This leaves the company with plenty of financial headroom going forward. It also boasts a healthy cash balance of US$132 million and, with its production profile moving up, strong forward cashflows. This is important for a company that, having rebutted apparently below-par offers from interested parties decided to go it alone in May, a decision that expressed confidence in its ability to deliver value for shareholders from its North Sea holdings but that also severely dented the share price as bid speculation evaporated.
This isn’t a company showing any signs of distress at its solo status. In addition to its enviable balance sheet, there’s growing production from the North Sea. In Q3, production averaged just over 5,000 barrels of oil equivalent per day, up 28 per cent on the second quarter of 2012. This reflects the first full quarter’s contribution from the newly onstream Athena oilfield as well as strong performance from the mature Beatrice and
Jacky fields (helping offset reductions from the Cook and Broom fields due to planned maintenance shutdowns). Happily, production from Athena has now stabilised at between 10,000 and 11,000 bpd (2,250 to 2,475 bpd net) after the production wobble of this summer when there was a blockage in the production tubing of one of the wells. A well intervention was partially successful, however, and the well is back onstream. To date, the field has produced over 1.2 million barrels since coming onstream in late May. Importantly, there has been no water breakthrough yet, which the company says is a “positive signal for the longer term potential of the field”.
Production in Q4 is expected to be in the range of 6,300 to 6,900 boepd, including the contribution from the newly acquired interests in the Cook and MacCulloch fields in the Central North Sea. The company announced earlier this month it was spending US$38.5 million to buy an additional 12.885 per cent interest in Cook and 14 per cent of MacCulloch from Noble Energy, adding net incremental oil production of around 1,100 boepd. The price-tag works out at US$11.30 per barrel of 2P reserves.
The acquisition will be funded from existing cash balances and because of the company’s existing UK tax losses, almost US$350 million worth, the resulting net cash flows from the assets are set to deliver a rapid payback on the investment. Chief executive Iain McKendrick said the deal wasn’t just about buying production and monetising its tax pool, pointing out that the company sees “large potential production and reserve upsides” in these fields.
He also raised the prospect of further deals to come. “The company is cautiously optimistic of being able to add further asset acquisitions to its portfolio,” he said.