19 Apr 2016
Acquisition of Blythe DiscoveryIndependent Oil and Gas plc ("IOG" or the "Company") (AIM: IOG.L), the development and production focused oil and gas company, is pleased to announce that its wholly owned subsidiary, IOG North Sea Limited, has signed a Sale and Purchase Agreement (â€œSPAâ€) to acquire from Alpha Petroleum Resources Limited (â€œAlphaâ€) the 50% of Blocks 48/22b and 48/23a in the Southern North Sea not already owned by the Company. These blocks contain the Blythe gas discovery.
On 18 April 2016 the Company signed an SPA to acquire the other 50% of the licence covering Blocks 48/22b and 48/23a in the Southern North Sea, containing the Blythe gas discovery, from Alpha for an initial consideration of Â£1.5 million payable at completion with deferred consideration of a further $5 million to be paid at first gas.
Blythe needs no further appraisal and this transaction will immediately double IOGâ€™s independently verified 2P reserves by 17.2 BCF to 34.3 BCF or 6.1 million barrels of oil equivalent (â€œMMBoeâ€).
Upon completion of the acquisition and the approval from the Oil and Gas Authority (â€œOGAâ€), IOG will become Operator and will own 100% of the licence.
As announced on 28 August 2015, the licence was extended to 31 December 2016.
Mark Routh CEO of IOG commented:
We are delighted to announce the signing of the SPA to acquire the remainder of the highly attractive Blythe gas discovery. This transaction not only adds material 2P reserves of 17.2 BCF at a very low cost equivalent to $2.31/Boe but also more importantly gives the Company 100% ownership and full control of the future development of Blythe. We can now move ahead to co-develop Blythe with our other assets in surrounding licences which are 100% owned by IOG in line with our hub strategy. Our next task will be to deliver the Field Development Plan for Blythe to the OGA and work on that has already commenced.
Upon completion of this Blythe acquisition, the Companyâ€™s combined estimate of 2P reserves in Blythe and 2C resources in Skipper will be 40.2 MMBoe. When we add the 2C resource estimates in the Cronx, Elgood and Harvey discoveries, which should be co-developed with Blythe, this 2P plus 2C number rises by 8.6 MMBoe to 48.8 MMBoe.
Crucially, owning 100% of Blythe now allows us to optimise the wider Blythe Hub development concept. IOGâ€™s initial plan is to install a small unmanned platform at Blythe with pre-installed risers to tie-back nearby discoveries making Blythe the centre of a new hub. In addition it allows us to evaluate further the discovered gas in the Carboniferous beneath Blythe and the oil discovery above Blythe in the Zechstein fractured carbonates.
Simon Hume Kendall, CEO of London Group plc commented:
We are delighted to be supporting IOG with its strategy generally, but also specifically with regards to this acquisition. We believe that developing stranded gas fields in the Southern North Sea using innovative thinking and low cost techniques will yield excellent returns to investors. It is also very much in line with the Governmentâ€™s stated policy on Maximising Economic Recovery in the UK and increasing reliance on domestic gas production as coal fired power stations are phased out over the next few years.
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 Companyâ€™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 Personâ€™s Report (â€œCPRâ€) 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 â€“ 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 â€“ 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 39Â° API oil at rates up to 2,000 barrels per day (Source: Composite well log 48/22-1 â€“ October 1966) and well 48/23-3 drilled by Arco in 1987 at flowed 38Â° API oil at a maximum rate of 1,128 barrels of oil a day. (Source: End of well report 48/23-3 â€“ 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 â€“ 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 companyâ€™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 CPRâ€Ž to confirm the resources over this area.
Competent Personâ€™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.
About London Oil and Gas:
Further information can be found on http://www.londongroupplc.com/