NEO Energy to Redeploy Western Isles FPSO for Buchan Field Project

Credit: JOG
Credit: JOG

Oil and gas company NEO Energy said Friday it had agreed to buy Dana Petroleum's full equity in the Western Isles FPSO in the UK. NEO Energy plans to redeploy the FPSO at the Buchan field redevelopment in the UK North Sea.

The transaction is subject to the satisfaction of certain conditions, including the final investment decision and regulatory approval of the Buchan redevelopment. The Western Isles FPSO, has been operational since 2017 at the Western Isles field off the UK.

As previously reported, NEO earlier this year entered into an agreement with Buchan field operator Jersey Oil & Gas (JOG) to farm into the Greater Buchan Area ("GBA") in the UK North Sea, and take over the operatorship.

The two firms said in July that they planned to develop the Greater Buchan Area using a redeployed FPSO. Now, the FPSO purchase deal has been signed.

Separately, on Friday, JOG said it would receive a $9.4 million cash payment from NEO pursuant to the terms of the farm-out transaction announced in April 2023 - the milestone payment in respect of the finalization of the Greater Buchan Area ("GBA") development solution

JOG said that work was progressing at pace on Front-End Engineering and Design ("FEED") activities in order to facilitate Field Development Plan ("FDP") approval in 2024

Andrew Benitz, CEO of Jersey Oil & Gas, commented: "Finalizing the terms for the joint venture partners to acquire the FPSO, which is less than eight years old and requires relatively modest adaptation for our planned GBA redevelopment, is a tremendous milestone for the project. 

"Re-using existing high-quality infrastructure and modifying it to be electrification-ready is exactly in line with our stated low carbon strategy and the net zero related objectives of the industry.  The vessel is the cornerstone to completing the engineering work required to facilitate FDP approval for the Buchan redevelopment next year."

JOG said that the redeployed FPSO solution benefits from being both the lowest cost development option and the one that results in the lowest full-cycle carbon footprint of all the potential options evaluated. 

"This conclusion was driven by the ability to re-use existing infrastructure that can be located directly at the Buchan field and, with limited modifications, make the FPSO "electrification-ready" upon its redeployment.  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," JOG said.

FPSO Acquisition

The Western Isles FPSO that is being acquired by NEO on behalf of the Buchan field partners is currently operating in the UK North Sea and is owned by Dana Petroleum (E&P) Limited (76.9188%), as operator, and NEO (23.0812%).  

According to JOG, the FPSO is a high-quality vessel that has been in operation since early 2017 and is scheduled to come off-station as part of the planned cessation of production of the Western Isles fields around the second half of 2024.  The operational capabilities of the vessel, along with its relatively limited service-life to date, make the FPSO an excellent fit for use on the planned redevelopment of the Buchan field.

Following the handover of the vessel to NEO, as the Buchan field operator, it is planned for a relatively modest work program to be undertaken in order to prepare the FPSO for redeployment on Buchan, JOG said. 

The works will involve the installation of water injection booster pumps, produced water injection modifications and preparation of the vessel for future electrification.  These modifications are expected to be completed by early 2026, such that the vessel can be deployed to the field location and hooked up ready for the anticipated start-up of production in late 2026.

Agreements have been executed to acquire the 76.9188% interest in the vessel not currently owned by NEO.  The main terms of the acquisition commit the Buchan field partners to acquire the vessel upon the approval of the Buchan FDP.  Prior to this milestone being achieved, the Buchan partners are responsible for the costs of storing the vessel from the date of handover, which is anticipated to be in the second half of 2024.  The FPSO acquisition and associated costs forms part of the previously announced farm-out carry arrangements agreed between NEO and JOG.

NEO Farm-out Transaction

As a result of executing the FPSO acquisition agreement, JOG is now due to receive a further cash payment from NEO of $9.4 million associated with the finalization of the GBA development solution.

Further to the farm-out transaction completed with NEO earlier this year, JOG has a 50% working interest in the GBA licenses.  Through the expenditure carry arrangements agreed with NEO, JOG is being fully carried for its 50% share of the estimated $25 million cost to take the Buchan field through to FDP approval. JOG will also be carried for 12.5% of the Buchan field re-development costs (equivalent to a 1.25 carry ratio). 

JOG is also looking at farming out further interest in the GBA licences, with a target of utimately retaining a fully carried 20-25% interest in the Buchan redevelopment.

The first phase of the planned GBA work program involves re-development of the Buchan field, with the start-up of production targeted for late 2026.  Subsequent phases are expected to involve the tie-back of the Verbier and J2 discoveries that lie within the GBA license area and the potential for regional third-party discoveries to be tied back to the FPSO.

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