Transaction Drag: UK Regulator Launches Probe into $1B Exxon, NEO North Sea Deal

Elgin Franklin facilities - File Photo: Chrysaor
Elgin Franklin facilities - File Photo: Chrysaor

The UK oil and gas industry regulator Oil and Gas Authority (OGA) has opened an investigation into the proposed sale by ExxonMobil of 13 producing fields, specifically Elgin Franklin, to NEO, amid concerns it is not progressing as quickly as expected.   

North Sea-focused oil company NEO Energy in February struck a deal to buy ExxonMobil's UK North Sea assets. Backed by Norwegian private equity investor HitecVision, NEO Energy said it would acquire "a major portfolio" of non-operated oil and gas assets in the Central and Northern North Sea from ExxonMobil, in a transaction valued at "more than $1 billion."

The agreement includes ownership interests in 14 producing fields operated primarily by Shell, including Penguins, Starling, Fram, the Gannet Cluster and Shearwater; Elgin Franklin fields operated by TotalEnergies; and interests in the associated infrastructure. ExxonMobil’s share of production from these fields was approximately 38,000 oil-equivalent barrels per day in 2019. The companies at the time said that they expected the transaction, subject to approvals from the relevant authorities and regulatory consents, was expected to complete by the middle of 2021. However, this has yet to happen, and the OGA has launched a probe.

Transaction drag

In a statement on Tuesday, the OGA said it "has previously voiced its concerns generally about transaction drag and the chilling effect it could have on the market and, as negotiations, which began in February 2021, have not yet reached a conclusion, has opened an investigation."    

The consent of joint venture partners is required in order for the transfer to take effect. TotalEnergies E&P UK is the operator of Elgin Franklin. There are eight joint venture partners in  Elgin Franklin, including Total and EEPUK.      

"Collaboration is an obligation in the OGA Strategy and failure to comply with that obligation is sanctionable under the Energy Act  2016," the  OGA said.

The OGA Strategy states that in undertaking relevant activities  relevant persons must collaborate and co-operate with others who are seeking to acquire an interest or invest in offshore licences or  infrastructure.      

"The OGA conducted a Thematic Review in October 2020 into Industry Compliance with Regulatory  Obligations. It examined compliance in six areas of interaction between the OGA and licensees, identified some very good, and improving,  practice, but also noted the need for further improvement and warned  that sanctions could follow in cases where breaches were found," the OGA said.

This Review followed a June 2019 OGA letter to licensees and infrastructure owners which outlined the OGA’s regulatory approach. While praising a great deal of constructive engagement, the letter noted that ‘too many issues [were] taking too long to resolve’  and warned that ‘we will be progressively more proactive in using the  OGA’s powers’.

"The investigation will now examine the engagement between the  parties since EEPUK and NEO Energy announced the proposed transaction in February 2021. This includes serving the parties with information  notices which ask them to account for their actions since the  transaction was proposed," the OGA said.

The opening of an investigation does not prevent the proposed  transaction from progressing and everyone with interests connected to  the transaction must still meet their obligations under the OGA Strategy and industry voluntary codes of practice.    

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