IOG takes FID for Southern North Sea project

Independent Oil and Gas (IOG) has now completed its farm-out transaction with CalEnergy Resources (CER) and taken a Final Investment Decision (FID) on Phase 1 of its Core Project located in the Southern North Sea. The project is expected to deliver first gas in July 2021.

Map of IOG’s assets. Source: IOG

IOG announced the farmout deal with CalEnergy for its Southern North Sea assets, except for the Harvey licenses, on July 26, 2019, and the completion on Monday, October 28.

The Core Project comprises 410 BCF of 2P+2C reserves and resources across six discovered UK Southern North Sea (SNS) gas fields.

Andrew Hockey, IOG CEO, commented: “I am delighted to announce that the farm-out agreement with our new partner CalEnergy Resources Limited, announced three months ago, has now closed. Alongside our successful €100m bond raise, this confirms us as fully funded for our Core Project, which is projected to deliver over £0.5bn in pre-tax cash flow net to IOG. IOG and CER, as joint venture partners, have consequently taken Phase 1 FID.”

He added: “This is the culmination of a transformative year for IOG which begins a new phase in our growth. Our focus, as ever, is on delivering shareholder value. We have established a solid platform from which to generate cash flow from our existing portfolio through effective project execution. Furthermore, we have created the opportunity to generate additional value upside by bringing incremental volumes through our infrastructure. Our Southern North Sea gas business development strategy has clear competitive advantages: we have a very strong and well-aligned partner, we have our key export pipeline in place, we are an approved license Operator, and we are fully funded to install our hub infrastructure.”

 

Taking FID 

 

IOG and CER have now taken Phase 1 FID and will shortly be submitting confirmation of full funding to the OGA in support of the Phase 1 FDP approval.

According to IOG, CER has paid the initial cash consideration of £40m to IOG under the terms of the farm-out. CER will also pay for up to £125m of IOG’s development costs, usable against 80 per cent of IOG’s 50 percent share of Core Project costs, up to caps of £60m for Phase 1 and £65m for Phase 2 respectively.

IOG will pay CER a royalty of 20.2 percent of its net revenues from the Phase 1 fields only (i.e. 10.1 percent of gross Phase 1 revenues, net of National Transmission System entry charges and applicable marketing fees), up to a cap of £91m over field life.

In addition, 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 £9.75m. IOG has retained operatorship of the Core Project.

CER has the option to acquire 50 percent of the Harvey licenses within three months of completion of the Harvey appraisal well 48/24b-6. IOG continues to progress analysis of the well results in order to obtain updated resource estimates and enable CER to make an informed decision within the agreed timeframe.

IOG and CER have also signed an AMI to allow for future co-operation in further SNS business development activities on a 50:50 basis, with a view to leveraging the competitive advantage provided by the Core Project’s infrastructure. The partners are working together with the intention to submit a joint application for a number of blocks in the current UK Offshore 32nd Round.

 

LOG debt facilities

 

Alongside the farm-out completion process, IOG has also completed the LOG debt facilities.

First, all £17.1m of non-convertible debt facilities and associated accrued interest have been repaid in full to LOG at completion.

Second, LOG has converted in full the remaining £10.9m of its 2016 convertible loan at its conversion price of 8p into 135,464,155 new ordinary shares. As such, no amount remains outstanding under this loan.

The company has applied to the London Stock Exchange for admission of 135,464,155 new ordinary shares to trading on AIM. Admission is expected to occur on October 29, 2019. Following admission, there will be 476,796,905 ordinary shares in issue with one voting right per ordinary share.

Upon admission, LOG’s total shareholding will be 143,011,359 ordinary shares representing approximately 29.99% of the company’s issued share capital, which will be subject to orderly market restrictions for a period of 12 months.

Third, the full £11.6m of principal and accrued interest under LOG’s 2018 19p convertible loan has been restructured into the loan note instrument. This consists of long-term, unsecured, non-interest bearing loan notes convertible at 19p into 60,872,631 ordinary shares. The loan note instrument has a maturity date of September 23, 2024.

This repayment, restructuring and conversion of LOG debt has removed all previous security arrangements over IOG assets, in order for the €100m bond to hold effective security over IOG’s post-Farm-out portfolio. LOG’s existing warrants also remain in place, with no change to the current position.


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