Trapoil, the independent oil and gas exploration, appraisal and production company focused on the UK Continental Shelf (“UKCS”) region of the North Sea, has entered into a Farm-out Agreement relating to its equity interest in Licence P.2032 (Blocks 21/8c, 21/9c, 21/10c, 21/14a and 21/15b) (“Valleys”) with Total E&P UK Limited .
The agreement provides that Total will acquire, from Trapoil, a 30.625 per cent. equity interest in Valleys by funding 43.75 per cent. of Trapoil’s current 50 per cent. interest, held via its wholly owned subsidiary, Trap Oil Limited, covering certain costs up to and including the drilling of an exploration well. The licence obligations include, inter alia, the acquisition and reprocessing of 3-D seismic and, subject to the partners electing to exercise the ‘drill or drop’ option on the licence, the drilling of an exploration well. In the event that Total elects not to exercise the ‘drill or drop’ option within the six month period prior to the P.2032 licence expiry date in January 2015, subject to certain conditions, Total has agreed to compensate Trapoil for the loss of the potential opportunity.
Following completion of the Agreement, the partners in Valleys will be Norwegian Energy Company UK Limited (“Noreco”) with a 50 per cent. equity interest, Total with a 30.625 per cent. equity interest and Trap Oil Limited with a 19.375 per cent. equity interest.
Under the terms of the Agreement, Trapoil has an option (the “Exchange Option”) such that, within two months following signature of the Agreement, Trapoil can instead elect to exchange between 10 per cent. and 35 per cent. of its current interest in Valleys for an equivalent equity interest in Licence P.1816 (Block 29/15a)(“Scaranish”) operated by Total.
The Agreement is subject to approval by the Department of Energy and Climate Change and partners.
Mark Groves Gidney, Chief Executive Officer of Trapoil, said: “I am pleased that we have concluded this deal with Total which provides us with a cost coverage through to a first exploration well on the Valleys licence (where we are already carried as to 6.25 per cent. by Noreco through to first oil production, pursuant to a pre-existing agreement). The farm-out reflects Trapoil’s proven strategy of securing valuable carried interests. On completion, this transaction will reduce the Company’s overall currently committed capital expenditure, across all of its licence interests, to approximately £2m.
The option to be involved in the Scaranish prospect offers Trapoil an exciting opportunity to be part of the drilling of a key well in the area. Information gained from drilling this well is likely to be important in unlocking the potential of our nearby Romeo discovery drilled earlier this year.”
Press Release, December 17, 2013