30th Apr 2014 12:11
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 PLC for up to 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 Faroe will pay USD58.8 million when the deal completes and the rest when cumulative production milestones are hit.
Tullow 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.
Heavey told reporters in a briefing later Wednesday that the company wants to get out of the UK North Sea completely and that he is already seeing more interest for assets this year.
"The UK North sea is something we want to get out of and right now it feels like we are moving back to a buyers market," Heavey said. "But there is no urgency as our balance sheet remains strong and we are not giving up on the North Sea, we remain committed to our Norwegian assets."
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 Jubilee field remains on track to deliver gross average production of about 10,000 barrels of oil a day in 2014.
The company also recently announced that, due to positive exploration results in Kenya and Uganda, regional discussions are underway over the development of an East African pipeline to transport oil to Lamu on the Kenyan coast.
"East Africa is becoming a major frontier for hydrocarbon exploration, bids for the pipeline development are expected at the end of May," Heavey said in the press briefing, "The presidents of Uganda and Kenya have met over the development, and it is moving ahead."
Tullow also said its roughly 50%-owned TEN development in Ghana is progressing well and on track to deliver first oil in mid-2016, but Heavey noted that the company wants to farm down its interests in the site to roughly 30% as part of its disposals plan and is in discussions now with possible buyers.
Well results from exploration campaigns in Kenya, Ethiopia and Norway are due in May, Heavey added.
The company announced last week that it is abandoning its Tapendar-1 exploration well, part of its wide-ranging exploration programme to open up a new oil play in Mauritania after it failed to find hydrocarbons. Despite the setback, Heavey remained positive on development in the country.
"We do know hydrocarbons are in the region after previous exploration results," he said.
"We'll now rework and plan our next drilling," Heavey said. "There are no adjustments of our ambitions in Mauritania and we still plan to drill two more wells."
Tullow Oil shares were up 3.3% at 894.00 pence Wednesday morning, one of the biggest rises on the FTSE 100, while Faroe Petroleum was up 2.3% at 145.75 pence, its highest level for more than a year.
By Tom McIvor; [email protected]; @TomMcIvor1
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