(Adds details of the deal from second paragraph.)
By Alex MacDonald
LONDON--U.K. utility SSE PLC (SSEZY) said Wednesday it has
agreed with French oil and gas major Total SA (TOT) to buy a 20%
stake in four gas fields in the North Sea's Shetland Islands and a
20% stake in a new Shetland gas plant for 565 million pounds ($881
million) in cash.
The deal is aimed at staving off an expected decline in SSE's
annual gas production profile while, for Total, the deal is in
keeping with its aim to divest $5 billion of assets in 2015 and
reduce the amount of money it plows into projects as it pushes to
conserve cash in a low oil and gas price environment.
As part of the deal, SSE has agreed to invest GBP350 million by
2018 to complete the fields' development.
The transaction, which is forecast to close by March 2016, is
taking place at a time of relatively low wholesale gas prices and
is therefore timely, said Alistair Phillips-Davies, SSE's chief
executive. "It completes our portfolio of gas production assets for
the foreseeable future."
The fields are located in the Greater Laggan Area where gas
production is due to start later this financial year. The fields
are forecast to hit a peak production rate of five million therms
of gas a day in 2016, of which SSE will be entitled to one million
therms a day.
Production from the acquired fields is expected to be sustained
at that level until around 2020, before declining over the
following 10 years in the absence of further development.
The agreement comes at a time when SSE's existing production
volumes are expected to decline. The acquisition will help sustain
the company's annual attributable gas output above last year's
level for several years to come, SSE said.
SSE plans to finance the deal by issuing a bond and by using
proceeds from SSE's ongoing asset disposal program.
Citigroup analysts said in a note that the stake sale shows
there is still life in offshore oil and gas mergers and
acquisitions. The deal marks the first offshore asset sale in 2015
and represents a 20% premium to book value, according to
Citigroup.
"It looks like the industry is still prepared to use oil prices
above current spot/forwards when it looks to M&A," the bank
said, noting that it used a benchmark oil price of $75 a barrel to
value the assets. "The sale also illustrates that key industry
participants are less bearish on European gas prices than many in
the equity market have become ahead of the imminent arrival of US
LNG into the supply dynamic," it added.
SSE's shares were up 0.3% at 1,512 pence share while Total's
shares were up 0.8% at 43.57 euros ($48.20) a share.
Total Wednesday reported a 4% decline in second quarter net
profit compared with the previous year, as aggressive cost-cutting
and an increase in oil output has helped to offset the fallout from
the global oil price collapse on its bottom line.
--Inti Landauro in Paris contributed to this story
Write to Alex MacDonald at alex.macdonald@wsj.com
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