Trap snaps up oil field stake to cash in on tax allowances

North Sea-focused energy company Trap Oil has bought a stake in a field which is about to start production, as it seeks to cash in on tax allowances created by its exploration work.

The Aim-quoted firm said yesterday that it was buying 15 per cent of the Athena development from Dyas for a total of £34.5 million.

Finance director David Kemp described it as a “transformational acquisition” which meant Trap had completed the promises it made when it floated a year ago.

“We said we wanted to drill seven or eight wells a year, and we wanted to buy some production to make that tax efficient.

“It moves us from being a small exploration company to one of the few independent producers in the UK.”

He said cash flow and the tax benefits were the principal drivers of the move. Trap is focusing its exploration efforts in UK waters, which attract tax relief. The tax breaks can be carried forward in perpetuity but can only be claimed against UK oil production.

Kemp said: “We think on a stand-alone basis we got reasonable value, but when you factor in our tax synergies we think it’s an excellent deal.”

Trap will pay £34.5m for the stake, in three tranches. It expects the final tranche to be covered by the cash already being generated from the well. It will also receive £12m in tax allowances from Dyas.

The initial £26.9m will be paid from the money Trap raised with its IPO.

Athena is being operated by Ithaca Energy, with all costs already covered. It will use a floating production and storage vessel to take oil from five wells in the block, which has an estimated 14.3 million barrels of recoverable reserves.

Kemp said that the life of the development depended on the price of crude oil, but would most likely be about eight years.

The total production rate is expected to be about 10,000 barrels a day, rising to 18,000 once fully commissioned. The oil is expected to start flowing within the next three months.

Trap is planing to drill exploration wells in areas adjacent to Athena, and could link production into the infrastructure there if it finds oil.

The Athena stake is the second major acquisition since Trap’s flotation. The firm bought Aberdeenshire-based Reach Oil & Gas in July, and subsequently sold its 10 per cent interest in the Lacewing block, which was as yet undeveloped.

“We want to do transactions in the North Sea,” Kemp added. “If there’s assets that don’t fit in our portfolio we won’t be shy about selling, and equally we’re not going to be shy about strengthening it.”

Oriel Securities said the Athena field potentially offers a further 31 million barrels if the northern area – which is expected to be appraised early next year and developed with two wells – is included.

“Once fully on stream the field is expected to deliver about 2,700 barrels a day net to Trap, with payback expected with 14 months,” Oriel said. “The acquisition will allow Trap to deliver on the promise made at IPO and allow the company to benefit from the tax allowances created through the on-going drilling programme.”

Meanwhile, Aberdeenshire-based Xcite Energy said it had started drilling the first of this season’s appraisal wells at the Bentley field, off Scotland. The company hopes its current tests will help it prove reserves of at least 115 million barrels.