IOG plans to take North Sea project FID in September

Independent Oil and Gas (IOG) will be raising funds in an £88 million bond issue ahead of the its Southern North Sea (SNS) Core Project farm-out and Phase 1 final investment decision (FID).

Map of IOG’s assets. Source: IOG

IOG’s SNS Core Project consists of six discovered gas fields off the UK coast. The fields will be developed in two phases with Phase 1 consisting of the Southwark, Blythe, and Elgood fields (158 bcf 2P reserves).

Phase 2 consists of the Goddard, Nailsworth, and Elland fields (144 bcf 2P Reserves and 108 bcf 2C resources). In total, the Core Project comprises 410 bcf of 2P+2C reserves and resources.

IOG said on Wednesday that it would propose an £88 million ($106.3M) equivalent bond issue this week which would, with other funding sources, be used up to when Phase 1 reaches positive cash flow.

The objective of the company is to complete both the ongoing farm-out process and the bond issue simultaneously and immediately proceed to FID with its designated farm-out partner in early September.

Namely, IOG entered into binding agreements to farm out 50 percent of its Southern North Sea assets, excluding Harvey, to CalEnergy in late July.

IOG will be paid initial cash consideration of £40 million on completion of the farm-out. CER will also pay for up to £125 million of IOG’s development costs, representing 80 percent of the company’s 50 percent share of Core Project costs, up to caps of £60 million for Phase 1 and £65 million for Phase 2 respectively.

IOG will pay CER a royalty of 20.2 percent of its net revenues from the Phase 1 fields only, up to a cap of £91 million over field life.

Also, IOG will receive an effective royalty interest equating to £0.50/MCF on CER’s 50 percent share of production from certain sections of the Goddard Field after 70 BCF gross has been produced from the field up to a maximum royalty of £9.75 million.

 

Core Project Phase 1 FID

IOG stated that, in line with its target schedule for the project Phase 1 FID, it was in advanced stages of retendering certain key project contracts and preparing to recommend final awards.

Formal awards are expected to be made shortly after FID, which will follow directly from completion of the farm-out and bond.

“Assuming an early September FID date, under the development schedule to be submitted in the finalized Phase 1 field development plan (FDP), first gas is expected to be reached in July 2021 from the Southwark field,” IOG said.

The company also chose to accelerate the Phase 1 drilling schedule in the final FDP submission. The drilling and completion of the Elgood subsea well will be moved to bring Blythe and Elgood production online simultaneously three months after Southwark.

According to the firm, this will entail higher capex spend before Phase 1 first gas, but will increase production over winter 2021 given relatively high forecast initial rates from Blythe and Elgood, improving cash flows due to higher gas prices during winter months in the UK.

Andrew Hockey, CEO of IOG, said: “In conjunction with the announced farm-out, this bond issue would see IOG fully funded for Phase 1 of our Core Project without any additional equity requirement. Phase 2 will, in turn, be funded by Phase 1 cash flows and the Phase 2 development carry.

“This promises to be a very significant milestone for IOG, with the potential for a positive Harvey appraisal well result to follow. We look forward to a strong and successful alliance with our farm-out partner CalEnergy Resources, which we believe will deliver excellent value to our shareholders.”


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