07 Jun 2016
Skipper Appraisal Well rescheduled for July 2016Independent Oil and Gas plc ("IOG" or the “Company”), (AIM: IOG.L), is pleased to announce that the appraisal well on the Skipper oil discovery which lies in Block 9/21a in licence P1609 in the Northern North Sea, is scheduled to be drilled in July 2016.
- Drilling of the Skipper appraisal well, of which IOG is 100% owner and operator, is scheduled for July 2016 and will be drilled by Transocean’s Sedco 704 semi-submersible.
- The vertical well will be drilled to 5,600ft with the primary objective of retrieving good quality reservoir condition oil samples in order to optimise the Skipper field development plan and to drill two mapped reservoir structures beneath the Skipper oil field in the Lower Dornoch and Maureen formations.
- Directors believe an approved field development plan on Skipper would convert the Board’s estimated 34.1 MMBbls of contingent resources into 2P reserves.
- Funding has been agreed and the relevant service contracts including deferrals previously agreed by IOG remain in place or are being renewed with a repayment date of 20th December 2017.
- The previous contract with Transocean to drill the well has been renewed, with advance payment of US$1.73 million to be part-settled by the issue of ordinary shares to Transocean and the balance paid from IOG’s existing loan facilities or settled via share issuance.
- The well is expected to take 22 days to drill.
- Commencement of drilling is contingent upon relevant technical and environmental approvals, including well permits, which are progressing with the OGA and DECC.
This well should be transformational for IOG and we are delighted to drill it next month with a significantly reduced estimated duration and cost.
The willingness of our financial backers and contractors to co-operate in a progressive way to make this well happen amid these tough industry conditions is testament to a new collaborative spirit in the North Sea. The support and engagement of the OGA for this approach has been vitally important and is very encouraging for the future. We look forward to continuing to work with our regulators, investors and commercial partners to create value for all.
Our determination to move Skipper forward further underlines our commitment to the future of the North Sea and indeed this may well prove a good time to invest counter-cyclically. Well-managed projects on the UK Continental Shelf can create excellent value for investors and that remains our clear focus.
IOG is very pleased to be working with Transocean, who have first class operational expertise and are showing their continued support for investment in the North Sea by partnering in this innovative commercial structure.
Contracting and Financing Arrangements
IOG has renewed the previous contract announced on 14th December 2015 with Transocean to drill the Skipper appraisal well. The rig that will drill the well is Transocean’s Sedco 704 semi-submersible. The expected well duration has been reduced from 25 to 22 days and the rig is expected to start drilling on location in early July 2016. Commencement of drilling is contingent upon relevant technical and environmental approvals, including well permits, which are progressing with the OGA and DECC.
The Company is required to make an advance payment to Transocean of US$1,728,000 prior to the spud date. The Company will part-settle this amount by the issue of 2.7 million Ordinary Shares at a price of 18.375p reducing the required advance payment by £496,125. These shares will be admitted to trading on 10th June 2016 and the total shares then in issue shall be 93,754,847. The balance of the advance payment is to be paid by 4th July 2016 either in cash from IOG’s existing loan facilities or to be settled in shares issued at the prevailing share price. The balancing payment will be adjusted taking account of: (i) the net proceeds from any shares sold by Transocean; and (ii) the value of the shares retained by Transocean at the close of business on 1st July 2016; with a final cash adjustment taking account of the value of the shares held by Transocean at close of business on the 30th December 2016 as well as the net proceeds of shares sold between 2nd July 2016 and 30th December 2016
The total well cost has now been reduced to approximately £6.8 million, with approximately £5.7 million still to be paid. Approximately £3 million is expected to be deferred until 20th December 2017 as a result of agreements with various contractors, some of which remain subject to finalisation of documentation. The remaining £2.7 million and any required contingency is covered by IOG’s existing loan facilities. The loan facilities and contractor deferrals will benefit from a fixed and floating charge over the assets of IOG and IOG North Sea Limited.
Skipper Appraisal Well
The objectives of the Skipper well remain the same. This will be a vertical well drilled to 5,600ft with the primary objective of retrieving good quality reservoir condition oil samples in order to optimise the Skipper field development plan. 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 up to 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.
About Independent Oil and Gas:
IOG is an oil and gas company with established assets in 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. Following the Blythe acquisition, the Company’s combined estimate of 2P reserves in Blythe and 2C resources in Skipper net to IOG will be 40.2 MMBoe.
Upon completion of the Blythe and Cronx acquisitions IOG will have five licences in the North Sea. All of these licences will now be owned 100% by IOG and subject to OGA approval will be operated by IOG. 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 (IOG estimate 16 BCF or 3.1 MMBoe) 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 in the Rotliegendes Leman formation straddles Blocks 48/22b and 48/23a in the Southern North Sea in licence P1736. The Blythe Leman needs no further appraisal and has independently verified 2P reserves of 34.3 BCF (6.1 MMBoe). (Source: ERC Equipoise Competent Person’s Report (“CPR”) dated September 2013.)
Gas tested to surface from three separate intervals in the Carboniferous beneath the Blythe Leman gas discovery from one of the Blythe discovery wells, 48/23-3 drilled by Arco in 1987. The maximum rate achieved was 0.9 MMcfd from an unstimulated vertical test. (Source: End of well report 48/23-3 – November 1987.) This was deemed uncommercial at the time, before the advent of horizontal multi-fracture stimulated wells. Further technical work including seismic reprocessing and remapping needs to be completed to evaluate this potential resource to refine the gas-in-place estimates which are between 70 BCF and 310 BCF. (Source: Tullow Oil 48/23a Relinquishment Report – May 2009.)
Oil has flowed to surface from the naturally fractured Zechstein Carbonates in the Hauptdolomit formation above the Blythe Leman gas discovery from two wells. Well 48/22-1 drilled by Burmah in 1966 flowed 39° API oil at rates up to 2,000 barrels per day (Source: Composite well log 48/22-1 – October 1966) and well 48/23-3 drilled by Arco in 1987 at flowed 38° API oil at a maximum rate of 1,128 barrels of oil a day. (Source: End of well report 48/23-3 – November 1987.) The extent of the structure and potential oil resources in the Hauptdolomit remains unknown. Previous estimates considered that the mapped closure was probably small. Oil-in-place has been estimated between 2 MMBbls and 4 MMBbls. (Source: Tullow Oil 48/23a Relinquishment Report – May 2009.) Further evaluation and re-mapping is now warranted now that a development will proceed on the main Blythe gas discovery.
The Skipper oil discovery is in Block 9/21a in the Northern North Sea in licence P1609. IOG owns 100% of the Skipper licence P1609. Skipper needs further appraisal by drilling a well to retrieve an oil sample in order to design the optimum field development plan. 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. 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.