Chrysaor Chief Executive, Phil Kirk (photo: Chrysaor)
Chrysaor Holdings Limited, the UK oil and gas independent, is to acquire a package of assets in the UK North Sea from Shell UK Limited and its affiliates for a price of USD 3 billion. In addition, future payments may be made between the two companies, contingent upon future exploration results and commodity prices. The transaction is subject to regulatory and partner consents and is expected to complete in the second half of 2017.
The package consists of Shell’s interests in Beryl, Bressay, Buzzard, Elgin-Franklin, Erskine, Everest, the Greater Armada cluster, J Block, Lomond, plus a 10% stake in Schiehallion.
On completion of the acquisition, Chrysaor will become one of the largest producers of oil and gas in the UK. The assets being acquired produced 115,000 barrels of oil equivalent per day (boepd) in 2016. The redeveloped Schiehallion field is expected to add additional production when it is back on stream in 2017. Current unit operating costs across the portfolio are under $15 per barrel (Operating cost and P50 reserve figures provided are Chrysaor estimates and include projects expected to be sanctioned on or shortly after completion. Chrysaor estimates are supported by an independent Competent Persons Report). The transaction is expected to comprise around 350 million barrels of oil equivalent proven and probable (2P) reserves1 as at the transaction effective date of 1 July 2016.
Chrysaor intends to grow the assets being acquired, and has identified a number of early incremental opportunities to maximise economic recovery and extend field life. As part of this programme, the company plans to sanction drilling activity and investment that would extend the life of the key operated hubs and will actively encourage third-party business and the acceleration of drilling initiatives elsewhere in the portfolio.
Chrysaor will receive an investment of up to USD 1 billion from Harbour Energy, an investment vehicle of EIG Global Energy Partners, together with funds managed by EIG, to support the acquisition and provide future growth capital. A Reserves Based Loan of up to USD 1.5 billion will be provided by a syndicate of international banks with considerable North Sea experience.
Shell is providing junior debt financing for the transaction, and the companies have entered into a hydrocarbon lifting and sales agreement covering volumes produced from the licenses being acquired. Shell is retaining a fixed decommissioning liability of approximately USD 1 billion, reducing Chrysaor’s future decommissioning cost obligations. There are no material decommissioning costs expected in the near term with cessation of production on some assets forecast to be more than 20 years into the future.
Phil Kirk, Chief Executive of Chrysaor, says, “Chrysaor is acquiring a high quality package of assets which combine low cost production, a substantial reserves and resources base with strong cash flows and a highly competent and skilled workforce. These assets, combined with our own experience and the outstanding team who will transfer from Shell, provide an excellent platform for change and growth in the North Sea. We look forward to working with Shell, with our future colleagues and other stakeholders to complete this transaction.”
“This acquisition reflects Chrysaor’s and Harbour’s belief that the UK North Sea has material future potential for oil and gas production. The UKCS has benefited from Government action to improve the regulatory and fiscal environment in the North Sea and we look forward to working with them in the future. We intend to create a UK champion, with the skills and resources of a major independent oil and gas company, to help ensure that the basin’s future potential is realised safely, profitably and in alignment with the Government’s policy of driving investment and maximising economic recovery,” adds Kirk.
Linda Z. Cook, Chairman of Chrysaor, says, “The North Sea has undergone a revolution in recent times with operating costs falling to competitive economic levels, and we believe this signals a moment for a generational change in the basin. Chrysaor, backed by Harbour, will form a platform for significant growth in the region. We look to acquire further assets that are material to our business as we bring to bear energy, skills and additional investment to enable the company to perform to full potential.”
Shell employees supporting the assets will enter into consultation with a view to transferring to Chrysaor. Subject to consultation, around 400 employees are anticipated to transfer and the skills, expertise and knowledge that they bring with them will represent a major value-add for Chrysaor as it looks to realise its North Sea growth ambitions. Chrysaor will be maintaining the current terms and conditions of staff who transfer from Shell.