U.K.-focused oil company EnQuest is offering new discounted shares to buy out the Magnus oil field and has borrowed money against 15% of its Kraken field as it seeks to reduce its debt pile of almost $2 billion.
EnQuest, which owns a quarter of Magnus, launched a $138 million rights issue on Sept. 7 to help it to buy the rest of the 12,000 barrel per day (bbl/d) North Sea field from BP (NYSE: BP), sending its share price tumbling by more than 13%.
If successful, the deal will bring 60 million barrels of reserves—or an additional 30%—to EnQuest’s portfolio and also increase its stakes in the Sullom Voe oil terminal, Ninian pipeline system and Northern Leg Gas pipeline, the company said.
The rights issue announcement came as EnQuest, which has a market value of about $590 million, reported a close to 50% jump in first-half post-tax profit to $43 million thanks to its Kraken field boosting overall output.
EnQuest also said it had agreed to ring fence 15% of Kraken for Oz (Och-Ziff) Management in exchange for $175 million, to be paid back within five years.
First-half production of 31,000 bbl/d at Kraken was slightly below expectations, but it has since picked up to as much as 36,000 bbl/d. The company had been seeking to sell a 20% stake.
The Kraken money will help EnQuest to pay back nearly $200 million of debt due next month, CEO Amjad Bseisu told Reuters.
EnQuest is proposing a three-for-seven rights issue at 0.21 pounds (US$0.2717) per new ordinary share, equating to a 45.6% discount to Thursday’s closing price. Bseisu said shareholders, who can vote on the cash call on Oct. 1, have been supportive of the move.
The company’s shares slid more than 13% in early trade to their lowest since July. At 1012 GMT the shares were down 12.7% at 33.7 pence, against a 0.7% fall for the sector index.
The BP deal will cost about $300 million, with $100 million to be paid in cash from the rights issue. The rest will be funded by a loan from BP that will be repaid from the net cash flow from the 75% stake over five years.
Once the loan repaid, EnQuest will pay BP half of the cash flow from the 75% stake up to a cap of $600 million.
Based on the initial acquisition of its 25% stake last year, EnQuest has the right to buy the stake from BP by Jan. 15 next year, with the deal backdated to Jan. 1 2017.
The rights issue wil be underwritten by JP Morgan and Bank of America Merrill Lynch. ($1 = 0.7730 pounds)
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