Oil and Gas

Total puts North Sea gas stake on block

Christopher Adams

French oil major Total is auctioning a stake in one of the UK's most promising natural gasfields, sounding out possible buyers in what could be the first of a wave of deals in the North Sea.

Total is looking to sell a 20 per cent stake in Laggan-Tormore, a deepwater project 125km west of the Shetlands and considered a prime asset in the energy group's portfolio.

Mark Renders | Getty Images

The decision highlights accelerating industry-wide moves to pare back exposure to high-cost regions where falling oil and gas prices have hit profitability. Total is one of the UK continental shelf's biggest operators. The planned disposal would reduce its holding in the project from 80 per cent to 60 per cent.

The move comes amid industry hopes that George Osborne, UK chancellor, will make a headline cut to the so-called supplementary rate of tax paid by North Sea producers in this week's Budget and announce an investment allowance designed to encourage new exploration and production.

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Investment bankers said Laggan-Tormore was a "higher quality" asset. Potential buyers could include Austria's OMV, which has increased its west of Shetland presence, state-run Kuwait Petroleum Corporation and Japanese energy groups such as Nippon Oil.

Total would continue to operate the field, which is due to come on stream later this year after some £3.5bn of development spending. Peak production is expected to be 500m cubic feet a day, or more than 90,000 barrels of oil equivalent a day.

Analysts said that the stake was worth hundreds of millions of dollars.

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Total said it did not comment on "market rumours". It said that Laggan-Tormore was "a core asset for Total and, with the start-up of the project later this year, the group will commence production from its third operated hub in the UK North Sea".

If sold, it could lead to further deals in the North Sea, where a number of operators are said to be weighing disposals after internationally traded Brent crude fell from more than $115 a barrel last summer to less than $60 now. "It's accelerating. People want out," said one oil company chief executive.

It is far from certain, however, that a deal will be done soon in a volatile market that bankers say has pushed buyers and sellers apart on valuations. Potential acquirers are also reluctant to set aside large capital sums for decommissioning older fields. "In the UK, particularly, the abandonment issues are hard to resolve," said one banker.

Laggan-Tormore is a different proposition to many of the UK's offshore fields. Total's Laggan was discovered in 1986 but was then considered too small and remote to justify full development. That changed when nearby Tormore was found in 2007. Denmark's Dong Energy has a 20 per cent stake.

The combined field will produce mainly gas, the price of which, while not directly linked to oil, has fallen too, pressed by the US shale revolution. In a technically challenging project, Total has built a production system 600m down on the seabed and the gas will be taken back to land in one of the world's longest "tieback" pipe networks.