EnQuest to Farm Out 20% of Kraken

By Joseph R. Fonseca July 18, 2016

EnQuest PLC has announced that it is holding discussions with Delek Group Ltd for the sale by EnQuest to one of Delek's subsidiaries of an interest in the Kraken development.

EnQuest confirms that EnQuest and Delek have signed a non-binding memorandum of understanding and are working towards executing binding transaction documents. Delek is today releasing information concerning this negotiation as part of its disclosure obligations with regard to a separate transaction. The key terms of the proposal are currently as follows:

EnQuest to farm out to Delek a 20% working interest in Kraken.
Delek would bear its share in the project capex from January 1, 2016.
At completion, Delek will advance USD20 million to the Seller for a period of up to 5 years at an annual interest of 3% which shall be returned to Delek in the event that its costs are not covered by revenues within 5 years from the completion date.
The parties are discussing mechanisms for additional contingent consideration, to be set out in binding transaction documents.
The parties may, prior to completion, by agreement and subject to requisite third party consents (including that of EnQuest's lenders), convert the transaction such that Delek may acquire a subsidiary of EnQuest which holds a 20% working interest in Kraken.

There is no guarantee that a final agreement will be reached. EnQuest announced previously that in addition to its ongoing cost reduction initiatives, it was also pursuing a range of further opportunities for debt reduction, including potential asset sales and farm outs. The transaction is subject to EnQuest's lending banks' consent. EnQuest continues to closely monitor and manage its funding and liquidity position in light of the current market environment and is engaging as appropriate with its credit facility providers (including banks and bondholders) in this regard.

Note that if Delek and EnQuest agree and sign binding transaction documents, completion of the transaction would be subject to the normal third party consents. EnQuest will provide further details in the event either of transaction documents being signed or of it becoming apparent that a binding agreement cannot be reached.