Kistos Acquires UK Onshore Gas Storage Assets from EDF Energy

Source: 2/20/2024, Location: Europe

Kistos (LSE: KIST), the low carbon intensity hydrocarbon producer pursuing a strategy to acquire assets with a role in energy transition, is pleased to announce that it has entered into a Sale and Purchase Agreement ("SPA") to acquire EDF Energy (Gas Storage) Limited ("the Company"), from EDF Energy (Thermal Generation) Limited ("the Seller"), which owns two gas storage facilities onshore UK, Hill Top Farm ("Hill Top") and Hole House Farm ("Hole House") (the "Transaction"). The total consideration for the Transaction is £25 million.

The Transaction is in line with Kistos' acquisition strategy to pursue opportunities that align with the energy transition. Kistos' entry into the gas storage sector provides business diversity to its upstream portfolio within a stable marketplace that offers significant growth potential. Kistos will assume operatorship of both sites and will put in place an agreement to work alongside a partner to trade the gas.

Hill Top's gas capacity is 17.8 million therms, with an ongoing programme to increase this working volume to 21.2 million therms in the short term. At current working capacity, Hill Top accounts for 3.1% of the UK's total available onshore gas storage capacity. Due to the fast cycle nature of the facility, Hill Top can deliver up to 11% of the UK's flexible daily gas capacity if called upon. With the addition of the Hole House facility, which is currently non-operational, it is possible to increase its proportion of the UK's total onshore gas storage materially with reactivation and further development.

Both facilities have the potential to be repurposed for future energy storage uses, including the storage of compressed air or hydrogen and concept studies are underway. This would place these assets firmly into the transitional energy space beyond the current key role they play in the UK's supply of gas.

Commenting on the acquisition, Andrew Austin, Kistos' Executive Chairman, said:

"Our entry into the gas storage market marks another advancement in our growth strategy to expand the business through value-accretive acquisitions. Not only do these assets complement our upstream UK assets, but they also diversify our presence across the energy value chain with a foothold in the midstream market.

We look forward to benefitting from the experience of the existing team at these sites as we assume operatorship. Their specialist expertise will be highly valuable as we seek to maximise the potential of the assets and evaluate all options to expand operations via other energy storage sources such as compressed air or hydrogen. In essence, Kistos will own one of the most flexible "batteries" in the UK, vital for energy security and supply."

Assets overview

The Hill Top and Hole House facilities are located close to Warmingham in Cheshire, beneath two working farms. In 2022, the last year for which audited accounts are available, Hill Top was owned by Cheshire Cavity Storage 1 Limited and Hole House was owned by EDF Energy (Gas Storage) Limited. EDF Energy (Gas Storage) Limited entered into a sale and purchase agreement to acquire the business (comprising the assets) of Cheshire Cavity Storage 1 Limited on 28 November 2023 as part of an internal reorganisation. The approximated pre-tax profit of these companies in the 12 months to 31 December 2022 was in the order of £32.3 million.

Hole House was developed specifically for gas storage in 1997 and was operational from 2001 through to 2018 when a period of re-brining the caverns was commenced. Three out of the total four caverns are now brine filled, with cushion gas sold to market, and the remaining cavern will also be re-brined over the short-term. A decision will then be taken whether to re-instate these caverns for commercial operation in the future. Hill Top was developed by British Salt Ltd. for the purpose of brine extraction over a total of ten caverns. Subsequently the site was developed for gas storage, with a design life of 30 years. The first three caverns have been operational since 2014 and a further two caverns were added in 2018, taking the working gas capacity to 17.8 million therms. The caverns are cycled together and operate within a pressure envelope of 32-45 barg. Facility modifications are underway that will result in the working gas capacity increasing to 21.2 million therms in the near term.

The Hill Top and Hole House sites are currently operating on long term leases with the freeholder; British Salt Limited. The Transaction also includes the freehold of Spring Moss farm, which is currently used for agricultural purposes and covers an area of 71 acres. It is located adjacent to Hill top and Hole House. The sites are both operated from a common control room, with connection into the gas National Transmission System through a pipeline, with two separate connection points.

Hill Top is one of only seven operational gas storage assets onshore the UK and is of strategic importance for both the energy transition and UK energy security. The fast cycle ability of the plant allows additional value to be captured in times of increased market price volatility.

Upon completion of the acquisition, Kistos will continue to evaluate whether the Hole House facility is in a favourable position to be re-developed and brought online in the future, offering further potential upside.

Transaction terms

Under the terms of the SPA, Kistos will pay a total consideration of £25 million (in cash), to acquire 100% of the share capital of EDF Energy (Gas Storage) Limited.

Kistos will take on operatorship of the site through the acquisition of the Company and a highly competent team of staff and contractors.

The Transaction is conditional on Kistos making a voluntary notification of the proposed acquisition under the National Security and Investment Act 2021 (NSIA), and there being no action taken by the Cabinet Secretary to block the change of control of the Company on national security grounds. The voluntary notification has been made today. A further announcement will be made in due course upon completion of the Transaction.

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