Det Norske Oljeselskap ASA (DETNOR), controlled by billionaire Kjell Inge Roekke, will buy Marathon Oil Corp. (MRO)’s Norwegian business for $2.7 billion in a transformational deal that will boost output 14-fold and settle questions on funding.
Det Norske, 50 percent owned by Roekke’s Aker ASA (AKER), would add production of about 60,000 barrels of oil equivalent a day in 2014, more than 13 times last year’s output, Chief Executive Officer Karl Johnny Hersvik said today in a presentation. It will pay $2.1 billion in cash excluding debt and other items.
Cash flow from Marathon’s assets, new debt and a share sale will ensure Det Norske is fully funded for development of the Johan Sverdrup field, potentially Norway’s largest find since the 1970s, until it starts output at the end of 2019, he said.
“This was the most attractive and less costly opportunity for Det Norske and our shareholders,” Hersvik said in an Oslo interview. “It changes the whole setup. In one strike, we become a fully integrated E&P company through the whole value chain, from exploration and development to production.”
The company had faced questions from investors over how it would fund its part of Sverdrup’s development, with total costs for the first phase alone as high as 120 billion kroner ($20 billion). The discovery, which may be Norway’s biggest since 1974 with as much as 2.9 billion barrels of crude, helped rekindle explorers’ interest in the nation when it was made in two stages by Lundin Petroleum AB (LUPE) and Statoil ASA (STL) in 2010 and 2011 after a decade of falling oil output.
Det Norske rose as much 9.3 percent to 69.2 krone, the most since June 15, 2012, and was trading up 9.1 percent by 4:19 p.m. in Oslo. Aker climbed 2.9 percent to 227.5 kroner, the highest level since Feb. 14, 2013. Marathon advanced 0.4 percent to $36.80 in New York.
“It reduces funding and development risk significantly,” Danske Bank Markets analyst Andre Baustad Benonisen said in a note. The price is “in line with our expectations and market rumors, and it increases the company’s debt capacity.”
The acquirer secured a loan for the cash payment from four banks. It said it’s in “advanced discussions” with the lenders for a seven-year reserve-based lending facility of $2.75 billion to replace the acquisition loan and refinance current borrowing.
The company, valued at about $1.6 billion on the Oslo stock exchange, will also sell new shares equivalent to $500 million, with Aker subscribing to its 49.99 percent pro-rata share.
Aker, 67 percent owned by Roekke, said this month a share issue would be “inevitable” as Det Norske put together funding for Sverdrup. The strategy should also include buying producing assets to boost cash flow and exploit its tax position through deducting investments from income, Aker CEO Oeyvind Eriksen said.
Det Norske’s purchase of Marathon’s assets, effective Jan. 1, 2014, and due to close in the fourth quarter, isn’t primarily tax motivated, Hersvik said. “It’s a fortunate side-effect of buying production and having a lot of capex,” he said.
The company is also investing in the Ivar Aasen field in the North Sea due to start production at the end of 2016.
Today’s deal, coupled with the new debt and equity, means asset sales aren’t needed to fund Aasen and Sverdrup, though the company may still consider deals to “optimize” its portfolio, Hersvik said. The purchase price is “fair,” he said.
Marathon’s Alvheim, Vilje and Volund North Sea fields were also sought by Sweden’s Lundin, Det Norske’s Sverdrup partner.
While Houston, Texas-based Marathon had also wanted to sell its U.K. assets, it only got “acceptable” offers for those in Norway and will keep operating in Britain, it said in a statement.
The Norwegian offshore-asset market may beat a 2012 record of $19 billion in transactions, Edinburgh-based consultant Wood Mackenzie Ltd. said in January. After the sale of Marathon’s assets and RWE AG’s Dea oil and gas unit to billionaire Mikhail Fridman’s L1 Energy in March, Norwegian operations still for sale include Talisman Energy Inc. (TLM)’s North Sea fields.
Det Norske will take over Marathon’s stakes in 13 licenses, of which 10 are operatorships. The business more than doubles Det Norske’s reserves and contingent resources to 303 million barrels of oil equivalent from 143 million barrels, Hersvik said. The company also becomes the biggest Norway-based oil producer after Statoil and state-owned Petoro AS.
(An earlier version of this story was corrected because Marathon was described as being based in Ohio.)
To contact the reporter on this story: Mikael Holter in Oslo at email@example.com