UK's Harbour Energy enters Gulf of Mexico with $3.2 billion LLOG deal

By Ankita Bora and Stephanie Kelly

Dec 22 (Reuters) - Britain's North Sea-focused Harbour Energy HBR.L said on Monday it would buy deepwater oil and gas exploration and production company LLOG Exploration for $3.2 billion in a cash-and-stock deal giving it entry into the Gulf of Mexico.

Shares in Harbour fell as much as 7.4% after the announcement, with analysts citing concerns over the planned acquisition's effect on share dilution and Harbour's balance sheet.

LLOG, which recently secured drilling rights in the U.S. government's first auction in the Gulf of Mexico since 2023, is expected to double its current output of 34,000 barrels of oil equivalent per day by 2028, Harbour CEO Linda Cook said on a call with investors.

The acquisition will help Harbour's overall production reach about 500,000 boepd by the end of the decade, and boost free cash flow from 2027, the company said in a statement.

DEAL TERMS AND EXPECTED COMPLETION

The transaction, expected to complete by the end of the first quarter 2026, will comprise $2.7 billion in cash and $500 million in Harbour's voting ordinary shares, it said.

Harbour plans to fund the cash component with an underwritten $1 billion bridge facility, a $1 billion term loan and existing liquidity.

The company had net debt of $4.2 billion as of September 30, according to its trading and operations update provided in November.

"The (negative) market reaction may be related to the equity issuance associated with the transaction and the perceived dilution for existing shareholders," said Werner Riding, an analyst at investment bank Peel Hunt.

Harbour shares were last down 3.4%.

The Gulf of Mexico remains a prime target for oil majors such as BP BP.L, Shell SHEL.L and Chevron CVX.N because of its vast deepwater reserves, easy access to U.S. infrastructure and long-term production potential.

Shell had previously explored buying LLOG, Reuters reported in early December.

"We worked very hard to meet the seller's priorities, which were not just about price," Cook said on a call with reporters.

On completion of the deal, LLOG's parent firm, LLOG Holdings LLC, will own 11% of Harbour's listed voting ordinary shares, with current shareholders holding the remaining 89%, it added.

Earlier this month, Harbour acquired all subsidiaries of Waldorf Energy Partners and Waldorf Production in the UK North Sea fields, currently in administration, for $170 million. It also sold its operated interests in Indonesia's Natuna Sea Block A field and the Tuna development project for $215 million.

With the three deals, Harbour expects to generate more free cash flow through to 2030, CFO Alexander Krane said on the investor call.