UK-based oil and gas firm Premier Oil has signed a sale and purchase agreement (SPA) to divest its stake in the Babbage Area to local E&P company Verus Petroleum.

The terms of the deal include a 47% interest in the Babbage gas field, which is located in the Southern North Sea, and 50% operated interests in the Cobra discovery situated adjacent to Babbage.

In addition, the agreement covers select outstanding exploration commitments valued at $23.8m.

Verus is set to pay $88.1m for the Babbage field to Premier, which is also eligible for net proceeds of $64.3m resulting from the exploration commitments.

After the development of the Cobra discovery, Verus will additionally pay around $7.7m along with potential payments based on specific third-party business across the Babbage infrastructure in the future.

“This transaction further demonstrates our determination to restore our balance sheet strength.”

Premier Oil chief executive Tony Durrant said: “The sale of our interests in the Babbage Area will immediately reduce our net debt and our committed exploration spend in 2019.

“This transaction further demonstrates our determination to restore our balance sheet strength.

“It also adds to the value realised from the E.ON portfolio, which we acquired for $120m in 2016 and has generated free cash flow and proceeds from announced disposals of around $300m to date.”

Subject to pre-emption rights by joint venture partners, the acquisition is expected to be closed in the second half of this year.

Verus estimates that the transaction will add approximately 2,400 barrels of oil equivalent per day to its daily production, and plans to drill a well next year to prove further gas volumes that could be related to Babbage approximately 10km away.