AIM-listed Jersey Oil & Gas, an independent upstream oil and gas company focused on the UK Continental Shelf region of the North Sea, has agreed to farm-out a 30% interest in the Greater Buchan Area ('GBA') licences to Serica Energy (UK). Upon completion of the Serica Farm-out, JOG will have a 20% interest in the GBA licences and a full carry on the capital expenditure required to bring the Buchan field into production.
Highlights:
- Fully Funded: The transaction delivers material value to JOG and results in the Company having a fully funded 20% interest in the on-going Buchan redevelopment project
- Strong industry partner: Serica is a leading mid-tier UK oil and gas company producing more than 40,000 barrels of oil equivalent per day, further strengthening the quality of the GBA joint venture
- Milestone payments: $18 million of the $38 million cash payments attributable to the two GBA farm-outs will have been received upon completion of the Serica transaction
- Value creation: Clear path to development sanction and first oil, with JOG's fully funded position meaning the Company is underpinned by exposure to zero-capex flowing barrels
- Future cash generation: Once onstream, JOG will be a non-operated partner entitled to 20% of production from the Buchan field
- Low carbon development: redeployment of an existing floating production, storage and offloading ("FPSO") vessel that is planned for future connection to a nearby floating wind power development makes the Buchan redevelopment solution the option with the lowest full-cycle carbon footprint
Transaction Summary
The farm-out transaction with Serica is on identical pro-rata terms to that previously completed with NEO Energy earlier in the year. In aggregate, the two transactions result in JOG retaining a 20% interest in the GBA licences, a full carry on the capital expenditure required to bring the Buchan field into production and a number of milestone cash payments. Upon completion of the Serica Farm-out, the combined cash payments received from the two farm-outs will be over $18 million, with a further $20 million due to be paid to JOG at Buchan Field Development Plan ('FDP') approval.
In exchange for entering into definitive agreements to divest a 30% working interest in the GBA licences, the Company is set to receive from Serica:
- 7.5% carry of the estimated $25 million cost to take the Buchan field through to FDP approval
- 7.5% carry of the Buchan field development costs, up to the budget included in the approved FDP; equivalent to a 1.25 carry ratio
- $6.8 million cash payment on completion, which includes a $5.6 million payment associated with the finalisation of the GBA development solution and associated acquisition of the "Western Isles" FPSO
- $7.5 million cash payment on approval of the Buchan FDP by the NSTA
- $3 million cash payments on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries
The primary condition precedent to completing the Serica Farm-out is receipt of approval from the NSTA for the transaction.
Buchan Development Plan
Following the recent announcement regarding the acquisition of the 'Western Isles' FPSO, all the main components of the Buchan redevelopment plan have now been defined. The field is to be produced through the use of up to five subsea production wells, supported by two water injection wells. These will be tied back to the FPSO, which will be modified to be 'electrification-ready' prior to redeployment to the field. This will enable the vessel to have the potential to be connected to one of the anticipated third-party floating wind power developments that are intended to be located in close proximity to the GBA following the recent Innovation and Targeted Oil & Gas ('INTOG') licence awards made by Crown Estate Scotland.
Work is progressing on the Front End Engineering and Design ('FEED') studies that require completion ahead of FDP approval and the development moving into the execution phase of activities. The total capital expenditure forecast for the Buchan redevelopment is estimated by the Operator, NEO, to be approximately £850-950 million (gross cost) to bring into production over 70 million barrels of oil equivalent (95% oil), with peak production rates of approximately 35,000 barrels of oil equivalent per day. This estimate will be refined as part of completing FEED and the contract tendering activities that precede finalisation of the FDP. As a result of the farm-out transactions, the Company's share of the capital expenditure included in the approved FDP work programme and budget will be fully carried by NEO and Serica. The transactions unlock the route to monetising total estimated GBA resources in excess of 100 million barrels of oil equivalent.
Approval of the Buchan FDP is scheduled for 2024, with first production forecast for late 2026. Following the start-up of production from Buchan, subsequent phases are expected to involve the tie-back of the Verbier and J2 discoveries that lie within the GBA licence area and the potential for regional third-party discoveries to be tied back to the FPSO.
Andrew Benitz, CEO of Jersey Oil & Gas, commented:
'We are thoroughly delighted to announce the farm-out transaction with Serica Energy. Not only does it bring a further high-quality partner into the joint venture, but it unlocks exceptional value for the Company and delivers upon our overall objectives for the GBA farm-out strategy. The transaction provides JOG with multiple cash payments, but most importantly, a fully funded 20% working interest in the Buchan redevelopment project, transforming the Company and providing us with the springboard from which to realise long term shareholder value.'
Source: Jersey Oil & Gas
