Petrofac, Lundin to Combine North Sea Oil, Gas Assets

LONDON (Dow Jones), Mar. 4, 2010

Oil and gas facilities service provider Petrofac PLC Thursday said it plans to demerge its North Sea oil and gas fields and combine them with the U.K. assets of Swedish independent oil and gas exploration company Lundin Petroleum AB to form a new independent oil and gas company, EnQuest PLC.

The new company will make better use of what were non-core assets in Petrofac and Lundin, generating better shareholder returns, executives from the companies said.

"These have not been focused assets in either Petrofac or Lundin," said EnQuest's new Chief Executive Amjad Bseisu. "Our focus at EnQuest will be to provide some tender loving care."

A demerger of Petrofac's North Sea assets has been compelling for a while, and with the combination of the Lundin assets, creates a scale and size which should allow EnQuest to become a more complete North Sea oil and gas company, said Evolution Securities analyst Keith Morris.

The new company, which will be 45% owned by Petrofac shareholders and 55% owned by Lundin's shareholders, will focus on increasing production and reserves on the U.K. continental shelf. Following the demerger of the Petrofac assets, the company will be listed on the London Stock Exchange with a planned secondary listing on the Nasdaq OMX Stockholm.

The Lundin family and Petrofac's chief executive and chief operational officer will among them own almost 30% of EnQuest, but have been asked to sell a portion of their holdings in a secondary listing to increase liquidity, said Lundin President and Chief Executive Ashley Heppenstall. Details of that listing will be decided on March 29.

EnQuest is targeting annual oil output growth of 10% during the next three to four years, from the end-2009 level of 13,260 barrels a day. Cash flow from Petrofac's Don oil and gas fields will be recycled into Lundin's fields that "need quite a bit of investment, but have a higher upside," Heppenstall said. The company also plans to have a debt facility in place at the time of listing, he said.

EnQuest will also look to increase recovery factors and drill new exploration and appraisal wells close to its assets, Bseisu said. "There are a lot of investment opportunities in the areas we have...we will be looking at selective acquisitions also," he said.

EnQuest will have 80.5 million barrels equivalent of proven and probable oil and gas reserves.

Petrofac will also contribute significant tax losses that can be offset against future profits, which also benefit the transaction, Heppenstall said.

The transaction is expected to be completed early in the second quarter of 2010. It remains subject to the approval of Lundin and Petrofac shareholders and the U.K. government. "I am very confident this transaction will move forward in the next few weeks," Heppenstall said.

Copyright (c) 2010 Dow Jones & Company, Inc.