the pandemic.
Some firms have decided to offload North Sea assets to raise funds they can deploy elsewhere or use to cut debts.
Others reckon the downturn has created opportunities to buy North Sea assets at attractive prices.
In July last year EnQuest bought a stake in the undeveloped Bressay oil field from Statoil for an initial £2m.
The Golden Eagle deal will allow EnQuest to acquire around 20 million barrels of reserves, which it reckons could support profitable production for years. Golden Eagle is a relatively new development and is expected to remain in production into the 2030s.
Amjad Bseisu, chief executive of EnQuest, described Golden Eagle as a high-quality, low-cost UK North Sea development. He noted: “Upon completion, this acquisition will add immediate material production and cash flow to EnQuest and will allow us to accelerate use of our substantial tax losses.
“It also demonstrates our continued commitment to the UK North Sea and diversifies our existing production base.”
The Golden Eagle development was brought into production in 2014 around 70 miles north east of Aberdeen. It is operated by China’s CNOOC and includes the producing Golden Eagle, Peregrine and Solitaire fields.
EnQuest has built a big North Sea portfolio helped by the acquisition of assets that it appeared other firms had lost interest in.
In an update on operations released yesterday EnQuest said it had performed well in 2020 after significantly lowering operating costs and re-focusing its portfolio on the highest value assets.
These include the giant Kraken heavy oil field East of Shetland, which Mr Bseisu said performed particularly strongly last year.
READ MORE: Shell boss expects oil giant to generate lots of cash from North Sea operations
In March last year EnQuest said it had decided not to restart production from the Heather and Thistle fields after rethinking its plans in response to the turmoil in the market. The fields had been shut in for remedial work.
The company cut around 500 jobs in the North Sea last year under a drive to reduce costs.
EnQuest expects to be able to limit operating costs to $15 per barrel oil equivalent this year.
Brent crude sold for around $58.50 yesterday afternoon. The price fell from around $70/bbl in January last year to less than $20/bbl in April. Members of the Opec + grouping of major exporters subsequently cut production to support the market.
EnQuest generated $210m cash from operations last year. It reduced net debt to $1.28bn from $1.4bn.
EnQuest reckons it could generate a $100m return on its investment in Golden Eagle at a long-term oil price of US$50/bbl.
Subject to approval by shareholders, EnQuest will pay Suncor an initial $325m for its 26.69% stake in the Golden Eagle assets and up to a further $50m depending on oil price movements.
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