EnQuest PLC (LON:ENQ) could be set to sell a 20% share in the Kraken oil field development, in the North Sea, in a deal with Israeli energy group Delek Group.
It comes after EnQuest stepped in to take an extra 10.5% of the project for a nominal cost in February when former partner First Oil dropped out of the venture. Presently, EnQuest owns 70.5% of Kraken alongside Cairn Energy Plc (LON:CNE), which has the other 29.5%.
The deal, if concluded, will reduce EnQuest’s capital requirements to get Kraken up and running.
Talks are currently underway and a final deal has yet to be agreed, EnQuest said, but, it is anticipated that the cash consideration for the farm-out would start at US$20mln (further contingent payments still being negotiated).
Kraken is due to come online in 2017, and it was recently reported to be ahead of schedule.
Once in production the field is planned to ramp up to a plateau rate of 50,000 barrels of oil equivalent per day.
The field was initially estimated to cost around US$3.2bn in total, though more than US$400mln has since been shaved off the capital budget since then.
It is proposed that Delek will pick up its share project costs back-dated to January 1 2016.
In a statement, EnQuest explained: “EnQuest announced previously that in addition to its ongoing cost reduction initiatives, it was also pursuing a range of further opportunities for debt reduction, including potential asset sales and farm outs.”
Richard Savage, analyst at Mirabaud, in a note, said: “Although the consideration clearly does not imply much value in the project at all, the deal should shave a considerable US$120m off EnQuest’s capex budget for the year and given the strain on the company’s balance sheet, it makes sense to reduce its exposure to the project.
“Furthermore 10.5% of the stake is effectively the First Oil interest assumed by EnQuest at nominal cost earlier in the year, so in this sense the First Oil stake (+10%) is being handed over as a zero-sum game.”
The deal would be subject to approval from EnQuest’s lenders.
Additionally, the North Sea oil firm told investors that it continues to monitor and manage its funding and liquidity position and it continues to engage with its credit facility providers.