EnQuest has agreed to acquire a package of assets from BP, which includes a 25% operated interest in the Magnus field and various infrastructure interests, adding 15.9mmboe of 2P reserves and 4.2mboepd or production. EnQuest will consolidate its infrastructure interests by acquiring 3% in the Sullom Voe Terminal (currently hold 3%), 9% of the Northern Leg Gas Pipeline (currently hold 5.9%) and 3.8% of the Ninian Pipeline System (currently hold 2.7%).
The transaction makes use of an innovative financing structure in which EnQuest will not have to front any cash for the acquisition. The USD85 million consideration will be funded by deferred consideration payable from the production cash flow of the assets acquired. BP will retain the decommissioning liability in respect of the existing wells and infrastructure on the assets acquired – in exchange, EnQuest will pay 7.5% of BP’s decommissioning cost on the working interest on a post-tax basis.
As part of the deal, EnQuest also has the option to receive USD50 million from BP for undertaking the management of the decommissioning on the Thistle and Deveron fields. EnQuest currently owns 99% of these fields, with BP owning the remaining 1%. BP (and ConocoPhillips) currently retain the decommissioning liability on these fields due to a series of historical transactions, but EnQuest has the opportunity to benefit if it can manage the decommissioning more efficiently and effectively.
EnQuest has the opportunity to upsize in the assets with an option to acquire the remaining 75% of Magnus (from BP) and BP's interest in the associated infrastructure for USD300 million (subject to working capital and other adjsutments). The option is exercisable between 1 July 2018 and 15 January 2019, with EnQuest’s upfront payment limited to USD100 million and the remainder funded by a vendor loan from BP.
This transaction is aligned with EnQuest's reputation for creating value from late life assets with remaining resource potential. Magnus forms part of EnQuest’s hub around the Sullom Voe Terminal and EnQuest has the ability to maximise the potential of the field given its experience in the area and without the overheads of a majors. The relatively late life and small size of Magnus in BP’s global portfolio would have meant it received less attention and ability to obtain capital for investment would have been constrained. EnQuest has already identified synergies on Magnus with its existing assets and opportunities to operate the asset more efficiently.
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| Magnus overview Source: EnQuest acquisition presentation |
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| Magnus operational bench-marking Source: EnQuest acquisition presentation |
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