Petrofac creates £1bn production arm

PETROFAC has announced the demerger of its oil production business, to be combined with the UK assets of Swedish group Lundin.

The combined firm, EnQuest, could have a market capitalisation of 1 billion. Built around Petrofac's Don oil fields in the Northern North Sea, EnQuest will initially produce around 13,000 barrels of oil a day, with reserves of around 80 million barrels.

It will be chaired by Dr James Buckee, the former head of BP's Canadian business, who is also a non executive director at Edinburgh-based Cairn Energy.

Amjad Bseisu, the former head of Petrofac's energy developments business, has been named as its chief executive, with most of the top staff at the company coming directly from the London-based oil services group.

Bseisu told The Scotsman that the withdrawal of some major oil companies from the North Sea created lucrative opportunities. He said: "The large companies see this (the North Sea] as not material to them, and smaller companies have had difficulty raising capital, so there's a clearing in this space for a well-capitalised company with skills and scale to step in."

The business model is to focus on acquiring and operating production hubs and production from smaller nearby assets, similar to that of Venture Production, the Aberdeen-based company bought by Centrica last year.

While the North Sea as a region is in decline, Bseisu played down the chance of EnQuest seeking assets in other parts of the world in the short term.

Bseisu said: "There are plenty of opportunities for us in the North Sea, the fiscal regime is more attractive than in other parts of the world, and the government is talking about new incentives that would be accretive for us, so in the short and medium term, our focus will be on the North Sea."

Under Bseisu, Petrofac, primarily an oil services company, had a growing production business, mainly in the North Sea.

However analysts have questioned the value in combining the businesses, and other oil service companies have said that clients – production companies – prefer a clear separation of duties.

Analysts at Evolution Securities said the strategy behind the demerger was to realise the "hidden" value of Petrofac's exploration and production business, and adding the Lundin assets "gives the business a scale and size which should allow the new EnQuest to become a 'rounded' North Sea player".

The company's headquarters will be in London, although the operational base will be in Aberdeen. Primarily based on the London Stock Exchange, the company is expected to slot immediately into the FTSE-250. It will have a secondary listing in Sweden, where Lundin is based.

Shares in Petrofac closed 9p lower at 1086p.