July 13, 2012 (TSR) – The UK’s Premier Oil has agreed to agreed to acquire a 60% stake and operatorship of Rockhopper Exploration’s Sea Lion oil discovery and other licenses off the Falkland Islands in a $1 billion farm-in deal, the companies said Thursday.
According to Platts, the agreement ends months of speculation over Rockhopper’s efforts to attract a better-funded offshore player to the politically sensitive South Atlantic islands and brings the prospect of a first oil development off the archipelago a step closer.
Under the deal, Premier will pay $231 million upfront in cash and cover Rockhopper’s costs of up to $722 million for future development of the Sea Lion find, the companies said.
Premier has also agreed to fund the first $120 million of exploration costs elsewhere in the licenses, with $48 million net carry to Rockhopper.
“Overall, the acquisition looks like a very good deal, adding 200 million barrel of net contingent resources (to Premier) with a low upfront cost,” broker finnCap said in a note estimating that the deal implies an acquisition cost of $5/b excluding expenses.
Rockhopper shares rose sharply after the announcement but gave gains to trade 10% lower at GBP2.46 by 1101 GMT. Premier, which separately confirmed its production targets and said it sees production averaging 60,000 boe/d this year, rose in London and stood 2.5% higher at GBP3.674/share by 1101 GMT.
Rockhopper has been looking for a partner to share the costs of developing Sea Lion since last year after sketching out plans to develop the remote oil find with a floating production and storage vessel at a cost of around $2 billion.
But the company, which began formerly seeking a partner to help develop Sea Lion in January, said recently some companies had been put off by the location of field.
The Falkland Islands is a UK self-governing overseas territory in the South Atlantic Ocean over which Argentina claims sovereignty and fought a brief war over in 1982.
Argentina has recently stepped up its opposition to exploration off the Falklands, threatening legal action to stop UK-based companies from exploring for oil and natural gas in the region.
UK Prime Minister David Cameron accused the Argentinian Government of “colonialism”.
In January, US-based producer Anadarko Petroleum sent a team of executives to Port Stanley to examine the possibilities of a tie-up with Rockhopper for the Sea Lion development, the UK Daily Telegraph has reported.
Both Premier and UK-based Cairn Energy had also reportedly been interested in acquiring either Rockhopper or a stake in the Sea Lion project.
Discovered by Rockhopper in May 2010, Sea Lion holds a mid-case recoverable potential of some 355.6 million barrels of oil based on a 30% recovery factor and is worth some $4.1 billion, according to independent estimates.
Rockhopper said recent appraisal drilling on the find has confirmed expectations that the field would be developed under a leased floating production, storage and offloading scenario at a cost of some $2 billion to produce the first oil.
Premier said it estimates the total cost of developing Sea Lion would be some $5 billion including the acquiring of an FPSO which would have a gross peak production of 80-85,000 b/d.
Premier and Rockhopper said they have agreed to undertake a front end engineering and design study to optimize the development area, and plan to submit the final development plan by second half of 2014, aiming to bring the field on stream in late 2017.
“We believe Premier brings a valuable development skill set to the Sea Lion development with experience not only with FPSO developments in similar operating environments but also with waxy crude developments through their successful Chim Sao development in Vietnam,” analysts at brokers and investment bank Jefferies said in a note.
The Sea Lion development will add around 50,000 b/d to Premier’s medium-term target of 100,000 b/d and provides a “good fit” with Premier’s development portfolio, the company said.
Premier said it plans to fund the initial consideration and exploration carry from its existing cash resources, and a combination of existing credit facilities and cash flow from existing operations if the Sea Lion development goes ahead.
The company will also provide Rockhopper with a stand-by funding facility to help fund any shortfall in Rockhopper?s share of development capex, under the deal.
Outside Argentina, Premier and Rockhopper said they have also agreed to collaborate on exploration in areas of “mutual interest” including offshore Namibia, South Africa and Southern Mozambique which hold analogous exploration plays to Sea Lion.