UK-based Independent Oil and Gas (IOG) has signed agreements with CalEnergy Resources (CER) to farm out half of its assets in the Southern North Sea.
The assets consist of upstream assets, barring the Harvey licences, and the Thames Pipeline and associated Thames Reception Facilities.
Under the deal, CER will make an initial cash payment of £40m, £125m through development carry constituting 80% of the costs related to IOG’s 50% interest, £60m of development costs for Phase I and £65m of development costs for Phase II and £0.50/MCF royalty on CER interest in Goddard production above 70BCF gross, up to a maximum of £9.75m.
In turn, CER will receive a royalty of 20.2% of IOG’s Phase 1 revenues up to a maximum of £91m.
CER, within three months of completion of the Harvey appraisal well, will have the option to farm in to 50% of the Harvey licences for additional cash payment of £20m, and £0.95/MCF uncapped royalty on CER’s net Harvey gas production, equivalent to £61.3m if the well produces IOG’s best estimate prospective resources of 129BCF.
Both companies also entered into an Area of Mutual Interest (AMI) agreement to pursue development opportunities in the Thames Pipeline on an equal ratio basis.
Gross capital expenditure for Phase I is estimated at £293m, in addition to £24m of contingency, as well as £65m investment in onshore compression. Similarly, gross capital expenditure for Phase II, covering three platforms and eight wells, is currently estimated at £367m plus £41m of contingency.
IOG plans to issue a 5yr Euro-denominated Senior Secured Bond to institutional investors for £70m to fund Phase I. It said that there would not be any requirement for additional external funding for Phase II.
After completion of the farm-out and bond issue, IOG and CER will submit Core Project Phase I Final Investment Decision to the Oil and Gas Authority.
The core project is the company’s gas project in the UK Southern North Sea (SNS), which will comprise the development of six gas fields: Southwark, Blythe, Elgood, Goddard (2C Contingent Resources only), Nailsworth and Elland. The core project consists of 410BCF of 2P+2C reserves and resources across the six SNS gas fields.
The British company has also entered into agreements to repay and restructure its financing arrangements with London Oil and Gas. IOG will continue to be the operator of the core project.