REG - Orcadian Energy PLC - Pilot Farm-out Deal and Partnership with Ping

Orcadian EnergyAnnouncement

07/12/2023 11:15

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RNS Number : 0523W  Orcadian Energy PLC  07 December 2023

 

 

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO
CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION
(EU) NO. 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW PURSUANT TO THE EUROPEAN
UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON THE PUBLICATION OF THIS
ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS
CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

7 December 2023

Orcadian Energy plc

("Orcadian Energy", "Orcadian" or the "Company")

 

Pilot Farm-out Deal and Partnership with Ping Petroleum

 

Further to the announcements of 18 September 2023 and 1 December 2023, the
Company is pleased to confirm it has executed a conditional Sale and Purchase
Agreement ("SPA") with Ping Petroleum UK plc ("Ping") for the farm-out of an
81.25% interest in the Company's flagship asset, the Pilot Development project
(Licence P2244) (the "Transaction").

The total consideration due under the SPA is US$3,100,000 (plus the payment of
certain historic costs incurred by Orcadian to date).

The initial consideration of US$100,000 is payable on completion (being the
date that P2244 is transferred to Ping, which will occur when the conditions
set out below are satisfied ("Completion"). It is anticipated Completion will
occur before the end of March 2024. On Completion, Ping will become operator
of the Licence. Ping will pay the balance of the consideration (US$3,000,000)
on approval by the North Sea Transition Authority ("NSTA") of a Field
Development Plan ("FDP") for the Pilot Field. The FDP is currently anticipated
to be submitted during 2024. Further updates will be provided as this
progresses.

The SPA is conditional on, amongst other matters, Orcadian shareholder
approval.

Highlights

·    Orcadian has executed a conditional Sale and Purchase Agreement with
Ping, which details the farm-out of the Pilot development project.

·    Orcadian has now requested NSTA approval for the assignment of an
81.25% interest in the P2244 licence to Ping, and the appointment of Ping as
operator of the P2244 licence, as required by the NSTA.

·    The Pilot field is one of the largest undeveloped discoveries in the
Central North Sea, with significant upside potential in the surrounding area.

·    Subject to satisfaction of the outstanding conditions, Ping will
acquire an 81.25% interest in Licence P2244 and will become operator of the
Pilot licence and development project.

·    Based upon the Competent Person's Report ("CPR") prepared by Sproule
in 2021, Ping will acquire net reserves or resources of 63.4 MMbbl on
completion of the deal, with Orcadian retaining 14.6 MMbbl of 2P reserves,
carried to first oil.

·    Following completion, Ping and Orcadian will work to deliver a FDP to
the NSTA for a polymer flood development of the Pilot field, with industry
leading emissions performance.

·    Orcadian management believe this updated development plan could
increase ultimate Pilot field recovery by 5-10% relative to the 2021 CPR
scenario audited by Sproule.

·    Under the terms of a proposed Joint Operating Agreement ("JOA"),
which is a condition of the SPA, Orcadian will retain an 18.75% carried
interest in the Pilot development with Ping paying 100% of the pre-first oil
scope of work.

·    As announced on 25 October 2023, Orcadian and Ping previously
requested that NSTA extend the second term of licence P2244 and were granted a
two-year extension to the second term of the licence.  This extension remains
conditional upon completion of the farm-out prior to the end of March 2024.

·    Orcadian and Ping are also negotiating a Joint Bidding Agreement
("JBA") in respect of, and requested an out-of-round application for, the area
of former Licence P2320 (which Orcadian had to relinquish earlier this year),
in support of the Pilot development and the area plan.

 

Steve Brown, Orcadian's CEO, commented:

"We are delighted to have executed this agreement with Ping and look forward
to completing the documentation and receiving all the necessary approvals so
that the deal can complete before end 1Q 2024.

We believe this deal will be transformational for Orcadian. Not only does it
set out a clear pathway to production for the Pilot field, but also provides a
number of opportunities, which we are excited about, in the wider Western
Platform area which this partnership will enable us to grasp.

The Board consider Ping to be an innovative operator that understands how to
deliver development projects that concord with the NSTA's net zero goals. Ping
is the owner of the Excalibur FPSO and has engaged with the owners of a number
of floating production storage and offloading (FPSO) redeployment candidates
and we believe they can identify the right solution for Pilot very quickly. We
have been impressed with Ping's commercial agility and technical ability, and
we look forward to working with the Ping team to deliver a successful Pilot
development.

The UK needs clean, new, producing fields to meet its twin goals of Energy
Security and Net Zero. We believe that Pilot is an essential part of that
future portfolio of North Sea production and that the benefits to the balance
of payments, the economy and for workers in the industry are clear."

 

Background

The Pilot field is the Company's core asset and securing a partner to farm-in
to the project and finance the development of the Pilot discovery has been the
Company's key focus since its foundation. Pilot was discovered by Fina
Petroleum in 1989 and is well appraised. The development plan under discussion
with Ping is designed to phase the project to maximise opportunities for
learning and to minimise the initial cost of the development.

The Pilot field has 2P Reserves of 78.8 MMbbl, as audited by Sproule in April
2021, a copy of the Sproule report is contained in the Company's Admission
document, which can be found on the Company's website. The proposed revised
plan could, based on Orcadian management's internal estimates, result in an
uplift to this resource estimate; but the overall outcome will be dependent on
the precise plan adopted by the partnership.  The Company intends to update
the Competent Person's Report for Pilot once the FDP has been finalised.

Conditions Precedent

The SPA includes a number of conditions precedent including, but not limited
to, Orcadian shareholder approval; completion of commercial and legal due
diligence by Ping; execution of the JOA referred to above; approval of the
transaction (and variations to the existing agreements in place, where
appropriate) from the NSTA, Shell, TGS ASA, and Ping's parent company board
and, if required, shareholders. Completion of the Licence assignment is
subject to the satisfaction, or waiver, of the conditions precedent and is
required to occur before the end of March 2024. Whilst there can be no
guarantee that these conditions will be satisfied, the Directors have every
expectation that they will be. Further updates will be provided as the
conditions are satisfied.

As set out above, the parties have agreed the key terms of a JOA for the Pilot
licence.

SPA: Key Terms and Consideration Payable

The key terms documented in the SPA are as follows:

·    The SPA requires that the JOA will include an agreement that Ping
will pay all of Orcadian's share of costs incurred in relation to the
pre-first oil development scope of work on the Pilot field, and any other
costs relating to the Pilot development incurred prior to first oil.

·    On completion, Ping will be assigned an 81.25% interest in the Pilot
licence and on transfer of the licence interest Orcadian will receive a
payment of US$100,000. In addition, on FDP approval Ping will pay Orcadian
US$3,000,000.

·    Ping has agreed to cooperate with the Company to settle the historic
and future liabilities to TGS, to a maximum value of US$1,072,000.

·    On transfer of the licence interest, Ping will pay to the Company a
pre-first oil adjustment payment, being an amount equal to the costs incurred
by Orcadian between 1 July 2023 and Completion in relation to the Pilot
Licence (P2244). This is capped at £250,000.

·    The agreement contains usual commercial warranties and indemnities
for an agreement of this type.

·    On completion, Ping will become the operator of the Pilot development
project.

Orcadian will continue to provide sub-surface support to the Ping team, to
build upon the work undertaken by Orcadian to prepare a development plan for
Pilot.

The two companies also intend to execute a JBA in respect of the area of
former licence P2320. Orcadian and Ping have requested that NSTA permit an
out-of-round licence application for that area. This acreage contains
extensions of the Pilot field, the likely location of a wellhead platform to
be installed later in field life, and the Feugh oil and gas discovery. Subject
to execution of the JBA, Orcadian will receive a further US$100,000 on award
of a licence over the area of former licence P2320.

Additional Disclosures

As set out in the Company's audited accounts dated 30 June 2022 ("Audited
Accounts") the asset which is the subject of this transaction (the Pilot field
(P2244) is an exploration asset and accordingly generates no turnover, profits
or losses. In the Audited Accounts the book value of P2244 is £2.75 million.

The Directors intend to utilise the proceeds from this transaction for working
capital purposes and to further develop the other assets in the Company's
portfolio.

AIM Rule 15 and Notice of General Meeting

Pursuant to AIM Rule 15, the Transaction is treated under the AIM Rules as a
fundamental change of business. Accordingly, the Transaction is conditional,
amongst other items, on the consent of Orcadian's shareholders being given in
a general meeting. The Company intends to prepare and dispatch a circular
detailing the Transaction and convene a general meeting to seek approval for
the Transaction, as soon as possible. A further announcement will be made when
the general meeting is convened and the associated circular is dispatched.

Financial Condition

The Company's current cash balance is £115,000, which based on current
internal forecasts is expected to provide sufficient working capital for the
Company until the first quarter of 2024.  However, the Company confirms it is
in advanced discussions with regards to a potential equity fundraising, and
expects to provide an update to the market shortly.  The Board continues to
manage cash on a prudent basis as it seeks to add significant value for
shareholders.

Qualified Person's Statement

Pursuant to the requirements of the AIM Rules and in particular, the AIM Note
for Mining and Oil and Gas Companies, Maurice Bamford has reviewed and
approved the technical information and resource reporting contained in this
announcement. Maurice has more than 33 years' experience in the oil & gas
industry and 3 years in academia. He holds a BSc in Geology from Queens
University Belfast and a PhD in Geology from the National University of
Ireland. Maurice is a Fellow of the Geological Society, London, and a member
of the Geoscience Energy Society of Great Britain. He is Exploration and
Geoscience Manager at Orcadian Energy.

 

For further information on the Company please visit the Company's website:
https://orcadian.energy (https://orcadian.energy)

 

Contact:

 

 Orcadian Energy plc                                  + 44 20 7920 3150
 Steve Brown, CEO

 Alan Hume, CFO
 WH Ireland (Nomad and Broker)                        +44 20 7220 1666
 Katy Mitchell / Andrew de Andrade (Nomad)

 Harry Ansell / Fraser Marshall (Corporate Broking)

 Tavistock (PR)                                       + 44 20 7920 3150
 Nick Elwes / Simon Hudson                            orcadian@tavistock.co.uk (mailto:orcadian@tavistock.co.uk)

 

About Orcadian Energy

Orcadian is a North Sea focused, low emissions, oil and gas development
company. In planning its Pilot development, Orcadian has selected wind power
to transform oil production into a cleaner and greener process. The Pilot
project is moving towards approval and will be amongst the lowest carbon
emitting oil production facilities in the world, despite being a viscous
crude. Orcadian may be a small operator, but it is also nimble, and the
Directors believe it has grasped opportunities that have eluded some of the
much bigger companies. As we strike a balance between Net Zero and a
sustainable energy supply, Orcadian intends to play its part to minimise the
cost of Net Zero and to deliver reliable energy to the UK.

Orcadian Energy (CNS) Ltd, Orcadian's operating subsidiary, was founded in
2014 and is the sole licensee of P2244, which contains 78.0 MMbbl of 2P
Reserves in the Pilot discovery, and of P2482, which contain a further 52.2
MMbbl of 2C Contingent Resources in the Elke and Narwhal discoveries (as
audited by Sproule, with both numbers modified to take into account the TGS
royalty, see the CPR in the Company's Admission Document for more details).
Within these licences there are also 118 MMbbl of unrisked Prospective
Resources (modified for TGS royalty). These licences are in blocks 21/27a,
28/2a and 28/3a, and lie 150 kms due East of Aberdeen.

Pilot, which is the field with the largest reserves in Orcadian's portfolio,
was discovered by PetroFina in 1989 and has been well appraised. In total five
wells and two sidetracks were drilled on Pilot, including a relatively short
horizontal well which produced over 1,800 bbls/day on test. Orcadian's
proposed low emissions, field development plan for Pilot is based upon a
Floating Production Storage and Offloading vessel (FPSO), with over thirty
wells to be drilled by a Jack-up rig and provision of power from a floating
wind turbine.

Emissions per barrel produced are expected to be about a tenth of the 2021
North Sea average, and less than half of the lowest emitting oil facility
currently operating on the UKCS. On a global basis this places the Pilot field
emissions at the low end of the lowest 5% of global oil production.

 

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