Delek in talks to buy 20% stake in Kraken oil field near Scotland

Delek Group may soon have a 20 percent stake in the Kraken oil field off the coast of Scotland. The company and UK independent oil producer EnQuest PLC announced they have begun the negotiation process.

According to the notice, which Delek posted to the Tel Aviv Stock Exchange on Monday, the companies have signed a nonbinding memorandum of understanding in which Delek would pay $162 million to purchase 20% rights to the Kraken oil field’s exploration and production licenses in the 9/2b and 9/2c blocks. These blocks are about 350 kilometers off the coast of Aberdeen, within the P1575 license area of the North Sea.

EnQuest currently owns 70.5% of the field, while Cairn Energy Plc owns the other 29.5% stake.

The MOU comes as Enquest faces financial strain due to the drop in oil prices in recent years. In a statement about the deal, Enquest said it was “pursuing a range of further opportunities for debt reduction,” in addition to cost-cutting initiatives.

The terms of a potential deal also would require Delek to provide a $20m. advance to Enquest upon signing for a period of five years, earning 3% interest annually. Enquest said the sum will be returned to Delek in the event that revenue cannot pay back the advance.

The field is estimated to contain the equivalent of 147 million barrels of heavy crude oil. Production is expected to begin in the first half of 2017 and has an estimated production life of 25 years.

Delek owns a combined 31.25% stake in the Tamar reservoir, a 45.35% stake in the Leviathan reservoir and a 53% stake in the Karish and Tanin reservoirs through its subsidiaries Delek Drilling and Avner Oil Exploration.