Energy company SSE, is to buy a 20 per cent stake in Total’s Laggan Tormore project including Shetland Gas Plant, the energy supplier announced today.
The deal, where SSE has agreed to invest $915 million in Laggan Tormore by 2018, follows rumours earlier this year that Total, which retains 60 per cent of the project, was seeking to sell some of its share. The remaining 20 per cent of the project is owned by Dong Energy.
A statement from SSE said that its wholly-owned subsidiary SSE E&P UK Limited, has entered into an agreement with Total E&P UK Limited to acquire: a 20 per cent interest in the four gas fields and surrounding exploration acreage approximately 125km north-west of Shetland, collectively known as the Greater Laggan Area; and a 20 per cent interest in the new Shetland Gas Plant.
SSE chief executive Alistair Phillips-Davies said: “As we have regularly said, most recently in our trading statement last week, we are focused on maintaining a balanced range of energy businesses, and we have regularly set out our wish to seek new opportunities to increase SSE’s presence in the upstream gas sector where assets can be acquired for a fair price, and that is exactly what this deal represents.
“Following extensive due diligence, we have agreed to acquire a series of very good assets and entered into a partnership with one of the world’s leading gas and oil companies. The acquisition means we will be able to introduce further diversity across our investment programme.
“It comes following a period of relatively low wholesale gas prices and is therefore timely. It completes our portfolio of gas production assets for the foreseeable future.
“The acquisition, including the Shetland Gas Plant, represents further investment in the UK energy infrastructure that gives access to gas from north-west Europe to help secure energy for customers and to help meet the needs of our gas-fired power stations, which will have an important part to play in supporting security of electricity supply.”
The transaction will comprise £565m for the assets (reflecting their value on 1st January 2015) plus additional forecast investment of £350m in the period to 2018 to complete the entire development.
SSE acquired gas production assets in 2010 and 2013 and has “regularly set out its intention” to increase its asset base to help meet gas demand requirements.
The company says it expects Shetland Gas Plant to become fully operational this financial year. It will process and export gas and condensate from the west of Shetland for delivery to the St Fergus Gas Terminal, making it “one of the most important infrastructure developments in the UK.”
It is expected to process and export west of Shetland gas and condensate well into the 2030s.
SSE now estimates it will hold reserves and resources of over six billion therms (equivalent to over 100 million barrels of oil) over the life of all of the fields in which it will have an interest. There is also the possibility of additional reserves being extracted.
The fields to be acquired by SSE are new and will have relatively low operating costs. They are not yet producing gas, but the Greater Laggan Area development is expected to start production this financial year and peak production – at around five million therms of gas per day – is expected to be achieved during 2016.
Production from the acquired fields is expected to be sustained at that level until around 2020, before declining over the following 10 years without further development, making this a long-term investment.
The agreement comes at a time when SSE’s existing fields’ production volumes are expected to decline.
In 2014/15 the output resulting from SSE’s ownership of gas production assets was just under 400 million therms. The acquisition should allow SSE’s average annual volumes of gas produced to be at a higher level than those it reported in 2014/15 until around 2020/21; and to remain above 200 million therms until around 2024/25.
SSE expects to invest a total of around £350m in further development of the assets in the period to 2018, including around £170m for the current calendar year as part of its existing plans to invest around £5.5bn net of disposals across the four years to 2018.