Det Norske Oljeselskap ASA Acquires Marathon Norway Presentation
Jun 02, 2014 AM CEST
AKERBP.OL - Aker BP ASA
Det Norske Oljeselskap ASA Acquires Marathon Norway Presentation
Jun 02, 2014 / 07:00AM GMT
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Corporate Participants
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* Jonas Gamre
Det Norske Olijeselskap - IR Manager
* Karl Hersvik
Det Norske Olijeselskap - CEO
* Alexander Krane
Det Norske Olijeselskap - CFO
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Conference Call Participants
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* Oyvind Hagen
ABG Sundal Collier - Analyst
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Presentation
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Jonas Gamre, Det Norske Olijeselskap - IR Manager [1]
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Okay, everyone. Welcome to this press and analyst conference on Det Norske's acquisition of Marathon. Karl Hersvik, our CEO, will take you through a presentation and following the presentation there will be a Q&A session. Karl?
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Karl Hersvik, Det Norske Olijeselskap - CEO [2]
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Thank you Jonas. Hello everybody. Good morning and welcome to this press conference. We are extremely pleased to announce that yesterday morning we signed the agreement to acquire all the shares in Marathon Oil Norge. For me this is a transformatory transaction. It will transform the Company and we really look forward to welcoming the Marathon employees into Det Norske a bit later today. However, I would like first to present what the combined company would look like, and what considerations have been made when we decided to acquire Marathon Oil Norge.
As stated in the press release this morning, Det Norske entered into an agreement to acquire Marathon Oil Norge for a cash consideration of $2.1b or approximately NOK12.6b. The transaction is expected to close in fourth quarter of 2014, but is effective as of January 1 this year. With this transformational transaction Det Norske will achieve its goal of creating a strong E&P company, Norwegian E&P company, well ahead of schedule. The acquisition is important to us as value-creating for the following three reasons.
The first is that the Marathon Oil Norway represents an excellent strategic fit for Det Norske. The near-term production from the Greater Alvheim Area, which we'll discuss in a bit more detail later on, compliments Det Norske's expected production in an excellent way. The combined Company will have a diversified asset base across the full E&P lifecycle concentrated in attractive areas on the Norwegian Continental Shelf, such as the Greater Alvheim Area and Utsira High. And Marathon Oil Norway has an organization that brings significant operational experience from the Alvheim field into the competence base of Det Norske.
Second, the acquisition also reduces the overall risk profile for Det Norske, as it provides the basis for long-term financing. It brings strong current cash flow which will provide -- which will prove important when it comes to meeting our funding needs for Ivar Aasen and Johan Sverdrup.
And then last but not least, the transaction provides Det Norske with a strong platform for future growth. The organizations are complementary and gives excellent skill sets for further growth, there will be increased flexibility for portfolio optimization and the operational performance on Alvheim can be leveraged onto Ivar Aasen.
So before we dive into the details a bit more, just to let you run through the headlines. As mentioned, the cash consideration here is $2.1b. It's effective as of January 1, 2014. And we are acquiring 136m barrels of 2P reserves, around 24m barrels of contingent resources and an identified upside of approximately 80m barrels in producing assets.
This acquisition will be financed through a fully committed and underwritten loan facility provided by BNP Paribas, DNB, Nordea and SEB. Det Norske is also in advanced discussions with the same consortia of banks to finalize a seven-year RBL facility, which will replace acquisition load and provide a long-term facility. And, as an integral component of the long-term financing plan and to strengthen the Company's equity base, we are issuing a $500m equity for a rights issue. The Company's largest shareholder, Aker ASA, has pre-committed to subscribe to its 49.99% pro rata share and the remaining 50.01% is fully underwritten by a consortium of banks.
With this, the Company has secured the financing for its current work program until first production of the Johan Sverdrup field.
So let's spend a little bit of time on the details and go into why this is such an excellent acquisition for us. First, let me explain why the Marathon portfolio is a good fit for Det Norske. If you have a look at the charts on the right-hand side of this slide, you've seen the middle one before with a low production, climbing up as Ivar Aasen and then Johan Sverdrup comes onstream. But if you add the Marathon portfolio on top of that, with a high but declining production, you will see that this changes the game completely.
The combined Company will as a result be in a tax-paying position from day one, which increases the financial robustness to absorb any impact of any changes in future capital spend. This will actually transform Det Norske from a pure-play development, exploration and development, to a full-fledged E&P company in one go. That's a transformatory transaction if I ever saw one.
And if you go to have a look at the asset base beyond the production profile you will see that the acquired reserves all come from the Alvheim Area in the North Sea, which will be extremely strategic important for Det Norske in the future. Alvheim, Volund, Vilje are all producing well and Boyla is expected to come onstream in 2015. This, coupled with Det Norske's field in development, namely Ivar Aasen and Johan Sverdrup, will provide in addition to the exploration portfolio that we currently have, a full and balanced lifecycle of E&P assets.
The quality of the Marathon assets in Norway in my view is nothing less than outstanding. The Alvheim Area is located approximately 220 kilometers northwest of Stavanger in approximately 120 meter water depth. It constitutes of an FPSO and subsea tie-backs. The average up-time of the FPSO has been around 98% and the 2P reserves has steadily increased during production. The cost of operations are low in a Norwegian context. And furthermore the reserves on the Alvheim Area is extremely oil rich, with 80% of the reserves in high-quality oil with a premium towards Brent blend.
Det Norske has also identified significant upside potential in the area and see the ongoing development in the area as extremely positive. We estimate that the net production to Det Norske from the Alvheim Area in 2014 will be around 60,000 barrels a day.
So one of the reasons why Alvheim has been a success story for years is obviously the Marathon Oil Norway organization and we are extremely pleased to join forces with such a capable operational unit as the Marathon team in Stavanger. Det Norske has over the last few years built up a robust organization when it comes to development and exploration. Marathon will not only add to these teams but will also complement Det Norske with significant operational experience to be leveraged against the Ivar Aasen development. In total we will build a modern and dynamic E&P company that will build on the combined capabilities of the two organizations.
In order to finance this acquisition we have secured a fully committed, fully underwritten acquisition loan facility provided by a bank group consisting of BNP Paribas, DNB, Nordea and SEB.
The Company has also mandated and is in advanced discussions with the same four banks to finalize a seven-year reserve-based lending facility of $2.75b. This long-term facility will replace the acquisition loan and refinance Det Norske's current facilities, as you can see illustrated to the right. I must say that I am very satisfied with the strong support received from the banks throughout the process, and that also goes for our financial advisor in JPMorgan.
As an integral component of the long-term financing plan the Company will strengthen its equity base by issuing $500m in new equity for a rights issue. The Company's largest shareholder, Aker ASA, has pre-committed to subscribe for 49.99% pro-rata share, while the remaining 50.01% is fully underwritten by a consortium of banks. We will call for an extraordinary general meeting this week.
The cash flow from Marathon, the seven-year RBL facility and the infusion of $500m in equity are expected to secure the financing of the combined company's current work program until first oil of the Johan Sverdrup field.
Assessing near-term production also had some positive side effects for Det Norske given the Company's development program on Ivar Aasen and Johan Sverdrup. Prior to this transaction Det Norske was not in a tax-paying position. Consequently all our investments had to be funded on a pre-tax basis and the Company would have build up a significant tax loss. These tax losses could not be offset against revenues before Johan Sverdrup came onstream.
After the transaction, however, the Company can instead offset the tax against fields in production from day one. The combined company will therefore be a position similar to the other large players on the Norwegian Continental Shelf, effectively reducing the funding requirements and increasing the financial robustness.
The transaction will also transform Det Norske in terms of size. From being a rather modest player in terms of production, the Company will now be among the largest listed E&P independents in Europe in terms of output. The table on the left-hand side sows the 2013 production. And even though the production is expected to drop in 2014 we'll still be at the top end of that chart.
In terms of reserves and resources we will consequently see a significant increase post-transaction. Det Norske's reserves and contingent resources, excluding Johan Sverdrup, will increase from 143m to 303m barrels of oil, the major part or which is classified as oil-rich. This creates an immensely strong platform for further economic growth and increased flexibility in terms of portfolio optimization.
In the short to medium term three main building blocks will drive the organic growth. First, the acquired Boyla field will come onstream in 2015 followed by Ivar Aasen in 2016 and Johan Sverdrup in 2019. The increased organizational capabilities across the entire value chain will secure a safe and sound development of these fields and the following operations. The Company will also continue to be an active explorer in the APA rounds and the license rounds coming up. Det Norske will continue to mature a long list of discoveries made by the two companies and will for the foreseeable future remain true to our mantra of being a pure-play NCS game.
So, to sum it up this is a great day. For us this is a fantastic day. We are very, very satisfied with acquiring such excellent assets and such an excellent organization as Marathon Oil Norway. This is a unique opportunity to acquire significant production on the NCS at the right time for Det Norske.
And, as you've seen, it represents an excellent fit for Det Norske. The margin production profile and the cash flow complements the existing asset base in a near-perfect way. The overall risk profile of Det Norske is reduced by this transaction and the financial robustness to absorb any impact or changes in the future capital spend is improved. Further, the organizational and financial strength is significantly improved and the increased size of this Company creates diversification and supports further growth.
Finally, I would like to say that while we've had a big team working on this I am extremely proud of my team in Det Norske who has managed to in a short while deliver this deal.
Thank you. I'd like to take questions now. And I would like to welcome our CFO, Alexander Krane, who will answer the questions alongside me.
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Questions and Answers
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Oyvind Hagen, ABG Sundal Collier - Analyst [1]
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Hi. Oyvind Hagen with ABG. Just a quick question. What do you think about the price that you paid and how do you make the rationale behind the bid that you gave to Marathon?
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Karl Hersvik, Det Norske Olijeselskap - CEO [2]
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I think this -- I can start. I think this is a fair price. I think the upside potential that we see in addition to the significant synergies with the existing company, combined with the financing solution, provides a great deal for us. And I am being very, very strong on this; I do not believe we have paid too much for this asset.
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Oyvind Hagen, ABG Sundal Collier - Analyst [3]
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Thank you.
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Unidentified Audience Member [4]
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A follow up about it. Did you have an opportunity to increase your bid during the bidding process?
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Karl Hersvik, Det Norske Olijeselskap - CEO [5]
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Well, these processes, they have their own dynamics. I'm not going to comment on exactly how this bid process went pre-signature.
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Unidentified Audience Member [6]
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Okay. And then on the long-term financing plan, you say long-term financing plan is secured, does that mean that you're 100% funded for Ivar Aasen and Johan Sverdrup after this refinancing?
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Karl Hersvik, Det Norske Olijeselskap - CEO [7]
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That's a question for you, Alexander.
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Alexander Krane, Det Norske Olijeselskap - CFO [8]
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I think we see when we see the current estimates of the cash flow from the Marathon portfolio together with the long-term financing that we're now confident we'll have in place, and with the equity infusion then we are confident that through the current work program we think that should be sufficient through to first oil in Johan Sverdrup.
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Unidentified Audience Member [9]
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Can you give any oil price assumption, oil price required for you to be fully funded for the current plans then?
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Alexander Krane, Det Norske Olijeselskap - CFO [10]
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[Johannes], I think we can't go into all that detail, but that's not an aggressive assumption on oil price.
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Unidentified Audience Member [11]
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Thank you.
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Karl Hersvik, Det Norske Olijeselskap - CEO [12]
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For such a great day it wasn't many questions. This was all crystal clear? Okay. Thank you. We will have an excellent day for the remainder of this day and I hope you will too. Thank you.
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