EnQuest to acquire 25% of BP's Magnus oil field

EnQuest, oil and gas development and production company, has agreed to acquire an initial 25% interest in Magnus oil field from British Petroleum (BP) for $85m.

In addition to this, a 3% interest in the Sullom Voe oil terminal and supply facility, 9% of the Northern Leg Gas Pipeline and 3.8% of the Ninian Pipeline System will be included in the agreement.

The sale price is expected to be met from the company’s share of future cash flows from the assets and will not include an upfront payment to BP.

Around 100 BP staff that are linked to Magnus and 240 at Sullom Voe are expected to transfer to Enquest as well.

The company has the option to take full ownership of Magnus and have a larger stake in Sullom Voe in the future.

Located 160km north east of the Shetland islands, Magnus is the UK’s most northerly field.

BP said EnQuest’s record of extending the life of mature assets was the reason it was chosen as the natural operator for the interests.

"Sullom Voe and Magnus have been great businesses for BP, but to maximise the economic life of these important assets, we believe this deal will offer them a better long-term future," said BP North Sea regional president Mark Thomas.

Chief executive Deirdre Michie of industry body Oil and Gas UK welcomed the deal.

"This is an innovative deal which will open a new chapter in the life of Sullom Voe and the productive life of Magnus, an iconic North Sea oil field.

"It also sends a very positive signal on the opportunities available in the North Sea and is an indication of confidence that, even after producing oil for more than 30 years, this mature field still has more to give," said Michie.

EnQuest trading update

During 2016 the group has achieved its highest annual production since the company started in 2010 despite being adversely affected by maintenance and weather issues.

Production averaged at 39,751 barrels of oil equivalent per day (boepd) in 2016, up by 8.7% compared to 2015 with production in the UK North Sea up 11.3%.

The company made cost savings during the period with both final reported unit operational expenditure (opex) and cash capital expenditure (capex) expected to be around the lower end of the latest full year guidance range at $25 per barrel to $27/bbl and $620m to $670m respectively.

The Kraken FPSO vessel has arrived in the North Sea on schedule and is continuing under budget and on track for delivery of first oil in the second quarter of 2017.

The company’s production is expected to average in the range of 45,000 boepd to 51,000 boepd for the full year 2017 and will be dependent on the timing of Kraken’s first oil.

It is also on track to further reduce capex in 2017 with savings expected to be in the range of $375m to $425m, the majority of which is being invested in the Kraken development. Hedging of 6m barrels is in place for 2017 at an average of around $51/bbl.

Chief executive Amjad Bseisu said: "EnQuest is delivering reductions in operating and capital expenditure and we continue to streamline our operations. Our low cost operating structure and our low cost approach to operatorship are integral parts of our way of doing business - whilst always retaining safe operations as our number one priority.”

The share price rose 0.43% to 49.46p at 1450 GMT on Tuesday.