EnQuest has signed a memorandum of understanding (MoU) to sell its interest in the Kraken development in the UK North Sea to Israel-based Delek Group. 

Under the MoU, Delek will bear its share in the project capex from 1 January this year and will advance $20m to EnQuest for five years at an annual interest of 3% upon completion.

The interest shall be returned to Delek in the event that its costs are not covered by revenues within five years from the date of completion.

EnQuest and Delek are holding talks regarding mechanisms for an additional contingent consideration that are planned to be set-out in binding transaction documents.

"The interest shall be returned to Delek should its costs not be covered by revenues within five years from completion."

Before completing the deal, the companies also plan to convert the transaction with Delek purchasing a subsidiary of EnQuest, which owns a 20% stake in Kraken.

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EnQuest previously announced that it was also pursuing a range of options to cut debt, in addition to its ongoing cost reduction initiatives. 

The latest deal is subject to approval from EnQuest’s lending banks. In view of the existing market environment, the company will continue to monitor and manage its funding and liquidity position.

Should Delek and EnQuest agree and sign binding transaction documents, completion of the transaction will be subject to approvals by the normal third-party.

EnQuest increased its stake in Kraken to 70.5% earlier this year with the acquisition of an additional 10.5% stake from First Oil.