As windfall taxes make things ‘difficult’ in UK and Dutch sectors, Kistos knocks on Norway’s door with new acquisition

UK-headquartered Kistos has decided to seek a new oil and gas playground due to the windfall taxes imposed in the UK and the Netherlands, thus, the firm is on the brink of entering into the Norwegian Continental Shelf (NCS), after reaching a conditional agreement to acquire all of the outstanding shares of Norway’s Mime Petroleum.

Kistos revealed on Wednesday, 19 April 2023, that it had conditionally agreed – through its wholly owned subsidiary – to acquire 100 per cent of the issued and to be issued share capital of Mime Petroleum for a consideration of $1 plus the issue of up to 6 million warrants exercisable into new Kistos ordinary shares at a price of 385p each, which represents a premium of 31.4 per cent based on the last trading date prior to the announcement of 293 pence on 18 April 2023. The completion of the transaction is conditional on receiving customary regulatory approvals.

According to the UK player, 3.6 million of the warrants can be exercised between the completion of the transaction and 18 April 2028 while the balance will be exercisable from 1 June 2025 until 18 April 2028. On 31 March 2023, Mime had cash of $109 million and it is due to receive a tax refund of $80 million in December 2023. At completion, the Norwegian firm will repay $75 million of its debt and the enlarged group will assume the remaining $225 million.

Additionally, Kistos outlines that payment to Mime’s bondholders of up to $45 million in 2025 is contingent on 500,000 bbl (gross) being offloaded and sold from the Jotun FPSO by 31 December 2024. This will decline to $30 million from 1 January 2025 to 28 February 2025, to $15 million from 1 March 2025 to 31 May 2025, and to zero thereafter.

On the other hand, if 500,000 bbl (gross) has not been offloaded and sold from the Jotun FPSO by 31 May 2025, the holders of Mime’s Nordic Bonds will be allocated up to 2.4 million warrants exercisable into Kistos ordinary shares at a price of 385p each. The warrants can be exercised between 30 June 2025 and 18 April 2028. Simultaneously, up to 1.9 million of the 5.5 million warrants issued as consideration for the Mime shares will be cancelled.

Andrew Austin, Kistos’ Executive Chairman, commented: “After a period during which commodity price volatility and fiscal uncertainty has made it difficult to agree deals in the UK and the Netherlands, I am very pleased to be able to announce Kistos’ expansion into Norway. Kistos has evaluated several transactions in the UK and Dutch sectors, but the imposition of punitive windfall taxes and a lack of fiscal certainty have meant that both countries remain difficult places to commit capital and ensure continuity of shareholder returns.”

The UK firm points out that the Mime acquisition will add 24 MMboe of 2P reserves (operator estimate) plus 30 MMboe of 2C resources, increasing the company’s total reserves plus resources to approximately 80 MMboe. In addition, it will add over 2,000 boe/d of production in 2023 and help to boost Kistos’ output once the Balder X project is on stream in excess of 15,000 boe/d in 2025, after the Jotun FPSO is online. The company’s management estimates that the enlarged firm’s production in 2023 will be in the range of 8,500 and 10,500 boe/d.

The Balder X project comprises the Balder Future and Ringhorne Phase IV drilling projects. It is designed to extend the life of the Balder hub and includes upgrading the Jotun FPSO, which is more than 70 per cent complete. The operator expects the FPSO to sail away in the first half of 2024. Mime, which is focused on development and production projects on the Norwegian Continental Shelf, holds a 10 per cent interest in the Balder joint venture – comprising the Balder and Ringhorne fields – and a 7.4 per cent stake in the Ringhorne East unit, all operated by Var Energi.

Moreover, the operator estimates indicate that 2P reserves at Balder and Ringhorne were 23.6 MMboe net to Mime at the end of 2022 while Kistos estimates that Mime has net 2C resources of 29.8 MMboe, largely comprised of additional upside in Balder and Ringhorne plus the 2021 King oil discovery. The UK company expects Mime’s capital expenditure in 2023 to be up to $130 million and tax relief is available on this expenditure at a rate of 78 per cent, which is expected to result in a further significant tax refund in December 2024.

Based on Kistos’ statement, Scope 1 and Scope 2 CO₂ emissions from the Balder hub are expected to fall by more than 50 per cent to approximately 7.5 kg per boe once Balder X is on stream. The company highlights that this is well below both the global and the North Sea averages.

“I expect Mime to be a platform for growth on the NCS and I believe Mime’s management team – whose strategy and goals are aligned with ours – can help us achieve that. Critically, as well as providing us with visibility on a rising production profile over the next few years, principally though it’s oil, the hydrocarbons produced at Balder will also enable us to maintain our industry-leading Scope 1 and Scope 2 CO₂ emissions in the medium-term,” added Austin.

Regarding Kistos’ recent activities, it is worth noting that the UK player is considering embarking on further drilling activities to boost output from its assets in the Dutch sector of the North Sea while evaluating the results of its recent drilling campaign, which was carried out by one of Valaris’ jack-up rigs.

The future work programmes could include the drilling of further Zechstein clastics wells in 2024 in combination with development drilling at the Orion oil field.