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.
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Source: Orcadian Energy
