Equinor grabs bigger slice of giant oil field in deal with Lundin

OSLO (Bloomberg) -- Equinor ASA built up its share in Norway’s giant Johan Sverdrup oil field in a deal with Lundin Petroleum AB that saw it sell its 16% stake in the Swedish producer.

Norway’s state-controlled oil and gas producer will get a 2.6% interest in Norway’s giant Johan Sverdrup field as well as $650 million in cash in exchange for the shares. Lundin is buying back 54.5 million shares at 266.4 kronor apiece, a 10% discount to Friday’s close. Lundin shares rose as much as 3.5% at the open in Stockholm, while Equinor climbed 1.2%.

Equinor will increase its stake in Sverdrup to about 42.6% as the field -- estimated to hold as many as 3.2 Bbbl of oil -- prepares to start production in November. The company sold its Lundin shares at more than double the price it bought them in 2016 and will keep a 4.9% stake in the Stockholm-based producer.

“This transaction gives us the opportunity to capitalize on this value creation, and at the same time increase our direct ownership in the Johan Sverdrup field,” said Eldar Saetre, president and CEO of Equinor.

Lundin said in a separate statement that it will seek to redeem the shares and has scheduled an extraordinary shareholders meeting for July 31 to get approval.

The deal will be “immediately earnings enhancing on a per share basis” as it will reduce the outstanding shares, Lundin said. The transaction is being funded from existing financial resources and a short-term bridge facility.

It also includes a contingent payment of up to $52 million payable to Lundin in 2025 if Johan Sverdrup proves to be at the upper end or above the indicated resource range of 2.2 billion to 3.2 Bbbl.

“The chance to redeem the majority of Equinor’s holding in Lundin Petroleum at a discount to the market and before the pivotal start-up of the Johan Sverdrup development project in November this year, was an opportunity which rarely comes along,” Chairman Ian H. Lundin said in the statement.

With Equinor’s stake reduced, Lundin will have greater flexibility to “pursue new opportunities” said Michael Alsford and Ryan O’Sullivan, analysts at Citi, in a note. It also puts a market value on Sverdrup, which is about 14% higher than Citi’s implied valuation, they said.

Morgan Stanley said the transaction, including the contingency payment, valued Sverdrup at about $11.6/bbl, higher the $10.4 it assumed in its base case.

Based on the $910 million Equinor paid for the 2.6% stake, Sverdrup is now valued at $35 billion.

The deal puts an end to speculation that Equinor would sell the stake to Aker BP ASA, which was reported by Dagens Naringsliv last week.

The transaction will bring Lundin’s ownership in Sverdrup down to 20%. Norway’s state-owned oil company, Petoro AS, holds 17.4%, while Aker BP owns 11.6% and Total SA 8.4%.