EnQuest, the largest UK independent producer in the UK North Sea, said it is holding discussions to sell up to 20% of the massive Kraken development east of Shetland to Israeli firm Delek Group.

EnQuest said that if the deal was completed, EnQuest would “farm out” to Delek a 20% working interest in Kraken and that Delek would advance $20 million to EnQuest for a period of up to 5 years at an annual interest of 3%.

The $20 million would be returned to Delek if its costs were not covered by revenues within five years.

“There is no guarantee that a final agreement will be reached,” said Enquest.  

The transaction is subject to EnQuest’s lending banks’ consent.

“EnQuest announced previously that in addition to its ongoing cost reduction initiatives, it was also pursuing a range of further opportunities for debt reduction, including potential asset sales and farm outs,” said Enquest.

“The transaction is subject to EnQuest’s lending banks’ consent.

“EnQuest continues to closely monitor and manage its funding and liquidity position in light of the current market environment and is engaging as appropriate with its credit facility providers (including banks and bondholders) in this regard.”

Earlier this year, EnQuest increased its stake in Kraken to 70.5%.

On June 20, EnQuest was forced to deny it was in any “company-specific discussions” with the UK Oil and Gas Authority (OGA) over contingency plans to tackle the risk of insolvencies among mid-sized operators.

A report in The Telegraph had claimed the OGA was considering action to tackle the risk of insolvencies among mid-cap firms like Enquest.

In a statement on June 20, EnQuest said: “EnQuest notes The Telegraph article at the weekend about the UK Oil and Gas Authority’s possible North Sea contingency plans.

“EnQuest routinely engages with the OGA and with the UK and Scottish Governments on industry matters, but is not involved in any company-specific discussions such as were implied by the article.”