REG - Orcadian Energy PLC - Proposed Farm-in to the Pilot Project

Orcadian EnergyAnnouncement

18/09/2023 07:00

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RNS Number : 6833M  Orcadian Energy PLC  18 September 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.

 

18 September 2023

Orcadian Energy plc

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

 

Proposed Farm-in to the Pilot Project

 

Farm-in Highlights

·    Orcadian has entered into a non-binding Heads of Agreement ("HoA")
with a North Sea operator (the "Operator"), which details a potential farm-out
of the Pilot development project.

·    This is a provisional agreement and there can be no guarantee that
any transaction will occur. Any deal is subject to, amongst other matters,
completion of due diligence; negotiation of documentation; and various
regulatory and shareholder consents as well as Board approvals of the Operator
and Orcadian.

·    Orcadian has granted the Operator a commercial exclusivity period
until 30 November 2023.  to complete definitive documentation for the overall
deal.

If the deal completes as documented in the HoA:

·    This will enable Orcadian and the Operator to progress the
development of the Pilot field, one of the largest undeveloped discoveries in
the Central North Sea ("CNS"), with significant upside potential in the
surrounding area.

·    The Operator will become operator of the Pilot development and will
acquire an 81.25% interest in Licence P2244 and will become operator of the
Pilot development.

·    Based upon the Competent Person's Report ("CPR") prepared by Sproule
in 2021, the Operator 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.

·    The Operator and Orcadian will work to deliver a Field Development
Plan ("FDP") to the North Sea Transition Authority ("NSTA") for a polymer
flood development of the Pilot field with industry leading emissions
performance.

·    Orcadian management expect this updated development plan will now
increase Pilot field reserves or resources by 5-10% relative to the 2021 CPR
scenario audited by Sproule.

·    Orcadian will retain an 18.75% carried interest in the Pilot
development with the Operator paying 100% of the pre-first oil scope of work.
 After first oil, Orcadian will pay its working interest share of
expenditure.

·    Orcadian and the Operator have requested that NSTA extend the second
term of licence P2244 and will also request 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.

·    On completion of the transaction, extension of the P2244 licence, and
a licence award over former P2320, Orcadian would receive a cash consideration
of up to US$200,000 from the Operator, with a further US$3,000,000 being
received on Pilot FDP Approval.

As previously noted, working capital remains very constrained. Cash at today's
date is c£90k, with a current monthly burn rate of less than £20k.

Steve Brown, Orcadian's CEO, commented:

"We are delighted to have reached this agreement, which sets out a potential
pathway to production for the Company's Pilot field.

"The Pilot field has a substantial proven reserve base with material upside
potential in the surrounding area. We are delighted this transaction could
enable Orcadian to retain a significant interest in the project and to enjoy
the long-term benefits of producing oil for the UK.

"Developing energy in our own backyard contributes to the UK's Energy Security
and balance of payments; delivers long-term high-quality jobs; and minimises
emissions associated with satisfying the UK's need for energy.

"We look forward to progressing the next stages of this proposed transaction
and providing further updates."

 

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 the Potential Operator is designed to accelerate first oil 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. The revised plan is expected by Orcadian management to result in an
uplift to this reserve estimate; this will be dependent on the precise plan
adopted by the partnership.  The Company intends to update the CPR once the
FDP has been finalised.

Heads of Agreement

The Heads of Agreement ("HoA") are not binding upon either Party except to the
extent that Orcadian has granted the Operator an exclusivity period, which
runs to 30 November 2023. During this period the Operator will finalise due
diligence, seek to obtain appropriate consents, and negotiate a Sale and
Purchase Agreement for P2244, a Joint Bidding Agreement for the area of former
licence P2320 and, if the Operator elects, a conditional Sale and Purchase
Agreement for P2482. Orcadian has requested an extension to the second term of
licence P2244 to allow the Operator to submit a Field Development Plan and
Environmental Statement. The licence over P2244 is currently due to determine
on 30 November 2023.

As discussed above, the heads of terms are not binding and there can be no
guarantee that any transaction will be entered into. However, the terms
documented in the non-binding Heads of Agreement are as follows:

·    It is proposed that the Operator 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. After first oil on the Pilot Field, Orcadian will
pay its working interest share of all costs.

·    The intention is that, if a deal was to complete, the Operator would
become the operator of the Pilot development project, and that Orcadian would
continue to provide sub-surface support to the Operator's team, to build upon
the work undertaken by Orcadian to prepare a development plan for Pilot.

·    Orcadian and the Operator will request that NSTA permit an
out-of-round licence application for the area of former licence P2320. 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.

·    The intention is that, if a transaction completes, the Operator would
be assigned an 81.25% interest in the Pilot licence and Orcadian would receive
a payment of US$100,000 upon completion of the assignment alongside an agreed
extension to the Second Term of the licence, Orcadian would receive a further
US$100,000 on award of a licence over the area of former licence P2320. In
addition, if FDP approval is obtained, the Operator would pay Orcadian
US$3,000,000.

·    It is proposed that the Operator will pay 100% of pre-first oil
development costs. Orcadian will pay its working interest share of costs
(18.75%) after first production from Pilot.

·    The pre-first oil development scope of work would include all
development and project planning and management activities; the purchase,
modification, mobilisation and installation of a suitable FPSO and mooring;
design, construction and installation of flowlines, subsea systems, and a
wellhead platform (if that is adopted in the FDP), drilling and completion of
five wells on Pilot, all as defined in the NSTA approved FDP.

The Heads of Agreement are subject to, amongst other items, due diligence,
NSTA consent, the finalisation of binding legal documents, certain approvals
from Shell and TGS, Orcadian and Operator board approvals and Orcadian
shareholder approval. As such, there can be no guarantee that any final
agreements will be entered into, or that this farm-out will complete.

AIM Rule 15

Pursuant to AIM Rule 15, the disposal outlined in this announcement, if it was
to complete would be treated under the AIM Rules as a fundamental change of
business. Accordingly, any disposal would be conditional on the consent of
shareholders being given in a general meeting and accompanied by both a
notification and the publication of a circular containing details of the
disposal and convening the requisite meeting.

 

Financial Position

As set out in the announcements dated 15 May 2023, 2 August 2023, and 13
September 2023, the Company's working capital is very constrained. The current
cash balance is £90k and the Company's current monthly burn rate is less than
£20k; accordingly, the Company will need to raise additional funds in the
very short term. It is continuing to explore all options.

 

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 Joint 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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