As compensation for the license, which includes three separate undeveloped prospects, PGS will assume Norsk Hydro's portion of the field abandonment liabilities which are estimated to range from $6 to $10 million after tax. PGS' current plans involve the continued production of the Varg field. The undeveloped fields on the license will be evaluated over time and will either be developed with the "Petrojarl Varg" FPSO or sold outright to other interested oil companies.
This transaction, which is contingent upon the approval of Norwegian authorities, is consistent with Norsk Hydro's focus on other key areas on the NCS and abroad. Norsk Hydro indicated that they were pleased to facilitate the introduction of new players with different business approaches compared to traditional oil companies, and believe that this process will enhance the value creation on the NCS.
Petroleum Geo-Services' production on the Varg field, which is within the license PL 038, and its purchase of Norsk Hydro's 42% share, will provide the Company with an extension of engagement for its floating production, storage and offloading vessel, "Petrojarl Varg," currently in operation on the field. This sale agreement confirms the trend towards innovative business arrangements, and represents a significant contribution to a predictable and sustainable utilization of PGS' production fleet offshore Norway.
PGS Chairman and Chief Executive Officer, Reidar Michaelsen, stated, "This is a most welcome development which illustrates PGS' continued commitment to its long term strategy in the production market, namely to share more equitably in the values we create through our services by tapping into the synergies inherent in PGS' unique blend of competences, seek new business formats with higher upside potential and secure a better continuity in the utilization of our production assets."
PGS Production Group President, Kaare M. Gisvold, added, "The fact that PGS Production shortly expects to be formally approved as Operator on the Norwegian Continental Shelf will open new and exiting business opportunities. Not only shall we be able to handle the tail-end production challenges more efficiently, we shall also be able to take a role in further field developments suitable for our production assets and influence the timing of new projects in a more direct manner."
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