12 Nov 2015
Operational and Funding UpdateIndependent Oil and Gas plc ("IOG" or the “Company”), (AIM: IOG.L), the North Sea focused oil and gas company, is pleased to provide an operational and funding update for the upcoming well on Skipper.
- IOG is at the advanced stages of planning the Skipper well. This will be a vertical well drilled to 5600ft with the primary objective of retrieving good quality reservoir condition oil samples in order to optimise the Skipper field development. The Directors believe an approved field development plan on Skipper would convert the Board’s estimated 34.1 MMBbls of contingent resources into 2P reserves. The AGR Tracs’ historical CPR estimate for Skipper is 26.2 MMBbls 2C resources, using a 19% recovery factor.
- The secondary well objective is to drill two mapped reservoir structures beneath the Skipper oil field in the Lower Dornoch and Maureen formations, in which the CPR authors have mapped structures which could contain an additional 46 MMBbls of oil in place. If oil is present in these structures these accumulations would be co-developed with Skipper in line with the Company’s hub strategy.
- IOG is progressing discussions and documentation with a major North Sea rig provider to use a semi-submersible drilling rig to drill the Skipper appraisal well, with costs to be met on a mostly deferred basis. The base case is a 25 day contract. Subject to finalisation of contract and funding the rig is ready to mobilise at short notice. This remains subject to their board approval.
- Commencement of drilling is contingent upon the timing of approvals relating to well permitting, completion of well funding, completion of the acquisition of the other 50% of Skipper, and transfer of operatorship. All technical and environmental submissions including well permits are progressing with the OGA and DECC.
- Terms have been agreed with GE Oil and Gas to provide wellheads and related equipment for this well and additional subsea equipment for the subsequent Skipper development.
- GE has approval to provide a £2 million loan to part fund the Skipper appraisal well. The formal documentation is now close to completion.
- Discussions are ongoing with other service providers for the rig as well as vessels, helicopters and logistics support. The Directors currently expect discussions to be concluded and the necessary contracts entered in to in short order.
- Weatherford Technical Services Limited has agreed to extend the repayment date of its existing US$2 million loan from September 2016 to December 2016.
- There is agreement in principal to defer all or part of their costs for the well, with the exception of AGR Well Management (“AGR”) which will be part paid in equity on terms to be finalised. The issue of any shares to AGR may require shareholder approval at an EGM unless existing authorities are utilised. All such parties and Weatherford will share in security over the Company and its assets and will be repaid in parallel by the end of 2016. These agreements remain subject to appropriate documentation.
- AGR has been providing significant well planning support to IOG and subject to OGA approval, will be the Well Operator for Skipper.
- IOG continues to progress discussions to raise sufficient additional capital with the aim of ensuring that the Skipper well is fully funded, including an appropriate contingency. Completion of the acquisition of the other 50% of Skipper and transfer of operatorship are contingent on full well funding.
- An updated presentation has been uploaded to the Company’s website today. The main change is the inclusion of management’s view of the expected Skipper recoverable resources. IOG management estimates that the recoverable oil from Skipper is 34.1 MMBbls based on a recovery factor of 25%, compared to the historic CPR estimate of 19%. Successful flow tests from nearby heavy oil fields substantiate the company’s estimate of a 25% recovery factor.
- Based on the Company view of 34.1 MMBbls recoverable resources, the breakeven Brent oil price for the project is estimated at $34/bbl. This is the NPV10 = 0 estimate using the Company’s cost estimates for a 13 well FPSO development.
Despite the challenging market conditions, we are making great progress towards drilling this transformational well for IOG. Drilling this well on Skipper secures the licence, allows IOG to complete the agreed acquisition of 50% of the licence from Alpha and subject to OGA and DECC approval, will see IOG become a Licence Operator in the UKCS. The results from the well should allow us to prepare the field development plan, which upon approval will convert this contingent resource into proven reserves.
This would see a more than ten-fold increase in IOG’s proven reserves. We are absolutely committed to the future of the North Sea and whilst this may be seen as a counter cyclical investment, we are confident that the economics are robust at today’s prices and will only improve if and when commodity prices recover.
About Independent Oil and Gas:
IOG is an oil and gas company with established assets focused on the UK North Sea. The company's strategy is to deliver near term development and production assets in North West Europe, through its extensive technical and commercial expertise, whilst maintaining some exposure to exploration upside. The company is looking to grow both organically and through acquisition. After the completion of the Skipper acquisition from Alpha Petroleum Resources Ltd. (“Alpha”), the combined estimate of 2P reserves in Blythe and 2C resources in Skipper net to IOG will be 37.1 million barrels of oil equivalent (“MMBoe”).
Post completion of the Cronx acquisition IOG will have five licences in the North Sea. Four of these licences will now be owned 100% by IOG and subject to DECC/OGA approval will be operated by IOG. The Blythe licence is co-owned 50% with Alpha which is the operator. IOG has a 100% working interest in two other licences, one awarded in the 27th licensing round and another in the recent 28th licensing round. One is to the east of Blythe containing the Truman prospect and Harvey discovery and the other is between the Blythe and Cronx licences which contains the Elgood and Hambleton discoveries and the Tetley and Rebellion prospects. Both these 100% owned licences have potential resources that could be tied back to nearby infrastructure or to the Blythe development.
Further information can be found on www.independentoilandgas.com
The Blythe gas discovery straddles Blocks 48/22b and 48/23a in the Southern North Sea in licence P1736 which is 50% co-owned by IOG and Alpha (operator). Blythe needs no further appraisal and has independently verified gross 2P reserves of 34.3 BCF (6.1 MMBoe) which is 17.2 BCF (3.0 MMBoe) net to IOG. (Source: ERC Equipoise Competent Person’s Report (“CPR”) dated September 2013.)
The partnership is working towards submitting a Field Development Plan for Blythe by the end of 2015.
The Skipper oil discovery is in Block 9/21a in the Northern North Sea in licence P1609. Skipper needs further appraisal by drilling a well to retrieve an oil sample in order to design the optimum field development plan. Subject to the completion of the previously announced acquisition of Skipper from Alpha, IOG can now progress to the appraisal and development stage of this asset. Skipper has independently verified gross 2C resources of 26.2 MMBbls. IOG management estimates that the recoverable oil from Skipper is 34.1 MMBbls based on a recovery factor of 25%, compared to the historic CPR estimate of 19%. Successful flow tests from nearby heavy oil fields substantiate the company’s estimate of a 25% recovery factor. The appraisal well will also target two exploration prospects directly beneath the Skipper oil discovery which may contain oil in place of 46 MMBbls. (Source: AGR Tracs CPR dated September 2013.)
IOG has agreed to acquire 100% of Cronx (Block 48/22a, licence P1737) which is subject to completion. The Cronx gas discovery is 14km north-west of the Blythe field in which IOG owns 50%. Cronx was discovered in 2007 by well 48/22b-6 drilled by Perenco UK Ltd.
IOG commissioned an independent CPR by ERC Equipoise on Cronx in July 2012 which shows a base case expected gas recovery of 17.6 BCF or 3.4 MMBOE 2C resource. IOG anticipates drilling a well in 2016, subject to rig availability, the necessary permits and funding. IOG expects the well to confirm the recoverable resources, which IOG believes has the potential to be larger than the 17.6 BCF base case in the CPR. IOG is currently evaluating options for the development and export of the Cronx gas.
About Elgood and Hambleton:
The Elgood discovery (IOG 100%) (Block 48/22c, licence P2260) was drilled by Enterprise Oil in 1991 and tested gas to surface at 17.6 MMcfd but was not progressed by Enterprise due to size and gas prices at that time. IOG's estimate of the recoverable reserves in Elgood is 2.1 MMBoe.
The Hambleton discovery, to the south of the same licence, was drilled by Century Exploration in 2005 but also was not progressed to development. IOG estimates that Hambleton has recoverable resources of 6 BCF (1 MMBoe). IOG believes that the reprocessing of existing 3D seismic data could increase recoverable resources up to 26 BCF.
There are prospective resources on licence P2260 of 5.3 MMBoe in the Tetley and Rebellion prospects. Reprocessing of existing 3D seismic across 48/22a and 48/22c is required to determine whether Elgood connects to Cronx which would boost recoverable reserves significantly. The new seismic interpretation will also determine the likely size of Hambleton. IOG is now working on the potential development plans and will commission a CPR to confirm the resources over this area.
Competent Person’s Statement:
In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Mark Routh, IOG's CEO and Interim Executive Chairman is the qualified person that has reviewed the technical information contained in this announcement. Mark Routh has an MSc in Petroleum Engineering and has been a member of the Society of Petroleum Engineers since 1985. He has over 35 years' operating experience in the upstream oil and gas industry. Mark Routh consents to the inclusion of the information in the form and context in which it appears.