Low European gas price prompts UK's Solo to drop ONE-Dyas asset acquisition

London — UK-based Solo Oil has dropped plans to buy a suite of gas field assets in the Dutch sector of the North Sea from ONE-Dyas, citing the sharp fall in European gas prices and uncertain macro-economic conditions since the deal was agreed.

Solo agreed to buy ONE-Dyas's non-operated stakes in 14 Dutch offshore gas fields in October last year for Eur30 million ($33 million), but the deal was subject to renegotiations due to changes in the operating environment.

The ONE-Dyas deal was set to transform Solo from an investing company into an operating company with a 'strong focus' on the European gas market, it said at the time of the agreement.

In a statement Monday, Solo said it had been unable to agree revised commercial terms with ONE-Dyas.

"Accordingly, the conditional sale and purchase agreement entered into as part of the proposed transaction with ONE-Dyas automatically terminated on February 28 and there are no further discussions ongoing with ONE-Dyas in regard to progressing the transaction," Solo said.

Low gas prices

Solo said it had enjoyed "broad market support" for its planned growth strategy through acquisitions within the European gas market, but the original economics associated with the ONE-Dyas deal had changed since the acquisition was agreed.

It said one factor was the European gas price for the 2020 calendar year futures contract reaching "unprecedented and historical lows", having fallen from above Eur17.20/MWh in October to current trading at Eur10.20/MWh.

It said the target assets had also been subject to increases in both forecast opex and capex numbers.

The ONE-Dyas assets produced approximately 1,750 boe/d in the first half of 2019 and were expected to produce approximately 2,125 boe/d in 2020.

The stakes range from a 2.2% stake in the Total-operated K06-D field to 25% stakes in the L08-D field.

Solo said the circumstances around the deal were also impacted by the "political uncertainty during the fund-raising period, including the UK General Election and Brexit."

It also blamed more generally "uncertain macro-economic conditions, which negatively affected equity market sentiment".

Other opportunities

The ONE-Dyas deal had been part of Solo's plans to boost production to 20,000 b/d of oil equivalent over the next five years.

Solo said that despite the disappointment of not being able to complete the deal, it remained committed to its broader European gas strategy.

"This package of assets was one of a number targeted by Solo and, while this has resulted in a delay to achieving completion of a first transaction in line with our strategic vision, it does not alter our strategy to build the company around opportunities in the European gas market," CEO Tom Reynolds said.

"We have continued to screen and progress new opportunities in parallel with this process and hope to bring alternative opportunities to new and existing investors in due course," Reynolds said.

He said the company had invested "time, energy and cost" into this process, though the majority of costs were success-based and so limited its exposure to a no-deal scenario.

Solo said the company could realize the benefit of undertaking an acquisition during a cyclical price low in the gas market.

"To that end, the company is in discussions with several separate vendors in respect of complementary acquisition portfolios," it said.