Kerr-McGee Corp. has sold its interests in certain UK North Sea assets, including the Hutton tension leg platform.
Last month, Canadian Natural Resources Ltd., Calgary, purchased exploration properties in the North Sea from a unit of Kerr-McGee for $120 million in cash. The deal also calls for a unit of Canadian Natural to surrender some of its interest in Harding field to Kerr-McGee, increasing the Oklahoma City-based independent's interest in the field to 30%.
In a separate transaction, Kerr-McGee, through its affiliate Kerr-McGee Resources (UK) Ltd., sold its 14.49% interest in Ross field, which lies in the UK North Sea, to Paladin Expro Ltd., a wholly owned unit of London-based Paladin Resources PLC.
In other company news, as part of a detailed, 3-year business strategy to prioritize its exploration and development plans and reduce overall costs, Calgary-based Canadian 88 Energy Corp. has entered into an agreement to acquire all of the issued and outstanding shares of private oil and gas company RMX Exploration Ltd., also of Calgary, for $26.1 million in cash and assumed debt.
Canadian 88 also revealed that it would exit its east coast land position in Canada-which covers about 750,000 net acres-while concentrating most of its efforts on the exploration, development, and production of sour and sweet natural gas in the western part of the Western Canadian Sedimentary Basin. "Exploration will remain the principal cornerstone of Canadian 88's strategy," the company said.
Kerr-McGee's UK field sales
Kerr-McGee subsidiary Kerr-McGee North Sea (UK) Ltd. sold its interests in the Murchison, Ninian, Columba, Lyell, and Strathspey fields to Canadian Natural. The deal included associated assets and undeveloped acreage in the northern North Sea. In turn, Kerr-McGee acquired an additional 5% interest in Harding field on Block 9/23b in the North Sea's Quadrant 9 through a transaction with Canadian Natural unit CNR International (UK) Ltd.
Kerr-McGee said the deal will reduce its net reserves by 50 million boe and reduce its production volume by 26,000 boe/d. The deal, retroactive to July 1, is expected to close in the fourth quarter.
Canadian Natural will assume all decommissioning obligations associated with the divested fields. Kerr-McGee said it had accrued $143 million in decommissioning costs through June 30 for the assets. Including the accrual for the decommissioning expenses, Kerr-McGee said its operating expenses are expected to decline by $120 million/ year, which equates to a 25% reduction in its North Sea unit's operating expenses.
"Our primary focus remains on growing our core operating areas-worldwide deepwater trends, the US onshore and Gulf of Mexico, the UK sector of the North Sea, and China's Bohai Bay," said Luke R. Corbett, Kerr-McGee chairman and CEO. The company said it would maintain a "strong presence" in Quadrants 9 and 30 in the UK North Sea.
"It's a corporate objective to have fairly high working interests and operatorship (control) in areas that we're in, and the North Sea was the one area where we had not accomplished that until this transaction," said John Langille, Canadian Natural president.
Canadian Natural said that the acquisition will increase its North Sea light oil production by 20,000 b/d to 47,500 b/d of oil. The firm also has increased its 2002 capital budget to $1.7 billion (Can.), up from a previous target of $1.5 billion (Can.).
Canadian Natural said it was buying an interest in Strathspey field, 12 licenses covering 20 full and partial exploration blocks, and additional equity in the Brent and Ninian pipelines and the Sullom Voe terminal.
Meanwhile, Kerr-McGee's divestiture of its interest in Ross field became effective July 1 and was valued at $22 million. The deal is expected to close in the third quarter, and UK government approval is required. Kerr-McGee said it would use the deal's proceeds to reduce debt.
Hutton TLP sale
Another Kerr-McGee unit, Kerr-McGee North Sea (UK) Ltd., sold the Hutton tension leg platform to Monitor TLP Ltd. for $29 million, net to Kerr-McGee. The company said that it would use the proceeds from the sale to reduce debt.
The Hutton TLP was removed from Hutton field as part of the decommissioning program approved by the UK Department of Trade and Industry in May. The TLP was installed by Conoco Inc. (now ConocoPhillips) in 1984, marking the first commercial use of TLP technology for an offshore platform.
Hutton field is operated by Kerr-McGee with 58.74% interest. Other Hutton field partners are Enterprise Oil UK Ltd. (acquired by Royal Dutch/Shell Group) 9.54%, Cieco Exploration & Production (UK) Ltd. 8.63%, Lasmo (ULX) Ltd. 8.63%, CNR International (UK) Ltd. 7.76%, and Westoil Operations Ltd. 6.70%.
Canadian 88-RMX deal
Both companies' boards have already approved Canadian 88's purchase of RMX and RMX board directors are advocating that their shareholders accept the offer.
Nearly all of the RMX assets are those in which both Canadian 88 and RMX have a working interest. Canadian 88's purchase of RMX will add 950 boe/d, or about 9%, of estimated net production to its portfolio during the fourth quarter. The deal also will add 1.9 million boe of proved reserves to the company's operations.
"An important element of Canadian 88's strategy is to grow and add value through synergies represented by acquiring other companies and assets," Canadian 88 said. "The RMX acquisition increases Canadian 88's working interest in many of its existing properties and, at current natural gas commodity price levels, is immediately accretive to cash flow and earnings per share," the company added.
Canadian 88's 3-year plan
Canadian 88's plan will involve a "major" cost-reduction program, which is presently under way, the company said. Among other savings, Canadian 88 has taken steps to shave $3 million/year from its general and administrative (G&A) costs, with "further reductions" expected next year. "G&A costs in 2002 were budgeted at $13 million, of which 55% were to be expensed and 45% capitalized," the company said.
The company also plans to take immediate steps to delist itself from the American Stock Exchange, it said.
The company will reduce operating costs as well through "a combination of initiatives," Canadian 88 said. "We expect operating costs to average $5.50/boe in 2002 with reductions expected in 2003," it noted.
After high-grading its list of drilling prospects and reducing its drilling and facility capital costs, Canadian 88 hopes to pin its finding and development costs between $10-12/boe by 2003, it said.
Of the $40 million in capital outlays that Canadian 88 intends to spend during 2002, 50% will be spent on drill- ing programs in its Strachan, Olds, High River, Medallion, and Swalwell areas in southern Alberta. During 2003, Canadian 88's plans to spend some $75 million in capital expenditures, 60% of which will be spent on drilling.
"About 35% of the full capital program (during 2003) will be allocated to development activity at Olds, 40% to higher risk prospects on the company's Foothills and Swan Hills type opportunities, and 25% to lower risk programs such as Medallion and Swalwell," Canadian 88 said.
"Our review of the assets and operations of the company was thorough," said Stephen J. Savidant, Canadian 88 president and CEO, "and we confirmed that the assets are solid, we have a talented and very determined group of people in the organization and the strategy is in place…." Savidant was named to his current position with the company earlier this year (OGJ, June 10, 2002, p. 40).
