Equity crude for sale - Financing decision or a sell-out?

Shell and ExxonMobil to sell Northern North Sea assets
15 June 2007

Shell and ExxonMobil have agreed to sell a group of Northern North Sea assets to UK independent Fairfield Energy - and have put a number of other assets in the area up for sale too - writes Ben Cobley

Fairfield has entered into exclusive negotiations with Shell UK and Esso Exploration and Production UK to acquire the following combined interests:

56.8 per cent of the Dunlin and Dunlin Southwest fields
97.6 per cent of the Merlin field
100 per cent of the Osprey field

The company should assume operatorship of the assets later this year. It is already active in the appraisal of the abandoned Maureen and Crawford fields and plans to drill an appraisal well on Crawford later this year.

Fairfield is backed by Warburg Pincus, the SGAM/4D Global Energy Development Capital Fund, Kern Partners and CDP Capital Global Asset Management.

Mark McAllister, Fairfield CEO, told IJ News: 'As you can see we are backed by an impressive array of equity investors. Clearly, the deal will be financed with a mixture of equity and debt and we are in advanced discussions with a number of debt providers.'

He added: 'The combined Dunlin, Merlin and Osprey acquisition represents a major step in the establishment of Fairfield as a UK independent of scale and substance. We have been working for over a year to develop a deep understanding of these assets, assisted by AMEC.

'The current partnership has invested heavily over the last few years to assure the long-term integrity of the Dunlin facilities. We shall continue this process and also undertake a drilling campaign on all of the fields which we believe will deliver significant increases in recoverable reserves and production volumes.'

The operated assets that Shell and Exxon are now putting up for auction are:
Cormorant Alpha
Cormorant North
Tern
Eider
Kestrel
Pelican

The oil evacuation system for the non-operated Otter and Hudson fields
The non-operated interests are:
Otter
Hudson

Shell has also initiated the marketing of its interest in the Strathspey field (block 4/4a), a non-operated sub-sea oil and gas development tied back to the Ninian platform in the Northern North Sea.

Tom Botts, Executive Vice President, Shell Exploration & Production in Europe, said: 'Active management of our assets is not new, and is a key part of Shell's portfolio-based strategy. These are relatively high cost assets within our European portfolio, where other operators might be better placed to add value. At Shell, we are committed to focus on where we can best use our people, capital and technologies, for competitive long-term returns, and on a global basis.'

He added: 'Shell remains committed to Europe and the North Sea as a core business area and holds a key strategic position in security of energy supply to the UK.'

Altogether, the Fairfield and auction sales will reduce Shell UK's production by 25-30,000 barrels of oil equivalent per day from around 350,000 barrels per day.