EnQuest, Cairn take additional interest in Kraken development

EnQuest and Cairn Energy announced on Monday the acquisition of additional interest in the Kraken development project, in the UK North Sea, from First Oil. 

EnQuest, the operator of the project, acquired 10.5% bringing its total interest to 70.5%, while Cairn, through its subsidiary Nautical Petroleum Limited, acquired 4.5% interest in the project bringing its total interest to 29.5%.

EnQuest and Cairn are both taking up First Oil’s interests pro-rata, in proportion to their holdings prior to the transaction. EnQuest has also waived its right to reclaim approximately $7 million of cash calls paid on behalf of First Oil in January and February 2016. EnQuest acquires the reserves and resources associated with the additional interest.

Cairn will also waive its right to reclaim approximately $3m of cash calls paid on behalf of First Oil in January and February 2016.

In 2012, when EnQuest originally acquired its Kraken assets from First Oil, part of the consideration was in the form of a contingent development carry, based on the determination of the level of reserves. This contingent carry provision now ceases to be effective. Further, EnQuest is not reimbursing First Oil in respect of costs incurred by First Oil to date.

In December 2015, in its Operations Update, EnQuest highlighted that the Kraken development project was on schedule for first oil production in H1 2017 and that full cycle gross project costs had been reduced by c.10%.

The additional Kraken net capex to EnQuest is anticipated to be approximately $90 million to first production. In December 2015, EnQuest issued a 2016 cash capex guidance range of $700 million to $750 million. Since then further additional reductions have been made. Consequently EnQuest says it expects to absorb the capex resulting from Monday’s transaction without any net increase in its previous 2016 guidance range.

According to the company’s statement, EnQuest expects that the additional reserves it is acquiring through this transaction will incrementally increase the amount available to it under its bank facility to $1.2 billion, from $1,137 million as reported in August 2015.

In its most recent annual report, for 2014, EnQuest highlighted gross (100%) Kraken 2P reserves of 140 MMboe.

The two Kraken fields are located in block 9/2b, 350 km north east of Aberdeen, in a water depth of c.110m. The Field Development Plan includes 25 wells. First production is expected in H1 2017. The project has a long field life, of approximately 25 years.