British-based oil services firm Petrofac is set to disclose of its UK upstream assets and combine them with Lundin Petroleum's to form a new North Sea-focused company, EnQuest, which will be one of the largest independent operators in the UK North Sea.
The deal will involve Petrofac splitting up its Petrofac Energy Developments Limited (PEDL) unit, which holds its licences on the UK Continental Shelf (UKCS). When completed, Petrofac plans to tie up with Swedish explorer Lundin's extensive asset base in the region. EnQuest will have an expected market capitalisation of around $1 billion, and will go public on the main market in London, with a secondary expected on NASDAQ OMX Stockholm.
PEDL's UKCS assets include a 27.7% interest in the West Don field, a 60% stake in the Don Southwest field and a 100% controlling interest in the Elke discovery. The collective total of proven and probable (2P) reserves are estimated at 17.65 million barrels of oil equivalent, while peak production from the Don fields is expected to be in excess of 40,000 barrels per day (bpd). Lundin meanwhile has a much more substantial asset base of 62.85 million barrels of oil equivalent of 2P reserves spread across several licences.
With the successful inking of the deal, EnQuest, which will be 45% owned by Petrofac's existing shareholders and 55% by Lundin shareholders, will boast around 80.5 million barrels of oil equivalent of 2P reserves. The newly-formed company would have produced around 13,620 barrels of oil equivalent per day last year.
The formation of EnQuest comes at a time when most other oil majors have been busy reducing their exposure to the North Sea over the past few years, as output from its mature basins has continued trend downwards. As a result, mid-sized and smaller upstream companies have been snapping up the vacated assets, attracted by the potential returns available from a region with highly developed infrastructure already in place. Furthermore, the North Sea has a skilled labour pool and a relatively low-risk environment for such firms to operate within.
A string of recent regulatory developments have also encouraged investor confidence in the region. The British government recently announced the introduction of new incentives to stimulate investment in the UKCS. Although the incentives focused primarily on the prospective but challenging areas west of Shetland, where neither Lundin nor Petrofac currently own assets, the new round of regulation has highlighted London's willingness to rewrite tax rules to maximise investment in its depleted resource base.
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