Nautical Petroleum has agreed a deal with fellow UK oil firm EnQuest to divest a 25-percent interest in its UK petroleum production license P1077 (North Sea Blocks 9/2b and 9/2c), which contains the Kraken discovery.

The deal will involve Nautical receiving a carry on its future expenditure on the Kraken field of up to $240 million, consisting of $150 million firm carry and a contingent carry of up to $90 million. The value of the contingent carry will be calculated by reference to a determination of the gross 2P reserves in blocks 9/2b and 9/2c by a competent person.

If 2P reserves are determined to be more than, or equal to, 166 million barrels of oil, the contingent carry will be the full $90 million. If these reserves are less than 100 Mmbo the contingent carry will be $0. If they fall between 100 Mmbo and 166 Mmbo, the amount of contingent carry will be pro rata between $0 and $90 million.

The reserve determination will take place during the development drilling phase. The current estimate of 2C Resources for the Kraken field is 160 Mmbo, which is supported by an Independent Resource Opinion provided by Gaffney Cline & Associates on Jul. 15 2011, prior to the successful 9/02b-5z well test.

While not part of this agreement with EnQuest, Nautical remains entitled to receive from Canamens North Sea Energy an additional $5 million bonus upon field development plan approval and payments totaling $10 million (£7 million) relating to sole risk activity on the 9/02b-4 and 4z wells.

Subject to the approval of the joint venture partners and the Department of Energy and Climate Change (DECC), EnQuest will become the operator of blocks 9/2b & 9/2c.

In addition to the disposal of a 25-percent interest in Kraken, Nautical will also divest to EnQuest interests in exploration blocks in the Greater Kraken area. EnQuest will receive a 10-percent interest in the P1575 license (blocks 9/6a and 9/7b) and a 15-percent interest in the P1573 and P1574 licenses (blocks 3/22a and 3/26).

The transaction also provides EnQuest with the option to earn a 45-percent farm-in interest in Nautical's wholly owned block 9/1a, which contains the Ketos discovery, in return for paying up to 90 percent of the gross cost of drilling up to two wells to the appraise the discovery. EnQuest's liability to carry Nautical's costs for the first well is capped at 45 percent of $15 million gross well cost. For the second well, which is contingent on the success of the first well, the carry is capped at 45 percent of $20 million gross well cost.

"I am delighted to welcome EnQuest, as partners, strengthening the joint venture both technically and financially," said Nautical CEO Steve Jenkins. "This transaction provides Nautical with a carry of up to $240 million on our remaining 25-percent interest in Kraken, significantly mitigating our funding requirements for the development of the field. The Nautical team has made excellent progress towards the development of the Kraken accumulation. We are currently carrying out concept selection (pre-FEED) studies and are in discussions with contractors to provide a leased [floating production, storage and offloading vessel]. We now look forward with confidence as we move toward Field Development Plan approval in 4Q, 2012 and first oil in 2015."

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