UK North Sea-focused oil and gas company Orcadian, which is working to develop the Pilot oil field, has entered into a non-binding Heads of Agreement with an unnamed North Sea 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 said.
Orcadian has granted the Operator a commercial exclusivity period until November 30, 2023. to complete definitive documentation for the overall deal.
If the deal is completed as documented in the HoA. this will enable Orcadian and the Operator to progress the development of the Pilot field, dubbed one of the largest undeveloped discoveries in the Central North Sea ("CNS"), with significant upside potential in the surrounding area.
The Operator will become the operator of the Pilot development and will acquire an 81.25% interest in Licence P2244.
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.
"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 said.
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," Orcadian said.
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."
The Pilot field is the Orcadian'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.
The development plan under discussion with the potential operator is designed to accelerate first oil and to minimize the initial cost of the development, Orcadian said.
Orcadian’s previously proposed field development concept for the Pilot field is based upon a Floating Production Storage and Offloading vessel (FPSO), with over thirty wells to be drilled by a Jack-up rig through a pair of well head platforms, and the provision of power from a floating wind turbine.