EOR upside anchors OMV-Statoil North Sea deal

OMV AG has agreed to acquire $2.65 billion in North Sea and Atlantic margin assets from Statoil ASA and has taken options on 11 exploration licenses.

In addition to acquiring assets in the North Sea off Norway and UK West of Shetlands, OMV will establish a research and development partnership with Statoil to take advantage of OMV’s comprehensive expertise in onshore enhanced oil recovery and Statoil’s experience with EOR offshore.

OMV is acquiring a 19% interest in the producing Gullfaks field and 24% in Gudrun field on the Norwegian Continental Shelf. OMV will also add 30% of Rosebank and 5.877% of Schiehallion, West of Shetlands fields in which it already holds interests.

OMV said it is substantially increasing its reserves and strengthening its presence in stable OECD countries. The Statoil acquisition will see OMV’s proved and probable reserves increase by 320 million bbl of oil equivalent from the current level of 1.7 billion boe. Production is set to rise by 40,000 boe/d by 2014 with a target increase to 58,000 boe/d by 2016. OMV’s first half 2013 production was 299,000 boe/d.

The purchase price as per the Jan. 1, 2013, effective date is $2.65 billion and is subject to customary adjustments for year 2013 that are expected to be $500 million. For the recent Shetland Lista discovery in the Gullfaks license, a contingent payment of $6/boe for reserves to be developed has been agreed depending on approval of the development plan.

The transaction will be largely funded out of proceeds already generated by working capital reductions and disposals from OMV’s downstream business segments as well as the company’s excellent cash flow. OMV had a free cash flow of EUR 1.6 billion in the first half of 2013 plus existing credit lines.

OMV CEO Gerhard Roiss said, “The development capital will be largely funded by the operating cash flows of the already producing assets which are part of the portfolio whilst the purchase price represents a reinvestment of the proceeds we have generated from disposals and working capital reductions from our downstream divisions over the last 18 months.”

OMV noted that Gullfaks has produced 2.7 billion boe and still offers great potential, with production of 26,000 boe/d expected for 2014. Gudrun, 15 km west of Edvard Grieg, is to start production in early 2014 and contribute 15,000 boe/d in 2014 and as much as 19,000 boe/d in 2016 to OMV’s 24% interest.

OMV will have a 50% interest in Chevron-led Rosebank, the UK’s largest development, for which the final investment decision is expected in 2014. Production would start in 2018 and peak at 50,000 boe/d.

OMV’s stake in Schiehallion will rise to 11.76%. Undergoing major redevelopment and the UK’s second largest oil field, Schiehallion production is set to resume in 2016 and peak at an estimated 12,000 boe/d.

OMV said the transaction also involves a memorandum of understanding on future research collaboration and additional exploration options. OMV will have the option of participating in as many as 11 exploration licenses in the Faroe Islands, West of Shetland area, and the Norwegian North Sea. The majority of the licenses are underexplored frontier areas with high resource potential.

The exploration licenses in Norway are near Edvard Grieg field, and OMV expects to benefit from respective synergies.

The transaction is expected to close around the end of 2013 subject to Norwegian and UK regulatory approvals.

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