REG - Deltic Energy PLC - Pensacola Update

Deltic EnergyAnnouncement

30/04/2024 07:00

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RNS Number : 4866M  Deltic Energy PLC  30 April 2024

 

Prior to publication, the information contained within this announcement was
deemed by the Company to constitute inside information as stipulated under the
UK Market Abuse Regulation. With the publication of this announcement, this
information is now considered to be in the public domain.

 

Deltic Energy Plc / Index: AIM / Epic: DELT / Sector: Natural Resources

 

30 April 2024

 

Deltic Energy Plc ("Deltic" or "the Company")

 

Pensacola Update

 

Deltic Energy Plc, the AIM-quoted natural resources investing company with a
portfolio of operated and non-operated exploration and appraisal assets in the
UK North Sea, provides the following update in relation to its Pensacola
Discovery on Licence P2252 in the Southern North Sea in which Deltic holds a
30% interest.

 

Well Planning and Timing

 

Following commitment to the appraisal well in December 2023, operational
planning for the Pensacola appraisal well has continued to progress according
to plan.

 

In anticipation of drilling the Pensacola appraisal well, long lead items have
been ordered, the geophysical site survey over the proposed well location has
been completed and the final geotechnical site survey is scheduled to take
place in May/June 2024.

 

The rig contract was entered into in February which secured the Valaris 123
heavy duty jack-up drilling unit to drill both the Selene exploration well and
Pensacola appraisal well, with the Pensacola well due to be drilled
immediately following completion of Selene operations.

 

The rig is currently operating in the Central North Sea following which it
will move to Selene. Subject to the timing of the completion of Selene, the
Pensacola well remains on track to be drilled in Q4 2024.

 

Farm-out Process

 

The feedback from Deltic's Pensacola farm-out process has indicated that the
continual tinkering with the Energy Profits Levy and resultant fiscal
uncertainty created by the current government, along with recent rhetoric
emanating from the Labour Party, have had a severely negative effect on the
ability of UK Exploration and Production (E&P) companies to commit to long
term investments in the North Sea.  This has resulted in many operators
diverting capital away from the UKCS or delaying investment decisions,
especially with respect to new large-scale opportunities like Pensacola.

 

Against this hostile political environment, and despite the Company's best
efforts, Deltic have not yet been able to secure a farm-out partner for
Pensacola and although there are a number of live discussions with respect to
a way forward on Pensacola, there is a risk that a farm-out may not be secured
before the end of May 2024. We remain of the view that Pensacola represents an
excellent value-driven opportunity for the right partner and would be willing
to engage with any additional potential partners.

 

Equity Capital Markets

 

The recent difficult state of UK equity markets, especially for smaller
companies, has been well publicised. This, coupled with the impact of the
political and fiscal regime on UK E&P company valuations and investor
sentiment means that the Board believes that accessing traditional equity
capital, as the Company has successfully done in the past, is unlikely to be a
viable option to allow Deltic to meet its 30% share of the Pensacola well
(currently estimated to be roughly GBP£15 million net to Deltic).

 

Alongside its ongoing farm out process, Deltic will continue to consider
alternative sources of capital and non-traditional funding structures to
mitigate costs and/or secure its equity position in the Pensacola well.
However, there is no guarantee that such capital will be available or
available on acceptable terms. It is particularly frustrating for the Company
as a recently commissioned Competent Person's Report by RPS Energy assessed
Pensacola as having a 2C NPV10 of approximately USD$200 million net to Deltic,
representing a multiple of the Company's current market capitalisation.

 

Potential for Licence Withdrawal

 

If an industry and/or funding solution is not in place by the end of May 2024,
being the point  at which Deltic will be required to demonstrate its capacity
to fund its share of costs, Deltic will be required to take steps to ensure
the Company is not exposed to further expenditure on the Pensacola well if
there is no reasonable expectation that the Company will be able to meet those
additional liabilities which will be incurred going forward.

 

In such circumstances, Deltic will be required to withdraw from the Pensacola
licence and transfer its interest in Pensacola to the Joint Venture partners.

 

Graham Swindells, Chief Executive of Deltic Energy, commented:

 

"The struggle to find a way forward on a project like Pensacola, which is one
of the largest discoveries in the North Sea in recent decades, is a real-world
consequence of our political leadership using the nationally important oil and
gas industry as a political football at a time when energy security is of
paramount importance.

 

Given the impact of fiscal and political uncertainty on investment decisions
we have seen a shift away from investment in larger standalone projects, like
Pensacola, towards more affordable, lower risk opportunities which defer
decommissioning or increase infrastructure life such as Selene, and the
Company's Syros prospect in the Central North Sea, where we have seen an
enhanced level of interest.

 

We look forward to the start of drilling operations on the high impact Selene
exploration well, in which Deltic is fully carried for the estimated cost of
the success case well, which remains due to spud in July 2024. In the
meantime, we will continue to pursue all avenues to progress Pensacola and
will update the market in due course."

 

 

**ENDS**

 

For further information please contact the following:

 Deltic Energy Plc                                                              Tel: +44 (0) 20 7887 2630

 Graham Swindells / Andrew Nunn / Sarah McLeod

 Allenby Capital Limited (Nominated                                             Tel: +44 (0) 20 3328 5656
 Adviser)

 David Hart / Alex Brearley (Corporate Finance)

 Stifel Nicolaus Europe Limited (Joint                                          Tel: +44 (0) 20 7710 7600
 Broker)

 Callum Stewart / Simon Mensley / Ashton Clanfield

 Canaccord Genuity Limited (Joint Broker)                                       Tel: +44 (0) 20 7523 8000

 Adam James / Ana Ercegovic

 Vigo Consulting (IR Adviser)                                                   Tel: +44 (0) 20 7390 0230

 Patrick d'Ancona / Finlay Thomson / Kendall Hill

 

About Pensacola

 

·    Licence P2252 - 2(nd) Term extended until September 2028

·    Shell (65% & Operator), Deltic (30%) and One-Dyas (5%)

·    Hydrocarbons discovered in Zechstein aged, oolitic Hauptdolomite

·    RPS Energy Competent Person's Report confirms P50 hydrocarbons
in-place of 326 MMboe (P90-P10 Range of 127.5 to 638.5 MMboe) following
discovery well in January 2023

·    RPS assessed two unoptimised development scenarios and estimated a 2C
Post Tax NPV10 of USD$205M net to Deltic (combined oil and gas development)
and USD$199M net to Deltic (gas only development)

·    These net 2C NPV10 project valuations equate to approximately 169p -
174p per Deltic share

·    Recent well results from analogous structure demonstrated commercial
flow rates in excess of 25 MMscf/day from same oolitic reservoir reservoir at
Crosgan

·    Potential for Pensacola to form the basis of a new production hub
targeting what Deltic estimates is >2 TCF of recoverable gas, both
discovered and prospective resources across multiple Zechstein prospects

 

Reporting Standard

 

Estimates of resources have been prepared in accordance with the PRMS as the
standard for classification and reporting.

 

Competent Person's Review

 

Andrew Nunn, a Chartered Geologist and Chief Operating Officer of Deltic, is a
"Qualified Person" in accordance with the Guidance Note for Mining, Oil and
Gas Companies, June 2009 as updated 21 July 2019, of the London Stock
Exchange. Andrew has reviewed and approved the information contained within
this announcement.

 

Glossary of Technical Terms

 

 1C:                                          represents the low case estimates of Contingent Resources as defined by PRMS

 2C:                                          represents the best case estimates of Contingent Resources as defined by PRMS

 3C:                                          represents the high case estimates of Contingent Resources as defined by PRMS

 Contingent Resources:                        those quantities of petroleum which are estimated, on a given date, to be
                                              potentially recoverable from known accumulations, but which are not currently
                                              considered to be commercially recoverable, as defined by PMRS

 MMboe or million barrels of oil equivalent:  million barrels of oil equivalent. Gas is converted at a conversion rate of
                                              6,000 Scf per boe

 MMstb:                                       million stock tank barrels

 MMscf:                                       million standard cubic feet

 P90 resource:                                reflects a volume estimate that, assuming the accumulation is developed, there
                                              is a 90% probability that the quantities actually recovered will equal or
                                              exceed the estimate.  This is therefore a low estimate of resource

 P50 resource:                                reflects a volume estimate that, assuming the accumulation is developed, there
                                              is a 50% probability that the quantities actually recovered will equal or
                                              exceed the estimate.  This is therefore a median or best case estimate of
                                              resource

 P10 resource:                                reflects a volume estimate that, assuming the accumulation is developed, there
                                              is a 10% probability that the quantities actually recovered will equal or
                                              exceed the estimate.  This is therefore a high estimate of resource

 PRMS:                                        the June 2018 Society of Petroleum Engineers ("SPE") Petroleum Resources
                                              Management System

 Prospective Resources:                       are estimated volumes associated with undiscovered accumulations.  These
                                              represent quantities of petroleum which are estimated, as of a given date, to
                                              be potentially recoverable from oil and gas deposits identified on the basis
                                              of indirect evidence but which have not yet been drilled

 Scf:                                         standard cubic feet

 Stb:                                         stock tank barrel

 STOIIP:                                      stock tank oil initially in place

 TCF:                                         trillion standard cubic feet

 

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