North Sea oil field deal provides boost for area
THE oil and gas independent that bought a $3bn North Sea portfolio from Shell last year has increased its exposure to the area in a deal that will encourage hopes the recovery in the industry is accelerating.
Chrysaor, which is backed by US investors, has acquired Spirit Energy’s interest in the Armada area fields 130 miles east of Aberdeen for an undisclosed sum.
The deal will give Chrysaor 100 per cent control of the three fields.
The company acquired an interest in them through last year’s deal with Shell. This involved Chrysaor taking over assets accounting for around half of the giant’s North Sea production.
Oil and gas consultancy wood Mackenzie noted the former owners of the Armada fields had been expecting to end production from them this year.
However, Chrysaor plans to invest in extending the life of the cluster.
“This acquisition is part of Chrysaor’s strategy to prolong asset life, maximise recovery and deliver value from its UK North Sea portfolio,” said chief executive Phil Kirk.
He raised the prospect the deal could soon result in a boost for the hard-pressed supply chain, noting: “Chrysaor can now progress its plans to realise the full potential of the fields and will shortly commence well site surveys and secure long lead items and drilling equipment.”
The comments highlight the potential for asset transfers to pave the way for an increase in investment in the North Sea, following a deep downturn in the area.
“This is a prime example of getting assets into the right hands via mergers and acquisitions, which is positive for the United Kingdom Continental Shelf,” said Fiona Legate, a senior North Sea analyst at Edinburgh-based Wood Mackenzie.
The sharp fall in the crude price since 2014 sparked fears that billions of barrels oil and gas could be put at risk in the North Sea.
Oil and gas firms slashed spending in the North Sea in response to the price fall, which left many fields running at a loss.
Experts warned many producing fields could be shut down early and finds left undeveloped.
Shell made it clear it wanted to shift investment from mature fields into big new developments on which it could make better returns.
However, firms such as Chrysaor felt the oil price fall presented opportunities to acquire assets at attractive prices, in the expectation the market would recover.
They expect to achieve good returns by investing in projects that would be too small to interest the majors and have persuaded significant investors to back their strategies.
Chrysaor raised $1bn backing from investors led by the EIG Global Energy Partners private equity business to support the Shell deal. At the time of the deal, Mr Kirk said Chrysaor would be looking to make further material acquisitions.
The company is thought to see potential in developing discoveries that could be tied in to the production facilities in place on the Armada cluster. It would expect to complete such developments relatively quickly and cheaply.
Spirit Energy will retain the decommissioning liability in respect of the assets it is selling to Chrysaor, subject to a cap. The deal is expected to result in decommissioning work being delayed.
Mike Tholen of Oil & Gas UK, said the deal showed Chrysaor’s commitment to maximising economic recovery from the assets it acquired and allowed Spirit to concentrate resources on its own key portfolio.
Spirit, which was formed by Centrica and a German energy giant last year, did not comment. It plans to invest £75m in boosting output from the Chiswick field in the North Sea
Armada has been in production since 1997. Shell acquired a 76% interest in the field through the £35bn acquisition of BG in 2016. Centrica and BG had been planning to decommission Armada.