Ithaca Energy Inc has entered into an agreement with Sumitomo Corporation to acquire interests in three non-operated UK producing oil fields for a total consideration of $170 million. The acquisition further broadens the Company’s producing asset base with high quality, long-life oil assets, delivering a step-up in reserves and accelerating monetisation of existing UK tax allowances.
- Acquisition of interests in three long-life producing oil fields, with clearly defined upside opportunities.
- A further 20.000% interest in the Cook field in which the Company already has a 41.346% interest, a 7.480% interest in the Pierce field and a 7.430% interest in the Wytch Farm field.
- An increase in net proved and probable (“2P”) reserves of approximately 12.0 million barrels of oil equivalent ("MMboe")(1), equating to an uplift in total Company 2P reserves of approximately 20%.
- Total acquisition consideration of $170 million, equating to approximately $14.2 per barrel of oil equivalent (“$/boe”). Taking into account the value associated with accelerating use of the Company’s existing tax allowances pool, the acquisition cost falls to approximately $12/boe.
- Incremental 2014 pro-forma production from the field interests is estimated to be approximately 2,500 barrels of oil equivalent per day ("boepd").
- Integration of the acquired fields into the existing portfolio is forecast to have a positive impact on the average unit operating cost per barrel of the Company.
- The Company’s leverage (Net Debt / Adjusted EBITDAX) is anticipated to be broadly unchanged at completion.
Les Thomas, Chief Executive Officer, commented:
“I am very pleased to announce the acquisition of these three high quality, long-life assets, which represent an excellent addition to the portfolio. The transaction is directly in line with our strategy to further diversify and expand our producing asset portfolio. Moreover, each of the assets has clearly defined upsides that provide the opportunity to generate significant additional value.”
A short conference call for European research analysts will take place at 08.30 UK time on 23 June 2014 and again at 13.30 UK time for North American analysts. For further information contact FTI Consulting.
The transaction involves the acquisition of interests in three producing UK oil fields, through the purchase of Summit Petroleum Limited, a subsidiary company of Sumitomo Corporation. Specifically:
- A further 20.000% interest in the Shell-operated Cook field in which the Company already has a 41.346% interest;
- A 7.480% interest in the Shell-operated Pierce oil field; and,
- A 7.430% interest in the Perenco-operated Wytch Farm oil field.
The effective date of the acquisition is 1 January 2014 (the “Effective Date”). The transaction is expected to complete in the third quarter of 2014 and is subject to normal regulatory approvals. At completion the consideration paid will be subject to normal industry adjustments to reflect the income and costs incurred since the Effective Date.
Reserve, Production & Cashflow
The reserves associated with the acquired field interests of approximately 12.0MMboe, over 90% oil, have been estimated by Ithaca(1). The reserves will be independently assessed by Sproule International Limited as part of the normal year end reserves evaluation exercise.
In total the acquired assets produced approximately 2,500 boepd in 2013, approximately 92% oil. This includes the impact of a planned shut-in of the Pierce field for approximately seven months of 2013 in order for the “Haewene Brim” floating production, storage and offloading vessel (“FPSO”) that is used on the field to be transferred to dry dock for modification and refurbishment works to enable the tie-in of a third party field to the FPSO in 2014. The vessel returned to the field in late 2013 and production is forecast to resume from the Pierce field in the third quarter of 2014.
On a pro-forma basis, taking into account production from each of the acquired field interests from the transaction Effective Date, the acquisition is forecast to increase the Company’s 2014 production guidance by approximately 2,500 boepd. The production guidance for the Company’s existing assets remains unchanged, implying increased forecast pro-forma 2014 production guidance of 13,500 to 15,500 boepd.
The aggregate 2013 unit operating costs for the acquired fields was approximately $31/boe, which reflects the impact of the extended shut-in of production on the Pierce field during the year, as described above. Unit operating costs for the acquired fields are anticipated to remain broadly unchanged in 2014, reducing thereafter with the benefit of normal annual production operations at the Pierce field. Given this, the integration of the fields into the Company’s existing producing asset portfolio is expected to result in a reduction in the Company’s overall unit operating costs.
Oil sales from each of the fields’ trades at or around the Brent benchmark price, implying an aggregate cash netback associated with the fields being acquired in 2013 of approximately $72/boe based on an average Brent price for the year of $109/bbl and taking into account gas export sales from the Cook field. Adjusting for the payment of Petroleum Revenue Tax applicable on production from the Wytch Farm field, the aggregate unit cashflow from the fields in 2013 is estimated to have been approximately $52/boe.
Cook Field Summary
The Cook oil field, operated by Shell, lies in Block 21/20a (N) in the Central North Sea area of the UK Continental Shelf (“UKCS”), approximately 175 kilometres east of Aberdeen. The field has been developed as a single well subsea tie-back to the Shell-operated Anasuria FPSO, which serves as a host processing facility to two other nearby fields, with oil exported from the FPSO via shuttle tankers and gas via pipeline to shore.
A “4D” seismic survey was acquired over the field in 2013 in order to obtain additional data to further enhance the co-venturers understanding of the reservoir geology and hydrocarbon sweep to date. Evaluation of the data is currently on-going to assess the potential for drilling of a further well on the field and the associated optimal well location.
The acquisition will result in the Company increasing its existing Cook field interest from 41.345% to 61.346%, furthering its position as the field’s largest owner.
Pierce Field Summary
The Pierce field, operated by Shell, is located in blocks 23/22a (ALL) in the Central North Sea area of the UKCS, approximately 280 kilometres east of Aberdeen. The field was discovered in 1975, with first oil achieved in February 1999. The field is developed by subsea wells tied into the Haewene Brim FPSO, with oil export directly to market via shuttle tankers. All Pierce produced gas, other than that consumed for fuel and flare on the FPSO, is currently re-injected into the reservoir. Blowdown of the gas cap is expected later in field life. An infill well / workover programme is scheduled to commence in late 2014 with the objective of boosting near term production levels and maximising reserves recovery.
Wytch Farm Field Summary
The Wytch Farm field, operated by Perenco UK Limited, is located in offshore blocks 98/6a (ALL) and 98/7a (ALL) and onshore blocks SY/88b (ALL), SY/98a (ALL) and SZ/8a (ALL) in Dorset, England. The field was discovered in 1973 by British Gas Corporation, with first oil achieved in 1979. Both the onshore and offshore wells on the field have been drilled from twelve onshore pads (drill centres) located alongside the on-site oil processing facilities; with sixty-four production wells and 31 water injection wells currently in operation. Oil is exported from the field via pipeline directly to the BP-operated Hamble terminal. An infill drilling / well workover programme, including the targeting of undeveloped satellite accumulations, is on-going on the field in order to maintain and grow production levels and maximise reserves recovery.