Plans by to sell a stake in one of the biggest development projects in the North Sea show how independent oil and gas producers are scrambling to shore up their balance sheets in response to prolonged oil price weakness.
EnQuest on Monday it was in talks about selling 20 per cent of the Kraken oilfield east of the Shetland Islands to Delek Group of Israel, in a deal analysts estimate would reduce the UK company’s debts by as much as $190m this year.
Kraken was in 2013 when oil prices were over $100 a barrel but, in common with many energy projects, its multibillion-dollar development costs have become a heavier strain since oil prices crashed in 2014.
While the final terms of the deal were still under negotiation, analysts said the main financial component was likely to be the share of capital expenditure taken on by Delek, which has agreed to backdate its contributions to January 1.
James Hosie at Barclays said this was likely to result in a cash injection of $170m for EnQuest in 2016, in addition to a $20m loan from Delek which will only be repayable if the Israeli group has not recovered its project costs after five years.
He added the deal was likely to be dilutive to EnQuest’s shares and highlighted “both the with oil prices below $50 per barrel and EnQuest’s need to reduce its debt levels”.
Shares in EnQuest closed 0.84 per cent down at £29.50 yesterday.
Other London-listed independent explorers have also been scrambling to strengthen their finances in recent weeks, as low prices and high exploration costs on companies across the sector.
, another big North Sea producer, secured an for its debt covenants to be waived for a month to give it more time to reduce borrowings. Meanwhile, Africa-focused launched a to cut dependence on bank lending facilities linked to the price of oil.
Mr Hosie estimated the Delek deal would reduce EnQuest’s net debt to $1.75bn at the end of this year, down from his previous forecast of $1.94bn. He described it as “a necessary step to improve the balance sheet” at the expense of sacrificing a slice of future production.
EnQuest owns 70.5 per cent of Kraken, with the remainder held by , another UK-based oil company. The field is expected to reach peak production of 50,000 barrels a day, with the first oil expected to flow next year.
The project was initially expected to cost EnQuest $3.2bn to bring on-stream, but that figure has been reduced by about 13 per cent through contract renegotiations with suppliers and other savings since the oil price collapsed.
EnQuest said it had signed a non-binding memorandum of understanding with Delek and that, in addition to the provisional terms outlined on Monday, talks were continuing over an “additional contingent consideration” for the stake.
For Delek, controlled by Israeli billionaire Yitzhak Tshuva, the deal would help diversify its assets beyond Israel, where it co-owns the with Noble Energy of the US.
