London-listed upstream independent Enquest is in talks to sell a 20pc stake in the Kraken heavy oil project in the North Sea to a subsidiary of Israeli conglomerate Delek.
The proposal under discussion includes Delek backdating its share of the project's costs to 1 January this year, and loaning Enquest $20mn for up to five years on completion. The loan, which carries an interest rate of 3pc/yr, would be returned if Delek's costs "are not covered by revenues within five years from the completion date", Enquest said.
Delek is keen to further expand its upstream oil and gas exposure beyond Israel, where it is a major shareholder in the giant Tamar and Leviathan deepwater gas fields. Enquest, like most North Sea operators, has been hit hard by the drop in oil prices and is looking to streamline its portfolio to help shore up its balance sheet. The firm last year disposed of interests in Norway, Egypt and Tunisia, sold its exploration assets in Malaysia and relinquished interests in a number of licences in the UK. Its net debt stood at around $1.63bn at the end of April this year, compared with just over $900mn at the start of last year.
Kraken is a flagship project for Enquest and is one of the largest UK North Sea fields under development. It has around 140mn bl of oil equivalent of proven and probable reserves and is due to come on stream in the first half of next year.
Enquest operates Kraken with a 70.5pc stake, while London-listed Cairn Energy holds the remaining 29.5pc. Enquest and Cairn increased their stakes in the field earlier this year when project partner First Oil went into administration.
Kraken was estimated to cost around $3.2bn when Enquest made a final investment decision in 2013. But the cost estimate has since fallen by around $425mn, partly because of a simpler design. The project will consist of 23 wells drilled from three drill centres tied back to a 80,000 b/d floating production, storage and offloading (FPSO) vessel. The original development plan envisaged 25 wells from four drill centres.
