LONDON, UK: The 69% Centrica owned Spirit Energy Limited has entered into agreements to sell the Spirit Energy Group’s Norwegian oil and gas exploration and production business excluding the Statfjord field to Sval Energi AS, and its interests in the Statfjord field to subsidiaries of Equinor ASA.
The transaction has a commercial effective date of 1 January 2021 with headline consideration of $1.076 billion (equivalent to approximately £800 million) in cash on a debt free, cash free basis, plus a deferred commodity price linked contingent payment.
The consideration payable at closing will be subject to customary adjustments to reflect working capital and debt like items.
It will also be reduced for net post-tax cash flows generated by the Sale Business and Interests since 1 January 2021, adjusted for any remaining tax payable on these net cash flows to be paid by the Spirit Energy Group.
Chris O’Shea, Group Chief Executive of Centrica, said: “We are pleased to continue to bring focus to Centrica’s portfolio with these transactions, which are aligned with our strategy to reduce our exposure to carbon intensive oil and gas exploration and production in a way that maximises shareholder value.
With the disposal of these largely oil producing assets to buyers who will be able to meet the material decommissioning costs, we can now focus on realising value for our shareholders from Spirit’s remaining gas reserves. Spirit will effectively be in run-off, and we will not explore for new hydrocarbon reserves; rather, we will focus on ensuring Spirit can fund its decommissioning liabilities whilst pursuing opportunities to leverage existing infrastructure to help the UK on its path to net zero.
As of 31 October 2021, the Sale Business and Interests had generated £376 million of net cash flows since 1 January 2021. Whilst significantly dilutive to earnings in the near term, all decommissioning liabilities related to the Sale Business and Interests will be transferred to the buyers as part of the transaction.
Spirit Energy will distribute the Net Consideration and Net Cash Flow to Centrica and its joint venture partners, SWM Group, in proportion to their ownership, after adjusting for certain transaction taxes and costs and amounts in respect of certain liabilities to be retained by the Spirit Energy Group. SWM Group’s share of this distribution from Spirit Energy is expected to be approximately £250 million.
In addition, an estimated approximately £140 million cost of closing commodity price hedges related to Statfjord U.K. will be borne by Spirit Energy and there is an estimated approximately £40 million cost of closing commodity price hedges at a Centrica Group level related to its share of Spirit Energy’s Norwegian Business and Statfjord Norway Interests.
Sales result in a 92% reduction in the Spirit Energy Group’s oil and liquids reserves and a 38% reduction of its gas reserves, and represent a significant step towards Centrica delivering on its strategy to decarbonise its portfolio and reduce its exposure to oil and gas production.
Sales further simplify and de-risk Centrica’s business model while strengthening the balance sheet and reducing earnings and cashflow volatility, and allow an increased focus on its customer-facing activities in its core home markets of the U.K. and Ireland where it has leading market positions.
Centrica merged its exploration and production business with Bayerngas Norge’s business in 2017 to form Spirit Energy, which alongside the previous disposals of Centrica’s Canada and Trinidad & Tobago assets created a more focused and more sustainable European exploration and production business.
In July 2019, Centrica announced the strategic decision to focus on its customer-facing businesses and transition to a lower carbon future. This included the decision to exit oil and gas production and the intention to divest its 69% shareholding in Spirit Energy.
Centrica announced in April 2020 that the disposal process had been paused due to the uncertain backdrop created by the Covid-19 pandemic and low commodity prices at that time. In addition, the joint venture structure had limited the number of parties interested in buying Centrica’s interest in Spirit Energy as a whole.
Centrica subsequently decided to pursue alternative sale options in order to simplify the sale structure and enable it to maximise the value of the assets while de-risking liabilities, which included pursuing the sale of the Sale Business and Interests.
Having received a compelling offer from Sval and Equinor to acquire the Sale Business and Interests, Centrica entered into a limited period of exclusive negotiations with Sval and Equinor to explore further the basis for a transaction.
Leave a Reply