Exploration and production group Nautical Petroleum (LON:NPE) has agreed to sell a 25% interest in its Kraken field in the North Sea to EnQuest (LON:ENQ).
The deal centres on Nautical’s Petroleum Production Licence P1077 on North Sea Blocks 9/2b & 9/2c but also covers additional blocks in the wider Kraken area. The agreement follows a move by EnQuest earlier this month to buy two companies from Canamens, whose assets include a 20% interest in Kraken.
In return for the stake, Nautical will receive a carry on its future expenditure on the Kraken field of up to $240 million, consisting of a $150 million firm carry and a contingent carry of up to $90 million.
The value of the contingent carry will be calculated on the basis of an independent assessment of the 2P reserves in Blocks 9/2b & 9/2c. Anything greater than 166 million barrels of oil will trigger the full $90 million carry on future costs. The reserve determination will take place during the development drilling phase. The current estimate of 2C resources for the Kraken field is 160 million barrels.
Whilst not part of this agreement with EnQuest, Nautical remains entitled to receive from Canamens North Sea Energy an additional $5 million bonus upon Field Development Plan approval and payments totalling £7 million ($10 million) relating to sole risk activity on the 9/02b-4 and 4z wells.
Subject to the approval of the joint venture partners and the Department of Energy and Climate Change (DECC), EnQuest will become the operator of Blocks 9/2b & 9/2c. Following the deal, Nautical’s interest in Kraken will be 25%.
The transaction also gives EnQuest the option to earn a 45% farm-in interest in Nautical’s wholly owned Block 9/1a, which contains the Ketos discovery, in return for paying up to 90% of the gross cost of drilling up to two wells to the appraise the discovery. EnQuest’s liability to carry Nautical’s costs for the first well is capped at 45% of $15 million gross well cost. For the second well, which is contingent on the success of the first well, the carry is capped at 45% of $20 million gross well cost.
Steve Jenkins, Nautical’s chief executive, said: “I am delighted to welcome EnQuest, as partners, strengthening the joint venture both technically and financially. This transaction provides Nautical with a carry of up to $240 million on our remaining 25% interest in Kraken, significantly mitigating our funding requirements for the development of the field. The Nautical team has made excellent progress towards the development of the Kraken accumulation. We are currently carrying out concept selection (pre-FEED) studies and are in discussions with contractors to provide a leased FPSO. We now look forward with confidence as we move toward Field Development Plan approval in Q4, 2012 and first oil in 2015.”
Amjad Bseisu, the chief executive of EnQuest, said: “EnQuest is very pleased to be able to increase its interest in Kraken and to become the future operator of the proposed development. Based on the operator’s estimates, this 25% interest in Kraken provides 40 MMboe of contingent resources, which when combined with the 32 MMboe of contingent resources from the 20% interest that EnQuest acquired earlier this month from Canamens, adds almost 70% to EnQuest’s end 2010 contingent resources. The purchase cost per contingent barrel is $6/bbl before tax effects and approximately $2.40/bbl post tax effects. This latest transaction also gives us further potential upside from the surrounding exploration opportunities and an agreed farm-in to the Ketos discovery which we will jointly appraise with Nautical.”
