29 Nov 2018
SNS Project and Harvey UpdateIndependent Oil and Gas plc ("IOG" or the "Company"), a development and production company focused on becoming a substantial UK gas producer, provides an update on the progress of its development and appraisal projects and the timing of Final Investment Decision ("FID") on Phase 1 of its core development project (the "Core Project") in the UK Southern North Sea ("SNS").
- The Core Project comprises the two-phase development of its 302 BCF 2P gas reserves at the Blythe Hub and the Vulcan Satellites Hub
- The Core Project delivers a 38% IRR with a post-tax NPV10 of £285m
- The Core Project is technically ready to enter the execution phase - all engineering work required for Phase 1 FID is complete, the Thames Pipeline capacity has been demonstrated at 550 MMCF/d and commercial terms are substantially agreed with all major contractors
- The development expenditure for Phase 1 of the Core Project is expected to be funded through a senior secured bond issuance and the issue of new equity in IOG. The Company has engaged advisors to secure the required finance and the Company believes the investment case is compelling
- Current oil price volatility and capital market conditions are not conducive to deliver this financing plan before year end. However, the Company is fully ready to progress its funding plans early in 2019 as soon as markets stabilise with the objective of securing financing and FID in Q1 2019
- The Company is technically ready to achieve First Gas within 20 months of FID
- Detailed progress continues on preparations for the Harvey appraisal well with a letter of intent ("LOI") signed for the Ensco 72 rig, which is expected on location in Q1 2019
- Management estimates the Harvey well to have a 63% Geological Chance of Success, with low/mid/high cases of 85/129/199 BCF prospective resources
- To fund ongoing Core Project-related costs until FID, the Company has agreed with its major financial backer London Oil & Gas Limited ("LOG") to use part of the Harvey Loan, announced in September 2018, for corporate and development purposes
- LOG has demonstrated continued support and has also agreed to discuss the refinancing of the Harvey Loan to ensure the Company remains funded for the Harvey Well. The Company will update investors on any further amendment or refinancing of the facility agreement as soon as discussions are complete
Andrew Hockey, CEO of IOG commented:
We have made great strides in the past three months as a Company: conclusively proving the integrity and capacity of our fully-owned Thames Pipeline as the designated export route for our entire gas portfolio and strategic enabler for business development, completing on the award of our 30th Round licences, agreeing heads of terms with all key project contractors, and structuring the intended development financing to be able to achieve FID on our high-value gas portfolio.
The Company considers that the current equity and debt market conditions are not sufficiently stable for IOG to proceed to complete the funding process before the year end. Having considered carefully and taken due advice, the Board believes that it is in the best interests of shareholders to do so as early as possible in the New Year. In our view, this short delay to the existing timetable is likely to enable an optimal funding outcome and maximise the value for shareholders.
We have the right assets, team and strategy to become a substantial mid-cap gas producer and deliver outstanding returns to shareholders from the scale and synergies of our efficient hub strategy, once Phase 1 is funded.
The Harvey appraisal well is a low-risk, high-impact near-term catalyst for shareholders and we look forward to providing further updates nearer to the spud date.
SNS project update
The Core Project plan comprises a two-phase development of its 302 BCF of 2P gas reserves at the Blythe Hub and the Vulcan Satellites Hub. This delivers a 38% IRR and has a £285m post-tax NPV10.
The Core Project is technically ready to enter the execution phase with all engineering work required for FID complete and commercial terms are substantially agreed with all major contractors.
Alongside this, documentation is expected to be signed imminently for purchase of the onshore Thames Reception Facility, where IOG's fully-proven, 550 MMCF/d capacity Thames Pipeline lands at Bacton Gas Terminal on the North Norfolk coast. Our ownership of the pipeline will provide a low-cost, safe and efficient export route for IOG's assets straight to the UK market with future commercialisation optionality.
The financing plan for the Core Project is expected to incorporate a senior secured bond issuance and the issue of new equity in IOG. Work with advisors on these transactions is substantially advanced and the Company believes the investment case is compelling. Current oil price volatility and capital market conditions are not conducive to deliver this financing plan before year end. However, the Company is fully ready to progress its funding plans as soon as markets stabilise. Therefore FID will not be taken in 2018, but the objective will be to secure the financing to deliver this key milestone in Q1 2019. The Company is technically ready to achieve First Gas within 20 months of FID, i.e. during the second half of 2020 based on the updated FID target. Despite market volatility, the SNS commercial environment remains favourable to operators and the Company is satisfied with its agreed contractual arrangements.
In October the Company signed the Harvey East and Goddard 30th Round Licences, giving it 100% interest in both assets. The Company's full portfolio, including both the Core Project and Harvey and Goddard, potentially delivers a 76% IRR and a £739m post-tax NPV10.
The Company is continuing with detailed preparations for the Harvey appraisal well. Management estimates the Harvey well to have a 63% Geological Chance of Success, with a low/mid/high of 85/129/199 BCF prospective resources.
A LOI has been signed for the Ensco 72 rig to drill the well. The rig is contracted to another UKCS operator to drill two exploration wells before moving on to Harvey. The rig is currently expected on location in Q1 2019 although weather delays can occur at this time of year. In addition a LOI has been signed with Halliburton to provide offshore services for the well. Fraser Well Management has been appointed as Well Operator, subject to regulatory approval, and Fugro is currently completing the necessary well seabed location survey.
To fund ongoing Core Project-related costs prior to FID, the Company has agreed with its major financial backer London Oil & Gas Limited ("LOG") to use part of the Harvey Loan, announced in September 2018, for corporate and development purposes. LOG has demonstrated continued support and has also agreed to discuss the refinancing of the Harvey Loan to ensure the Company remains funded for the Harvey Well. The Company will update investors on any further amendment or refinancing of the facility agreement as soon as discussions are complete.
Certain information communicated in this announcement was, prior to its publication, inside information for the purposes of Article 7 of Regulation 596/2014.
|Independent Oil and Gas plc
Andrew Hockey (CEO)
James Chance (CFO)
|+44 (0) 20 3879 0510|
Christopher Raggett, Anthony Adams
|+44 (0) 20 7220 0500|
|Peel Hunt LLP
Richard Crichton, David McKeown
|+44 (0) 20 7418 8900|
Georgia Edmonds, Tom Huddart, Monique Perks
|+44 (0) 20 3757 4995|
About Independent Oil and Gas:
IOG owns substantial low risk, high value gas reserves in the UK Southern North Sea. The Company is targeting a 2P peak production rate of 114 MMCF/d (c. 20,000 Boe/d) from its substantial Core Project (2P gas Reserves of 302 BCF) via an efficient hub strategy. In addition to the independently verified 2P reserves, IOG now has independently verified 2C contingent gas resources of 108 BCF in Goddard and best estimate unrisked prospective gas resources of 202 BCF in Harvey and Goddard. Alongside this IOG continues to pursue value accretive acquisitions to generate significant shareholder returns. All IOG's licences and the Thames Pipeline are owned 100% and operated by IOG.