An Aberdeed-based offshore firm has pledged to extend the life of one of the North Sea’s oldest oil fields after taking over from BP as operator of the Sullom Voe terminal.
EnQuest’s deal to run the huge facility on Shetland and the Magnus field was hailed last night as “the beginning of a new era” for the industry.
The company will take on 340 BP employees after buying a £70million stake in Magnus and Sullom Voe.
EnQuest boss Amjad Bseisu said: “This is really a very good example of maximising economic recovery.
“We feel we can extract value as well as extend the life of the terminal.”
Deirdre Michie, boss of trade body Oil & Gas UK said the “innovative” deal would “open a new chapter in the life of Sullom Voe and the Magnus field.”
EnQuest will take over operatorship of both the Sullom Voe terminal in Shetland as well as BP’s North Sea Magnus field in a deal worth $85million (£68.3million).
But the transfer of ownership will cost EnQuest nothing upfront as the deal will be funded from “the sharing of future cash flows” with BP.
EnQuest’s acquisition of one of BP’s oldest North Sea assets is financially “riskless” for the firm, according to company chiefs.
The leader of Shetland Islands Council (SIC) hailed the transfer of operatorship of the Sullom Voe terminal as “the beginning of a new era” for the oil and gas industry.
Gary Robinson, SIC Leader: “This is the end of an era for the oil and gas industry but it is also the beginning of a new era.
“The significance for Shetland cannot be underestimated.
“This is a positive opportunity for the future of Shetland.
“It’s a big change for Shetland and for SVT.”
EnQuest also revealed plans to drill three further wells on the field.
The deal will see 340 BP staff move over to EnQuest.
The oil and gas explorer takes a 25% stake in Magnus, an interest in associated pipeline infrastructure and a 3% interest in the Sullom Voe Terminal (SVT).
EnQuest chief executive Amjad Bseisu told investors that he expects the deal to extend the life of the fields as well as the oil and gas terminal.
EnQuest will also have the option down the line to purchase the BP’s remaining 75% interest in Magnus, a further 9% interest in SVT and the remainder of BP’s interests in the associated pipelines for an additional $300million (£241million).
BP would then be entitled to 50% of the net cash flows from the assets until it hit a $1billion (£803.5million) limit.
Mr Bseisu said: “The ability to operate the terminal, which we are a big user of, will allow us to reduce costs and increase the life of both the terminal and the fields.
“This is really a very good example of maximising economic recovery (MER UK), which is a UK Government initiative.
“We feel this is a strategic relationship with BP and we are a natural, strategic operator for these maturing assets.”
He added: “In conclusion we are excited about the Magnus/SVT deal. It’s a cashless, riskless transaction.
“We feel we can extract value as well as extend the life of the terminal. We see significant potential at the Magnus both with existing hydrocarbons in place and with a drilling programme which will be more efficient with more hoppers.
“We only have three wells planned but will hopefully look at more as we see more opportunities.”
Bruce McLeod, a partner at Burness Paull, added: “There has been a significant reduction in the number of oil fields changing hands over the past two years. This was partly due to the difficulties in financing acquisitions over that period, as potential purchasers have seen reduced revenues from their existing operations and have often found that their banks were reluctant to increase their lending to the sector. It was also due to the difficulty in agreeing a purchase price given the uncertainty in forecasting the oil price recovery and therefore field cash flows.
“The BP sale to Enquest addresses these difficulties. There is no upfront payment for the initial interest being transferred, with BP being paid out of future Magnus cash flows. Enquest has the option to purchase the remaining Magnus interest for a pre-agreed upfront cash payment with BP having the right to 50% of the future net cash flow subject to a cap of $1 billion. BP’s rationale appears to be that Enquest will increase production by investing in new wells and will reduce costs, thereby creating greater value to BP even from its reduced commercial interest. The transfer of Magnus and Sullom Voe operatorships will also enable BP to focus on its West of Shetland and Central North Sea operations.”