Tullow Oil has embarked on its second major acquisition this year with the £200 million (€291 million) purchase of two gas fields in the North Sea from Shell and ExxonMobil.
The deal, which follows hard on the heels of the $500 million (€373.3 million) acquisition of Energy Africa last May, bolsters Tullow's position in the southern North Sea and should see it double its UK gas production in 2006.
The acquisition of 100 per cent of the Ketch gas field and 90.4 per cent of the Schooner field, together with surrounding acreage, will be funded through bank debt and internal resources and should be completed in the first quarter of 2005, the independent oil and gas explorer said.
"This acquisition of Schooner and Ketch is a step-change for our UK gas business, adding substantial base productions with significant upside potential and a material offshore operatorship that complements our existing assets," the company's chief executive, Mr Aidan Heavey, said.
He described 2004 as "a transforming year" for Tullow, noting the company had spent more than a billion dollars on acquisitions.
In addition to the Ketch and Schooner interests, the company will also acquire minority interests in the Topaz, Marjan and 44/27-1 discoveries.
The gas initially in place for the Schooner and Ketch fields is in excess of 1,500 billion cubic feet (bcf) but just 350 bcf has so far been recovered. Tullow plans to invest £140 million to develop the fields over the next two-and-a-half years in a bid to increase the ultimate recovery from the fields to 50 per cent from the current level of 23 per cent.
Tullow will operate both fields and the gas produced will continue to be transported via the Caister-Murdoch System infrastructure, in which Tullow has a 17 per cent interest. In addition, the company hopes to capitalise on strong UK demand for gas as supply runs out.
The deal is the latest in a series of sales that have seen the major oil companies shift their focus away from the North Sea to more promising areas for exploration.
Mr Heavey noted that Schooner and Ketch were single assets for their owners and not material for either company but were very attractive to Tullow.
"We own all the gas fields and the exploration acreage around them ... I think we got a very good deal. For a company of Tullow's size, it's a material asset," Mr Heavey said.
The stock market appeared to agree as shares in the exploration group added 3.8 per cent to 150 pence sterling in London and analysts welcomed the deal.
"Current production is of the order of 60 mmscfd [ million standard cubic feet per day]. That compares with our estimated pre-deal gas production from the North Sea alone of 108 mmscfd for the whole of 2004 and thus illustrates the size and significance of the acquisition," Goodbody Stockbrokers said.
Company broker Davy estimates the deal will add 0.5 pence per share to its forecast earnings in 2005 and more than 2 pence per share in 2006. It also noted that there are likely to be other operational, financial and tax structuring advantages that will become evident over time.
