Neo, ExxonMobil Strike $1bn North Sea Deal
NEO Energy, backed by Norwegian private equity group HitecVision, has agreed to pay over $1bn to buy a package of ExxonMobil assets in the north and central UK North Sea, the companies reported on February 24.
NEO is set to acquire nearly 40,000 barrels of oil equivalent/day of supply and over 140mn boe of reserves through the deal, expected to close by the middle of the year. It will pay a sales price of over $1bn and make potentially up to $300mn in contingency payments based on future commodity prices. It will bankroll the deal partly with HitecVision funds and partly using a $2bn reserve-based lending facility underwritten by BNP Paribas, DNB, ING and Lloyds Bank.
"This acquisition builds on NEO’s existing North Sea portfolio and towards delivering on our ambition to be a leading producer on the UK continental shelf," NEO CEO Russ Alton said in a statement. "NEO is well placed, together with its operating partners, to extract value from this and other opportunities, while at the same time focusing on improved environmental performance."
NEO says it is on track to produce around 70,000 boe/d of oil and gas in 2021, assuming the deal is closed, and expects output to grow organically to over 80,000 boe/d by 2024. The firm's eventual goal is to boost supply to 120,000 boe/d.
NEO was set up by HitecVision in October 2019 through the merger of two existing North Sea investment vehicles NEO E&P and Verus Petroleum. NEO went on to buy a group of Total assets in the UK North Sea in August last year, gaining a further 23,000 boe/d of oil and gas supply.
The latest deal comprises ExxonMobil's 50% interest in the Gannet cluster, a 4.4% stake in the Elgin-Franklin fields, 44-72% positions in the Shearwater area fields, a 50% interest in the Penguins redevelopment, a 21.2% share of the Nelson field and 21-25% holdings in the Etap fields. All in all, it covers non-operated interests in 21 oil and gas assets in the north and central North Sea including 14 fields and associated infrastructure.
"The assets include several organic growth opportunities, including ongoing development projects such as the Penguins field, infill wells and life extension opportunities," NEO said. "The fields being acquired are operated by some of the largest and most experienced offshore operators in the world including Shell, BP and Total. NEO will become Shell’s largest partner in the UK Central and Northern North Sea."
ExxonMobil is scaling back its North Sea presence substantially, following similar moves by other international oil majors. The company is seeking to quit the European upstream sector altogether within a few years, in order to focus more on higher-margin plays elsewhere. It sold its Norwegian business in 2019 for $4.5bn to Var Energi, which also counts HitecVision as an investor alongside Italy's Eni as the majority owner.
"We continue to high-grade our portfolio by divesting assets that are less strategic and focusing our investments on our advantaged projects that are among the best in the industry,” ExxonMobil senior vice president Neil Chapman said. “Our development plans that prioritise Guyana, the US Permian Basin, Brazil and LNG are focused on increasing earnings potential and generating strong cash flow to fund future capital investments, reduce debt and maintain a reliable dividend."
The deal does not include the US major's upstream assets in the southern North Sea, or its share in the Shell Esso gas and liquids (Segal) transport system that supplies ethane to its Fife ethylene plant. ExxonMobil also retains extensive refining and fuels marketing, lubricants, petrochemicals production and natural gas marketing operations in the UK.