EnQuest boosts North Sea output as it snaps up Stratic

NORTH Sea oil and gas explorer EnQuest has announced its first acquisition just four months after its formation and listing on the London market.

The company is to buy smaller North Sea player Stratic Energy in an all-share deal valuing the latter at $45.7 million (28.7m). The agreement will add about 5 per cent to the annual oil production of EnQuest, which is targeting 10 per cent production growth year on year for the medium-term.

The Canadian-headquartered Stratic has been crippled by high debt and a poor production performance, but owns a number of assets of interest to EnQuest.

Chief among these is a 17.25 per cent working interest in the North Sea's West Don field, and a 19 per cent stake in the Crawford field redevelopment being led by Fairfield Energy, which had to shelve its own flotation plans last month.

EnQuest, led by chief executive Amajad Bseisu, will increase its stake in West Don to about 45 per cent as a result of the Stratic acquisition.

EnQuest's total proven and probably reserves in the North Sea will rise by about 7.27 million barrels of oil equivalent, while production should increase by 900 barrels per day upon completion.

In addition to the purchase price, EnQuest said it would also refinance Stratic's debts of nearly $75m as part of the deal. It has already agreed a $70m extension to its current debt facilities, which were set up in April with an initial line of credit of $280m.

Those funds are being provided by Lloyds Banking Group through its Bank of Scotland subsidiary, and by French bank BNP Paribas. The revolving credit facility was put together in April to help fund acquisitions by the newly-floated EnQuest, which was created from the demerged assets of oil services business Petrofac and Swedish explorer Lundin Petroleum.

EnQuest is mainly focused on organic growth but is also looking at both corporate and asset acquisitions.

Bseisu has said that about one-third of the company's expansion will come through acquisitions, with the remainder being fuelled by organic growth.

The deal is backed by Stratic's board of directors and is expected to be completed within ten weeks.

Shares in EnQuest, a member of the FTSE 250, last night closed down 1p at 116p. Under the takeover deal, each Stratic shareholder will receive just under a tenth of an EnQuest share.

Investors are expected to receive an information circular in September, followed by a special meeting to consider the deal, which is likely to be held in October.

As part of its plan to head off creditors, Stratic had been considering the sale of its stake in the Crawford redevelopment. However, the Canadian firm said in a statement yesterday that it had encountered "increased difficulty" in selling Crawford as a result of operator Fairfield's failed London IPO announced on 15 July.

Stratic's other interests along the UK shelf include the Cairngorm and Bowmore discoveries, plus the Horizon West field in the Dutch North Sea.