AIM-listed natural resources investing company Deltic Energy has withdrawn from the Shell-operated license in the Southern North Sea due to the inability to secure a farm-out or an alternative funding solution for its commitments related to the Pensacola appraisal well.
In the course of the process to secure the appropriate funding option for Pensacola development, Deltic examined a wide variety of funding solutions which included potential industry partners, including its existing Joint Venture (JV) partners, via traditional farm-out or asset sale, the equity capital markets (both traditional and non-traditional sources of capital), strategic investors, debt providers and commodity trading houses which can pre-pay for future gas deliveries.
Despite an exhaustive process, according to Deltic, deteriorating sentiment towards the oil and gas industry as a result of ongoing fiscal volatility and negative political rhetoric in the run-up to the July election have resulted in Deltic being unable to secure funding support.
Accordingly, Deltic has formally notified the JV partners of License P2252 of the company's intention to withdraw from the license and begin the process of transferring its equity in the license to the remaining partners in line with the Joint Operating Agreement.
Regardless of Deltic's intention to withdraw from the license, it is expected that Deltic may be required to honor certain expenditure in relation to the appraisal well which was approved by the JV prior to the withdrawal notice being issued.
The value of the committed expenditure, which may potentially be material to the company, will be established with the operator Shell following the formal withdrawal process, and it is expected that these costs may not become fully payable until first half of 2025.
"Recent history in relation to large scale discoveries such as Cambo and Rosebank has demonstrated the difficulties associated with progressing major offshore developments on the UKCS as damaging political rhetoric and fiscal instability continue to undermine the sector.
“Although we have been unable to secure Deltic's future involvement in the Pensacola project, it does not detract from the achievements of the team in identifying the opportunity, attracting a partner like Shell and raising the necessary capital to drill the initial discovery well,” said Graham Swindells, Chief Executive of Deltic.
As for the Selence prospect in the License P2437, Deltic said very good progress continues to be made on the exploration well which remains on track to commence drilling operations in the first half of July 2024, with operations expected to last approximately 90 days.
Following a farm-out to Dana Petroleum earlier this year, Deltic retains a 25% working interest in the license and has no cost exposure to the imminent well up to a gross success case well cost of $49 million.
In contrast to Pensacola, the 318 BCF (Gross P50 Prospective Resources) Selene prospect is a simple Leman Sandstone structure in an established, well understood play and located close to existing production infrastructure.
In a successful outcome, it is considered unlikely that Selene will require further appraisal prior to field development planning commencing and could therefore be brought into production relatively quickly following discovery given the proximity of existing infrastructure, Deltic said.
To remind, Shell signed a contract with Valaris for its Valaris 123 heavy-duty jack-up rig in February 2024, that will be used for the drilling of both the Selene exploration well and the Pensacola appraisal well in the North Sea.
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