North Sea operator makes a play for JAPEX’s UK arm to fortify its stake in BP’s oil asset

Ithaca Energy, a North Sea oil and gas operator and producer, has set the wheels in motion to get its hands on JAPEX UK E&P (JUK) from Japan Petroleum Exploration (JAPEX), which will enable it to boost its interest in a BP-operated oil field on the UK Continental Shelf (UKCS).

Ithaca Energy has signed a sale and purchase agreement (SPA) to acquire the entire issued share capital of JUK from JAPEX for an enterprise value of $193 million based on an effective date of January 1, 2024. The move is expected to increase Ithaca’s stake in the Seagull oil field from 35% to 50%, equaling BP’s interest as the field operator, since JUK holds a 15% working interest in this asset, which is located in the UK North Sea.

The acquisition, which is subject to the satisfaction of certain conditions, including regulatory approval, is anticipated to add 7 mmboe of 2P reserves and production of approximately 4 – 4.5 kboe/d in 2025, made up of around 82% liquids with the rest being gas. The transaction is said to be in line with the firm’s strategy to pursue value-accretive merger and acquisition (M&A) opportunities.

Such moves are being made to add high-quality assets to Ithaca’s core UK Continental Shelf market. However, the acquisition consideration is subject to customary purchase price adjustments, equating to an estimated payment at the completion of about $140 million, assuming an illustrative June 30, 2025, closing date.

The North Sea player elaborates on this transaction by mentioning that it includes JUK’s material tax losses of approximately $215 million in both Ring Fence Corporation Tax and Supplementary Charge Tax as well as around $105 million in Energy Profit Levy losses as of the effective date of January 1, 2024, reflecting the latter’s material investment in the field.

Yaniv Friedman, Ithaca’s Executive Chairman, commented: “Today’s announcement regarding the acquisition of JUK shows Ithaca Energy’s growth strategy in action with a highly accretive, easily digestible and synergistic deal that will add incremental production for the Group, in a well-understood, high-value field.”

Moreover, the acquisition equates to a valuation of around $10/boe, excluding tax losses. The Seagull oil field in the UK Central North Sea, with over 300 mmboe in place, is described as representing a high-margin producing field, developed as a subsea tie-back to the BP-operated central processing facility (CPF) of the Eastern Trough Area Project (ETAP).

The production started in November 2023 from the J1 well, with J2 and J3 wells now also online and the fourth well, J4, due on stream in H2 2025. The field is forecast to remain in production mode until the mid-2030s.

The latest M&A move on Ithaca’s part comes after its portfolio got enriched with Eni’s upstream assets in the UK, excluding East Irish Sea ones and carbon capture, utilization, and storage (CCUS) activities, breathing life into what is considered the UK’s second-largest oil and gas independent operator with the potential to eclipse Harbour Energy as the top producer on the UKCS.

JAPEX’s sale of its UK subsidiary comes during a time when fiscal and regulatory uncertainty has done a number on investor confidence levels, prompting Offshore Energies UK (OEUK) to conduct research that shows nine out of ten companies see business opportunities in other countries as more lucrative.

As a result, Britain’s trade body for the offshore energy industry has urged the UK government to tackle the uncertainty surrounding the future of the nation’s offshore energy supply chain to prevent it from going elsewhere.