UK-based Independent Oil and Gas (IOG) has said that its Harvey license in the UK sector of the North Sea could be worth £79 million ($103.7M), validating the company’s recent commitment to drill an appraisal well within two years.
Namely, the recent Competent Persons Report (CPR) by ERC Equipoise Limited (ERCE) for IOG’s 100%-owned Harvey license has been updated to include a fully risked, expected monetary value (EMV), IOG informed on Friday.
EMV is an economic metric used to evaluate investment opportunities and ensure that project economics justify both initial and overall expenditure.
According to the report, the EMV for the Harvey license is £79 million. Best estimate gross unrisked post-tax NPV10 is £159 million for the overall Harvey structure and £126 million for the license.
The EMV has been calculated on the mean of the Low/Best/High estimates of the prospective resources following the derivation of Harvey production profiles. Low/Best/High estimates of unrisked prospective gas resources are 45/114/286 BCF on the Harvey structure, 36/90/226 BCF on license.
IOG recently made a firm commitment to drill the Harvey well within two years, subject to acceptance and a license extension by the OGA. Well scheduling is currently under consideration.
The CPR author estimates dry hole costs of the planned Harvey well at £8.5 million, versus a license EMV of £79 million. IOG therefore sees a compelling case for drilling Harvey and is actively considering the timing, the company explained.
In the CPR success case, the EMV assumes an appraisal well in 1H 2018, Final Investment Decision in 1H 2019 and first gas in 1Q 2021. The EMV is based on equivalent economic assumptions to the recent Blythe hub and Vulcan Satellites hub CPR.
The report also estimated that approximately 21% of the Harvey structure is not on IOG’s license. Therefore, plans are underway to license all the Harvey resources, IOG said.
Mark Routh, CEO and Interim Chairman of IOG commented: “We are delighted with the result of the CPR and the EMV of the Harvey structure on our license being determined at £79 million. This clearly validates our commitment to drill the well on what has the potential to become our largest gas asset. The value of Harvey is strengthened by the synergies with our Southern North Sea gas development hubs, notably shared use of a fully owned Thames Pipeline gas export route.
“Alongside these two hubs, the Harvey appraisal opportunity therefore represents very material upside to IOG even on the mid case volumes. We are therefore actively considering how soon we can drill the well.”