Bidders pull out of Alba sale by Statoil and Mitsui

Deloitte has launched the sale of Endeavour Energy UK. The US parent company of Endeavour Energy UK is going through bankruptcy proceedings and Deloitte has been appointed to monetise the company’s UK unit.

Endeavour Energy UK owns a 25.7% in Alba amongst other North Sea assets. This is larger than Statoil’s 17% or Mitsui’s 13.3% stake which is being marketed.

Although Statoil and Mitsui have been trying to sell their stakes since the end of last year, the unusually lengthy process signals the challenges with the asset.

The sale being run by Deloitte will be a bankruptcy sale which will allow buyers to pick up the asset on the cheap. As a result, sources involved in running the Statoil and Mitsui sale say that the Endeavour Energy UK route presents a much cheaper way to pick up the same asset, as well as it being a larger, more meaningful stake.

Challenges which bidders had come to appreciate with Alba include:

• Limited upside
• Expensive and near-term decommissioning
• Bankruptcy of Endeavour Energy which would have left the buyer with larger exposure to future costs

Being able to pick up Alba through the Endeavour Energy proceedings at a lower price therefore makes the risks and challenges of owning Alba much more palatable, another bidder said.

Challenges raised by a number of parties who looked at Alba are discussed in depth here: 

Endeavour endangers Alba sale for Statoil and Mitsui

Related links:

• Endeavour Energy kicks off North Sea assets sale (external – Reuters)
• Chevron shuts in Alba platform as Mitsui and Statoil try to sell the field

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Chevron shuts in Alba platform as Mitsui and Statoil try to sell the field

Chevron the operator of the Alba field in the UK North Sea has announced at the end of last week that it had been forced to shut down production at the field. This follows a power outage at the platform. Emergency back-up power is in place and the crew continues to try and restore power. The mature heavy oil field which was brought onstream in 1994 is exploited from a fixed platform tied to a floating storage unit.

Endeavour had tried to sell its interest in the field in the past without success and is currently going through bankruptcy proceedings and could lose its stake with the other partners picking up pro rata. Statoil and Mitsui are trying to sell their stakes, but the prospect of unintentionally picking up additional interests from an Endeavour bankruptcy has scared off some potential buyers as this comes with an increased exposure to near-term decommissioning costs which are high for a development of this kind.

The partners in Alba are Chevron (23.37% operator), Endeavour (25.68%), Statoil (17%), Mitsui (13%), Spirit Energy née Centrica (12.65%), EnQuest (8%).

Further issues raised by parties considering the Alba stakes from Statoil and Mitsui include the non-operated interest, limited upside and decommissioning and is detailed in an earlier article compiled from interviews with various potential buyers who looked in the data room: Endeavour endangers Alba sale for Statoil and Mitsui.

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EnQuest agrees Thistle decommissioning with BP

Following on from last year's acquisition from BP, EnQuest has agreed with BP to undertake the management of the decommissioning activities for Thistle and Deveron.

EnQuest will receive USD30 million in cash for management of the decommissioning and for taking on 3.7% of the gross decommissioning costs of the Thistle and Deveron fields, subject to a cap of USD80 million. EnQuest estimates its exposure to costs is currently less than the cash being received.

EnQuest also has an option, exercisable over a 12-month period, to receive a further USD20 million in return for taking on a further 2.4% of the gross decommissioning costs of these fields, subject to a cap of USD59 million.

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Endeavour endangers Alba sale for Statoil and Mitsui

Statoil and Mitsui started marketing their stakes in the Alba heavy oil field in the North Sea at the end of 2017. The field is located in a complex reservoir and developed from a steel platform tied to a floating storage unit.

The field has been marketed by partner Endeavour before without success. Endeavour put its stake up for sale in 2015 but failed to attract sufficient interest.

Sources have revealed that interest in the current sales effort is also thin with potential buyers raising a number of concerns:

Non-operated stake Both Statoil (17%) and Mitsui (13.3%) hold non-operated stakes. The operator is Chevron with 23.4%. This limits the new owner’s ability to implement efficiencies, especially as neither on their own or combined have a controlling stake. Chevron is a decent operator, but being a “major” inevitably means inefficiencies and costs creeping in. This is why the likes of BP have passed assets onto more nimble E&Ps who they know can run assets more efficiently.

Limited upside The field has been producing since 1994 and approaching end of life. Production could continue into the late 2020s but at increasingly insignificant volumes. In 2016, Alba produced at 15.3mbopd which compares to a peak of 80-90mbopd in the early 2000s. In 2014, Chevron undertook a 4D seismic survey to identify infill targets – although infill drilling could continue, Chevron has not committed to a full drilling programme of the prospects. Furthermore, Chevron is divided on its view of the North Sea portfolio – it is a good collection of assets generating good cash flow for North America but at the same time focus is turning to the US onshore. With Chevron’s new CEO Mike Wirth coming onboard in February and his background in downstream, the desire to put capital into the North Sea remains in question.

Decommissioning With a large number of wells and a steel platform, decommissioning will be a complex and high cost exercise – no small endeavour for a buyer to take on. Costs are currently estimated at c.USD750 million in real terms and could go up with the blanket of decommissioning activity coming up in the North Sea.

Endeavour bankruptcy Endeavour is the largest partner at 25.7%. Its US parent company entered into financial restructuring and the UK business is under creditor protection. The UK subsidiary Endeavour Energy UK Limited holds the interest in the field and still has debts of close to USD1 billion. The UK business is in default and the lenders, primarily Credit Suisse, have so far have extended repayment deadlines. However, if the lenders pull the plug on the business in light of Alba continuing to be loss making (per latest financial statements), then the remaining partners in the field will be compelled to take on additional stakes in Alba pro rata. This is a risk to a potential new owner and would increase exposure to future capex and decommissioning.

From the buyer feedback, it is clear why Statoil and Mitsui want to exit the asset. For Statoil, the UK North Sea is becoming less of a focus apart from its remaining large developments. For Mitsui its UK strategy appears to be retreat. Whether a sale goes ahead or not remains to be seen.

UPDATE 24 March 2018: Bidders pull out of Alba sale by Statoil and Mitsui

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