Tuesday 31 July 2018

On 30th July, Petrofac Limited announced that it has signed an agreement to sell 49% of the Company’s operations in Mexico(1)(2), including Santuario, Magallanes and Arenque, to Perenco (Oil & Gas) International Limited. The transaction is subject to approval by the Federal Competition Commission of Mexico (COFECE), which is expected in Q4 2018.

Under the terms of the agreement, Perenco will pay an initial cash consideration of US$200 million, with US$30 million payable upon signing and US$170 million payable upon completion. The total consideration comprises a fixed amount and contingent consideration depending upon a number of future milestones, including future field development and migration terms of Petrofac’s Magallanes and Arenque Production Enhancement Contracts. This final amount is subject to adjustment based on achievement of the milestones above and will be capped at US$274 million. Petrofac currently estimates that an impairment charge of approximately US$100 million will be recognised on completion against its 100% equity interest in its Mexican subsidiaries(3). Proceeds from the sale will be used to reduce gross debt.

NOTES

(1) This transaction will be effected by the sale of 49% of Petrofac Netherlands Holding B.V., which holds the Santuario Production Sharing Contract, the Magallanes Production Enhancement Contract (a tariff-per-barrel-based service contract) and the Arenque Production Enhancement Contract.

(2) The gross assets being disposed of (49% of the consolidated Petrofac Netherlands Holding B.V. group) had a carrying amount of US$357 million at 31 December 2017. The net assets being disposed of (49% of the consolidated Petrofac Netherlands Holding B.V. group) had a carrying amount of US$293 million at 31 December 2017. Petrofac Netherlands Holding B.V. group made a business performance net loss of US$29 million for the year ended 31 December 2017 (49% share equals approximately US$14 million).

(3) This is subject to change and the actual charge will take into account, inter alia, the net assets at the date of completion, as well as management’s assessment of the fair value of contingent consideration, which includes future Production Enhancement Contract migration terms.