UK oil major BP is set to sell its operated interests in the Bruce, Keith and Rhum fields, including three bridge-linked platforms and subsea infrastructure in the North Sea to UK independent Serica Energy.
Subject to completion of the deal, expected mid-2018, Serica will become operator and an estimated 110 BP staff will transfer to Serica.
The move, which includes a 36% interest in Bruce, a 34.83% interest in Keith and a 50% interest in Rhum, will see Serica’s production base expand from just one to four fields, and pro-forma net 2P Reserves increase some 16-fold to 50 MMboe. Based on H1 2017 production rates, Serica’s net production will increase some seven-fold, to more than 21,000 boe/d, of which over 85% is gas.
The deal is the latest in a string of asset sales by North Sea super majors to independent oil firms. In January this year, Supermajor Shell agreed to sell a package of UK North Sea assets to Chrysaor for a total of up to US$3.8 billon. In November last year, OMV entered a deal to sell its UK subsidiary, OMV UK, to Siccar Point Energy for up to US$1 billion.
Today, Chemicals and oil products group Ineos' subsidiary Ineos UK SNS said it had agreed to acquire a majority stake in two West of Shetland exploration licenses from Siccar Point Energy.
"It’s yet another creative deal in the UK, in a year filled with large companies selling down. The up-front consideration is small (£12.8 million), and the main value of the deal will depend on payments and milestones (up to £300 million according to BP)."
Serica will pay BP an initial £12.8 million, plus a share of cash flows over the next four years, a consideration equivalent to 30% of BP’s post-tax decommissioning costs (BP will retain the decommissioning liability for the assets) and several contingent payments dependent on future asset performance and product prices.
Overall, BP expects to receive payments of around £300 million, the majority of which will be received over the next four years.
Mitch Flegg has been appointed CEO of Serica, following the deal. Tony Craven Walker, Serica ’s Executive Chairman, said: “This transaction will establish Serica as a leading British independent oil and gas company with the scale, balance sheet and operating capability to prosper in the North Sea’s rapidly changing upstream oil and gas industry. It will diversify Serica from being a single asset to a multi - asset production company. It will also broaden our role as an operator."
Bernard Looney, BP chief executive, Upstream, said: “This is an example of BP’s Upstream strategy in action – refreshing our portfolio and focusing our activity on assets which will add most value over the long-term.
“We remain committed to the North Sea and continue to invest. We expect our production there to double to around 200,000 barrels equivalent a day by 2020 through new projects like Quad 204 and Clair Ridge. “While the Bruce assets are no longer core to BP, we are confident that Serica is the right owner and operator to maximize their continuing value for both companies and for the UK.”
Legate adds: "The structure of the deal gives Serica protection from decommissioning liability, as well as an incentive to grow cash flow. It’s similar in structure to BP’s divestment of the Magnus Area and associated infrastructure in early 2017.
"The deal transforms Serica’s UK position, taking 2018 production from around 2000 boe/d to 28,000 boe/d in 2018. It also gives Serica its first UK operator experience, a surprise given their small non-operated position at present. It also provides the small E&P player with production to offset tax losses from their Columbus field against during the development phase."