16 May 2014 – Noble Energy [NYSE:NBL] is in farm-in talks with Premier Oil [LON: PMO] and Rockhopper Exploration [LON:RKH] over the offshore Falkland Islands Sea Lion project, a source with knowledge of the situation told this news service.
The US group is looking to acquire an interest in the asset of between 15% and 20% from each company. Confidentiality agreements have been signed by all parties, and, if successful, the deal would be announced within four months, the source said.
Rockhopper, which has a 40% stake in Sea Lion, declined to comment. Noble Energy and Premier Oil, which holds 60% and is operator of the project, did not respond to requests for comment.
The Sea Lion oil development project (458 mmbbls gross) is expected to have a peak output of 100,000 barrels per day (gross) but has been blighted by delays, with the first oil date pushed back to 2019 from 2017.
In January, Premier announced it wanted to sell up to a 30% stake in Sea Lion to reduce the group’s capex exposure. Premier has to fully fund Sea Lion’s USD 3.8bn spend to first oil and has said it will not proceed to project sanction until the estimated 12-month farm-down process is completed.
The January farm-down announcement, which is believed to have been partly in response to shareholder pressure, coincided with the resignation of Premier’s CEO Simon Lockett – who was the driving force behind the company’s USD 1bn purchase in 2012 of the Sea Lion asset. As part of that deal, PMO agreed to fund Rockhopper’s share of capex through the development carry as well as a standby financing facility.
This news service has previously reported the PMO sale process could be hampered by a disparity between Rockhopper’s market value and the implied value of the asset to Premier Oil.
A sector analyst estimated the value of the Sea Lion project, unrisked, at about USD 2.35bn. Rockhopper is carried by Premier for USD 722m of its capex obligations, so Rockhopper’s stake in the project has an unrisked estimated value of USD 1.7bn, he said.
“Any sale would set a key valuation benchmark for the project at its current stage of development. On the other hand, Rockhopper is discounting a 15% probability that Sea Lion happens,” the analyst added.
Rockhopper’s shares are trading at 93.75p for a market cap of GBP 276m.
At PMO’s annual results meeting in February, Lockett said “probably not” when asked if a takeover of Rockhopper could precede the farm-down. “I expect there will be lots of twists and turns on the way,” said Lockett, who will remain CEO until a replacement is found.
This news service also previously reported that the political implications of operating in the Falkland Islands mean there is a limited pool of potential suitors for Sea Lion. No group with significant interests in Argentina, or Brazil — which supports its neighbour’s claims of sovereignty over the Falklands — will put those assets at risk by partnering with PMO, a sector source previously told this news service. Two years ago, Argentina’s London Embassy wrote to banks warning them of legal consequences should they invest in oil projects in the Falklands.
Husky Energy [TSE:HSE], Enquest [LON:ENQ] and commodities houses such as Vitol could potentially be interested in Sea Lion, this news service has previously reported.
Last month it was revealed Premier Oil had rejected an all-share takeover proposal by Ophir Energy [LON:OPHR]. A significant PMO shareholder at the time told this news service that he backed the rejection of the approach. The shareholder said at the time he had received no update on the progress of the Sea Lion farm-down.
Premier Oil has a market cap of GBP 1.81bn.
by Katie McQue