30th Apr 2014 08:52
LONDON (Alliance News) - Tullow Oil PLC Wednesday pushed ahead with the sale of its UK gas assets in the southern North Sea, selling stakes in two assets to Faroe Petroleum for USD75.6 million plus a royalty on developments at one of the assets.
The deal will nearly double Faroe's production this year, and marks the company's first move into operating assets already in production. Its shares hit their highest level for more than a year on the news.
Tullow Oil, which also said its 2014 production guidance remains unchanged at between 79,000 and 85,000 barrels of oil equivalent a day, said that Faroe is buying 60% of its Ketch asset and 53.1% of the Schooner asset in which Tullow holds 93.1%.
Tullow said it will pay USD58.8 million when the deal completes and the rest when cumulative production milestones are hit.
It said it is continuing to market the rest of its gas assets in the southern North Sea as well as in the Netherlands. Last year it sold its gas assets in Bangladesh and signed a deal to sell its Pakistan business, part of a strategy of refocusing the business on oil exploration and development.
"Schooner and Ketch have been critical to Tullow's success and growth since they were acquired in 2005. During a transformational period of growth for Tullow, they provided important, stable, cash flows which have helped to fund the group's successful frontier exploration campaigns," Tullow Oil Chief Executive Aidan Heavey said in a statement.
"However, we have a clear strategy of constant and active portfolio management and have focused our business on conventional light oil. Sales and farm-down processes continue across Tullow and, although transactions are taking longer than initially expected, we are making good progress in tough but improving market conditions," he added.
In a separate statement, Faroe Petroleum said the estimated net production to Faroe from the interests this year is between 3,000 and 4,000 barrels of oil equivalent a day, taking estimates of the company's average economic production for 2014 to between 7,000 and 10,000 barrels of oil equivalent a day.
It said it will fund the initial cash payment of GBP35 million from its existing reserve-based debt facility.
"Ketch and Schooner are good quality producing fields, well known to the company as they are located in one of our core areas and offer significant upside potential in the form of increasing reserves, production and field life," Faroe Chief Executive Graham Stewart said.
"The transaction is highly tax efficient for us, providing shelter for both past and future tax losses in the UK and is in line with our strategy to grow our production portfolio to continue the efficient funding of Faroe's busy and highly successful exploration programme," he added.
In a separate management statement, Tullow Oil said it had made two successful discoveries from three wells in Northern Kenya in the first four months of the year, the discovery of gas on a field offshore Netherlands had boosted the value of its Dutch portfolio, and its Jubliee field remains on track to deliver gross average production of about 10,000 barrels of oil a day in 2014.
It also said its TEN development in Ghana is progressing well and on track to deliver first oil in mid-2016. Well results from exploration campaigns in Kenya, Ethiopia and Norway due in May, it added.
Tullow Oil shares were up 3.3% at 894 pence Wednesday morning, one of the biggest rises on the FTSE 100, while Faroe Petroleum was up 2.1% at 145.435 pence, its highest level for more than a year.
By Steve McGrath; [email protected]; @SteveMcGrath1
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