REG - Parkmead Group (The) - UK North Sea Strategy Update

ParkmeadAnnouncement

19/06/2023 13:30

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RNS Number : 1911D  Parkmead Group (The) PLC  19 June 2023

19 June 2023

 

The Parkmead Group plc

("Parkmead", the "Group" or the "Company")

 

UK North Sea Strategy Update

Parkmead, the independent energy group with operations in the Netherlands and
the UK, provides the following update on its strategy in relation to its UKCS
licence interests.

Strategic Direction

The UK North Sea upstream industry is facing unprecedented challenges
associated with volatile oil and gas prices, ageing infrastructure and rising
capital and operating costs. This, combined with the sharp increases in
taxation in the last 12 months and the loss of key equipment and human
resources from the UK North Sea, has resulted in a large number of drilling
campaigns and investment decisions on new field developments being delayed,
curtailed or cancelled. A further major consideration has been the significant
increase in the cost of capital made more difficult by a lack of appetite from
traditional funding sources to support oil and gas projects.  These factors
are affecting all companies active on the UKCS, from major multi-nationals to
independents.

 

Parkmead, like many of its peer companies, has found it necessary to
re-evaluate its strategic direction and develop a transition plan that moves
the company forward during an ever-evolving regulatory framework, which
recognises the social and economic demand for viable and sustainable clean
energy.

 

Parkmead is an experienced British independent energy company, with a
management team that has a successful track record of operating on the UKCS,
and we remain fully committed to our home region. However, given the
unprecedented very high hurdles created by the current challenges, the
Parkmead Board has taken the decision that it must now necessarily be very
careful and selective in its forward UK investment strategy.  The Board of
directors has agreed that Parkmead's primary focus will be on building a
high-quality portfolio of gas producing assets and electricity generation from
renewable energies, that meet the ultimate aim of net-zero.  Alongside this,
Parkmead will continue to work on its existing portfolio of oil and gas assets
where they have the potential to be developed rapidly within the UK transition
phase and also evaluate acquisition opportunities that are aligned with this
strategy.

Perth Area

As announced in the interim results on 31(st) March 2023, the Parkmead team
has worked extremely hard in recent years to progress this challenging
development with its unique set of characteristics including problems handling
sour gas combined with ageing nearby infrastructure.   This work has
included extensive transportation, engineering and processing studies and
commercial negotiations with infrastructure owners including INEOS and the
Scott Area owners. Latterly, Parkmead was encouraged with the positive initial
findings from a Net-Zero feasibility study, conducted in conjunction with
CNOOC and Worley, which demonstrated that a technical solution was possible
using the Scott platform for the reinjection of associated sour gas into a
nearby depleted reservoir. However, recently updated development capital costs
for Perth, including the additional costs of achieving net-zero requirements,
have climbed to almost one billion US dollars.

These studies resulted in a technically sound, Central North Sea development
which could have added significant oil volumes for the UK albeit through ultra
late-life neighboring infrastructure. This development plan could therefore
satisfy both MER and Security of Supply Central Obligations for the NSTA. In
addition to the comprehensive geoscience and technical work completed,
Parkmead has been having detailed discussions with a number of companies
active nearby and the NSTA around extending the licences to give the necessary
time for submission of a revised concept select report following completion of
the net-zero studies.  Concurrently, Parkmead and its advisers, ran a
comprehensive farm out process, as previously announced in July 2022.  This
process ran over several months and farm-in interest was expressed from
multiple parties, subject to an extension to the current licence and other
factors.

However, significant concerns were highlighted over the longevity of potential
nearby host infrastructure, the inability to pursue a stand-alone FPSO
development option under the net-zero requirements and, in particular,
industry concerns were highlighted over the recent numerous fiscal changes
which has led to a large increase in effective taxation.  Such an increase
materially damages project economics, undermining the usual risk-reward
equation associated with making major offshore oil and gas field investment
decisions.  These factors, combined with a lack of public and political
support for new oil projects, have resulted in a very cautious and conditional
approach from industry during these partnering discussions. Throughout this
in-depth and extensive process, it has become clear that without full and
committed engagement from industrial partners it would not be practical to
progress the Perth development to FID, particularly recognising the massive
level of capital investment required.

The Company therefore advises that the potential Perth oil development will
not be pursued and that the P588 and P2154 licences containing the Perth
discovery are not being extended. A non-cash one-off impairment of
approximately £33m relating to the Perth area will be recorded in the
accounts to 30 June 2023. Parkmead remains in a very healthy cash position
with ongoing valuable revenues from our producing Dutch gas fields and onshore
UK wind turbines. Additionally, the Group has a very significant pool of UK
tax losses, which total in excess of £150 million. This tax position means
Parkmead is exceptionally well placed in respect of making potential
acquisitions, at a time when UK oil and gas taxation for larger producers is
at such high levels. Our experienced management team will continue to maintain
strict financial discipline across the Group's portfolio. Therefore, we are
refocusing our offshore UK efforts on acquisitions and also on attractive
projects such as Skerryvore, which are simpler and lower cost than Perth and
so present clear opportunities for near-term value creation for shareholders.

Skerryvore

In the UK Central North Sea, Skerryvore is an exciting area which, despite the
new fiscal and regulatory challenges, could be developed in a timely and
cost-efficient manner. Parkmead is therefore planning to drill this
high-impact well as soon as possible. As the Operator, with a 50% stake,
Parkmead is making excellent progress with well planning and vessels and rig
tendering with a current forecasted spud date during Q4 2024.  Parkmead has
two strong industry partners at Skerryvore, in Serica and CalEnergy.

The well is targeting an estimated 157 million barrels of oil equivalent from
multiple horizons on the flank of a salt diapir. Skerryvore is surrounded by
modern infrastructure which provides the opportunity for a number of low-cost
tie-back options which, in the success case, would allow a highly economic
development of Skerryvore to proceed at pace.

Exploration and Appraisal Activities

Parkmead is committed to pursuing attractive exploration and appraisal
opportunities where these have the ability to be drilled and developed swiftly
within the transition period, by utilising existing nearby infrastructure with
a lengthy remaining field life that meets the requirement of net-zero
targets.  This revised strategy has formed the basis of the selective
applications Parkmead has made in the UKCS 33(rd) Offshore Oil & Gas
Licensing Round.  Parkmead has recently made presentations to the NSTA on our
proposed work programmes in support of these applications, the outcome of
which will be known later in 2023.

Acquisition Opportunities

Alongside our commitment to extract the maximum value from our UKCS
exploration, appraisal and development assets, Parkmead still sees
considerable upside value in UKCS production at a time when many companies
have announced their intention to withdraw or reduce their activity levels.
Parkmead's team continues to evaluate a number of acquisition opportunities,
to complement the potential of projects within its existing asset portfolio in
the Netherlands and the UK. The focus of the Board's acquisition criteria is
to seek to add value to shareholders through revenue generation and through
the utilisation of Parkmead's significant UK tax losses.

Tom Cross, Executive Chairman, commented:

"Parkmead has developed a clear strategy for its future in the UK North Sea.
Over recent years a great deal of our team's effort has been directed at
trying to unlock the complex Perth area. Our team is naturally disappointed
that despite these huge efforts, working closely with neighbouring operating
companies and highly skilled supply chain companies, the combination of
challenging factors means it is not economically viable to take the project
forward.  However, our expert resources will now be focused on other valuable
opportunities.

As a balanced energy company, Parkmead will continue to progress its diverse
portfolio of gas, oil and renewable energy assets in order to maximise
shareholder value. We have sound and sustainable revenue from our Dutch gas
fields, plus income and increasing potential from our growing renewables
portfolio.  This solid base onshore in the Netherlands and the UK puts
Parkmead in a strong position to pursue the exciting and significant upside
offshore that Skerryvore presents in the near-term, and the Fynn Beauly and
Fynn Andrew assets in the medium-term, together with any new licences that may
be awarded to Parkmead and its partners following its applications in the
current 33(rd) UK Offshore Licensing Round."

Enquiries:

 

 The Parkmead Group plc                           +44 (0) 1224 622200
 Tom Cross (Executive Chairman)
 Andrew Smith (Business Development Director)

 Henry Steward (Group Commercial Manager)

 finnCap Ltd  (NOMAD and Broker to Parkmead)      +44 (0) 20 7220 0500
 Marc Milmo / Seamus Fricker - Corporate Finance
 Andrew Burdis / Barney Hayward- ECM

 

About Parkmead

 

The Parkmead Group is a UK and Netherlands focused independent energy group
listed on AIM of the London Stock Exchange (AIM: PMG). The Group produces
natural gas from a portfolio of four fields across the Netherlands and holds
significant additional oil and gas interests across the UK and Dutch sectors.
Parkmead also 100% owns and operates the Kempstone Hill wind energy company,
producing electricity direct to the UK grid. This is in addition to a range of
complementary renewable energy opportunities throughout the Group.

 

For further information please refer to Parkmead's website at
www.parkmeadgroup.com

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU No.
596/2014) which is part of UK law by virtue of the European Union (Withdrawal)
Act 2018. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.

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