BP to sell North Sea Interests in Andrew Area and Shearwater to Premier Oil

BP has agreed terms to sell its interests in the Andrew area in the central UK North Sea and its non-operating interest in the Shearwater field.

Under the terms of the deal, Premier Oil will pay BP USD 625 million.

“BP has been reshaping its portfolio in the North Sea to focus on core growth areas, including the Clair, Quad 204 and ETAP hubs. We’re adding advantaged production to our hubs through the Alligin, Vorlich and Seagull tieback projects,” Ariel Flores, BP North Sea regional president, said. “As a result of this focus, we have also now decided to divest our Andrew and Shearwater interests, believing them to be a better strategic fit for another owner. We are confident that Premier Oil, already a significant operator in the North Sea, is the right owner of these assets as they seek to maximise their value and extend their life.”

The five fields in the Andrew area all produce through the Andrew platform, which is located about 140 miles north-east of Aberdeen. The hub started production in 1996. In 2019, average daily production has been around 25,000 to 30,000 barrels of oil equivalent per day.

The Shearwater field is a high pressure, high temperature reservoir produced through a process, utilities and quarters platform, located around 140 miles east of Aberdeen. Shearwater’s 2019 production has been in the region of 14,000 barrels of oil equivalent per day gross.

The Andrew assets are expected to transition to Premier Oil as a fully operational entity with 69 staff who operate and support the assets. Their contractual terms and conditions are protected under UK Transfer of Undertakings (Protection of Employment) Regulations (TUPE). BP will now begin consultation with in-scope staff.

There is no transfer of staff associated with the Shearwater sale.

The sales are the latest step in BP’s planned programme of USD 10 billion divestments by the end of 2020. Subject to the receipt of regulatory and other third-party approvals, BP aims to complete the sale and transfer of operatorship of the assets at the end of the third quarter of 2020.

The deal includes BP’s operating interests in the Andrew area comprising the Andrew (62.75%), Arundel (100%), Cyrus (100%), Farragon (67%) and Kinnoull (77.06%) assets as well its non-operating 27.5% interest in the Shell-operated Shearwater.

 

Background

• In December 2018, BP increased its interest in the giant Clair field west of Shetland from 28.6% to 45.1%. The Clair field is being developed in phases – Clair Ridge, the second phase development, started up in November 2018, targeting 640 million barrels of oil and peak production of 120,000 barrels of oil a day. A third phase, Clair South, is under consideration.
• The Quad 204 project – a redevelopment of the Schiehallion and Loyal fields west of Shetland – delivered first oil in May 2017. The project included the construction and installation of the Glen Lyon floating, production, storage and offloading (FPSO) vessel, a major upgrade and replacement of subsea facilities and an extensive drilling programme.
• BP is also delivering a programme of subsea tiebacks in the North Sea:
• Alligin forms part of the Greater Schiehallion Area west of Shetland and will target 20 million barrels of oil equivalent and peak production of 12,000 barrels gross of oil equivalent a day. It is due on stream in 2020.
• Vorlich is targeting 30 million barrels of oil equivalent and peak production of 20,000 barrels gross of oil equivalent a day. It will be tied back to Ithaca Energy’s FPF-1 floating production facility in the central North Sea and is due on stream in 2020.
• Seagull will be developed through BP’s ETAP (Eastern Trough Area Project) hub in the central North Sea and is expected to initially produce around 50,000 barrels of oil equivalent per day. First oil from the project is expected in 2021.
• BP is also making progress towards a final investment decision (FID) for the Murloch (formerly Skua) development which could be a future subsea tieback to ETAP.
• BP was awarded a new exploration licence in the 31st Offshore Licensing Round announced by the Oil and Gas Authority (OGA) in June 2019. The BP-operated licence covers 10 blocks in Quadrant 209 in the west of Shetland area.

Premier Oil confirmed the proposed acquisitions of the Andrew Area and Shearwater assets from BP, and an additional 25 per cent. interest in the Premier operated Tolmount Area from Dana for USD 191 million plus contingent payments of up to USD 55 million (together the Acquisitions). Premier also announced the proposed extension of its existing credit facilities to 30 November 2023.

Premier Oil rationale and benefits of the acquisitions

• Add c.23 kboepd of cash generative production in 2019 with development upside; acquired assets forecast to generate over USD 1 billion of free cash flow to end 2023.
• Add 82 mmboe of reserves and contingent resources at an implied cost of less than USD 10/boe.
• Contribute to rising Group production out to 2024 with pro forma 2019 production in excess of 100 kboepd.
• Add low cost, low carbon emission assets with combined opex of less than USD 20/boe.
• Accelerate the use of Premier’s USD 4.2bn tax losses.
• Materially strengthen Premier’s financial position: additional free cash flow accelerates debt reduction; significantly reduce forward covenant leverage ratio towards 1x by 2022.
• Extension of existing, non-amortising facilities to late 2023.

 

Asset highlights

• Andrew Area (50%-100% interests in 5 fields, operatorship): currently producing c.18 kboepd (net to BP) with material near term upside through further development of the Andrew Lower Cretaceous reservoir.
• Shearwater (27.5% interest): significant producing and infrastructure hub, adding 25 mmboe of reserves and resources with incremental investment opportunities and tariff income.
• Tolmount (25% interest): consolidates interest in existing high return development, which is on schedule to deliver first gas by end-2020, with significant upside following recent drilling success at Tolmount East.

The proposed acquisitions will be funded via a USD 500m equity raise (net of expenses) which has been fully underwritten on a standby basis, existing cash resources and, if required, an Acquisition Bridge Facility of USD 300 million. Premier expects that the equity raise will include both a placing and rights issue component with any shares issued under the placing qualifying for the subsequent pre-emptive rights issue. It expects to confirm the structure and terms in Q1 2020 following consultation with major shareholders.

Lender consent for the proposed acquisitions, related funding arrangements and extension of credit facilities will be sought via two Court-approved schemes of arrangement (the Schemes). Of the creditors subject to the Schemes, 83.3 per cent. of Super Senior Commitments and 72.7 per cent. of the Senior Commitments have already committed to approve the Schemes.

The Andrew and the Shearwater Acquisitions constitute a class 1 transaction. Shareholder approval for all of the acquisitions and the equity raise will be sought at a general meeting expected to be held in Q1 2020. The Directors believe that the acquisitions represent a highly attractive opportunity and recommend that Premier’s shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their holdings, at the general meeting. Premier Oil will send a combined prospectus and circular to its shareholders convening the general meeting in due course.

The acquisitions have an effective date of 1 January 2019 and completion of all three acquisitions is expected to occur by the end of Q3 2020.

“These acquisitions are materially value accretive for Premier Oil and are in line with our stated strategy of acquiring cash generative assets in the UK North Sea. We look forward to realising the significant long-term potential of the Andrew and Shearwater assets through production optimisation, incremental developments and field life extension projects. We are also pleased to have consolidated our interest in the high return Tolmount development where we see material upside. The cash flow generated from the acquired assets will also accelerate the deleveraging of Premier’s balance sheet,” Tony Durrant, Chief Executive, commented.