Ithaca Buys Chevron UK Offshore Assets (Update)
(Adds details, comment)
Ithaca Energy, the wholly-owned subsidiary of Israeli Delek, is to buy US Chevron’s UK North Sea assets for $1.65bn, it said May 30, trebling forecast production for this year and trimming its average production cost per barrel.
The transaction will add a further ten producing field interests to the existing Ithaca portfolio, four of which relate to assets operated by Ithaca, bringing a 150% increase in the company’s proven and probable (“2P”) reserves, it said. Chevron put the assets up for sale last July in order to focus on growth areas, notably the US.
The assets include Alba, Alder, Britannia (and satellites), Captain, Elgin/Franklin, Erskine, and Jade, but not Chevron's non-operated 19% stake in the Clair field. Additionally, Chevron’s technology centre will remain based in Aberdeen and London, the US company said separately.
Ithaca’s asset base will consist of 2P reserves of some 225mn barrels of oil equivalent (boe) and a further 45mn boe of proven and probable contingent resources associated primarily with additional near-field development and infill drilling opportunities. The enlarged portfolio, encompassing 18 producing field interests in total, is forecast to deliver pro-forma 2019 production of 80,000 boe/d, of which 60% liquids, at an operating cost of $17/boe. Chevron’s 500 employees on and offshore will transfer to Ithaca.
The deal makes Ithaca the second largest independent oil and gas producer in the UK North Sea. The transaction provides a material step up in the scale and breadth of the company’s long-life asset base, establishes a wider portfolio of investment opportunities from which to grow the future cashflows of the business and enables accelerated monetisation of Ithaca’s existing $2.2bn of UK tax allowances.
The transaction has an effective date of January 1, 2019 and is expected to complete around the end of the third quarter of 2019 following approval of the acquisition by the regulator, the Oil & Gas Authority.
The price payable at completion will be around $1.65bn, subject to adjustments for the transfer of working capital.
The acquisition will be funded through an upsized $1.65bn reserve based lending senior debt facility; a $700mn acquisition debt financing facility; an equity investment by Delek; and existing cash resources of the company. Ithaca’s existing $300mn loan and associated Delek guarantees will be retired as part of this refinancing.
JP Morgan is acting as financial adviser. The RBL facility was fully underwritten by BNP Paribas and the acquisition debt financing was jointly underwritten by the two banks. Ithaca’s last acquisition was in August 2018, where it bought the Greater Stella assets from Dutch Dyas and engineers Petrofac. Then, it reduced its average production cost to $18/barrel and boosted output by 50% for the year.
Ithaca CEO Les Thomas said: “The acquisition of CNSL is a significant step forward in the long term development of Ithaca Energy and underlines our belief in the North Sea, particular in the UK Central North Sea where the enlarged business will own a range of interests in a number of key producing assets…. Like our current portfolio, the production and reserves base is heavily weighted towards operated asset positions, which provides us with the ability to actively prioritise and unlock the full potential of the business.”
Wood Mackenzie said that the deal brings Chevron close to the bottom end of its $5bn-10bn asset disposal target between 2018 and 2020. Its total asset sale proceeds since the beginning of 2018 are $2.3bn. It added: “Chevron has a deep portfolio of high-return tight-oil opportunities through its leading position in the Permian basin – this sets a very high bar in the internal competition for capital within Chevron's portfolio, making regions such as the UK now look more peripheral.”