Independent Oil and Gas plc: SNS Project and Harvey Update
Thursday 29 November 2018
Independent Oil and Gas plc, 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”).
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.
Harvey
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 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.