WTI (Dec) $72.90 -$3.76, Brent (Jan) $77.42 -$3.76, Diff -$4.52 u/c.
USNG (Dec) $3.06 -13c, UKNG (Dec) 116.25p -2.75p, TTF (Dec) €46.3 -€0.265.
Oil has bounced today after a bad day yesterday, but nothing that I hadn’t already mentioned. Worries about inventories, economic data, refiners run rates and even that the KSA might stop their voluntary cutbacks…
Jersey Oil & Gas
Jersey Oil & Gas has announced that the owners of the Buchan field licences, JOG and NEO Energy, have executed agreements to acquire the “Western Isles” floating production, storage and offloading vessel. The FPSO will be used as the processing facility for the planned redevelopment of the Buchan field.
§ Western Isles FPSO, which has been operational since 2017, acquired for planned redevelopment of the Buchan field – high-quality vessel that is currently operating in the UK North Sea
§ JOG to receive a $9.4 million cash payment from NEO pursuant to the terms of the farm-out transaction announced on 6 April 2023 – the milestone payment in respect of finalisation of the Greater Buchan Area development solution
§ Work progressing at pace on Front-End Engineering and Design activities in order to facilitate Field Development Plan approval in 2024
Andrew Benitz, CEO of Jersey Oil & Gas, commented:
“Finalising the terms for the joint venture partners to acquire the FPSO, which is less than eight years old and requires relatively modest adaptation for our planned GBA redevelopment, is a tremendous milestone for the project.
“Re-using existing high-quality infrastructure and modifying it to be electrification-ready is exactly in line with our stated low carbon strategy and the net zero related objectives of the industry. The vessel is the cornerstone to completing the engineering work required to facilitate FDP approval for the Buchan redevelopment next year.”
This is another piece of good news from JOG who are clearly working extremely hard in order to deliver the GBA in a remarkably short time frame. Firstly it is a really good, young piece of kit, I think that it is a really good boat and has only been operating since 2017 which makes it a perfect fit for Buchan and I’ve seen a few FPSO’s…
Costs will be within the capex as defined in the FEED process which is making ‘good progress’ as is the FDP where the draft and environmental data is expected to be submitted later this year with approval at present hoped for in H2 2024. And of course JOG benefits from triggering of payments following the NEO farm-out, today’s transaction results in a $9.4m credit and another $12.5m on FDP approval.
The company are also in negotiations with regard to further farm-out of the GBA and today’s announcement will surely have accelerated that process, discussions are continuing but there is no formal guidance as to how long it will take. Overall this is a superb result, it gives tangibility to the project both from an investor and an industry perspective and firms up the overall time scale, apart from anything else it proves that electrification and movement towards a low carbon strategy can and will happen and thus this is a leading light project for the whole industry.
I have always said that the value of JOG is significantly above current levels and as progress like this keeps happening that value realisation becomes more visible. The GBA project is of such scale that once it is fully underway my Target Price for JOG of £10 per share could easily be an underestimate…
GBA Development Solution
In July 2023, it was announced that the preferred solution for the redevelopment of the Greater Buchan Area (“GBA”) was via the redeployment of an FPSO. This solution benefits from being both the lowest cost development option and the one that results in the lowest full-cycle carbon footprint of all the potential options evaluated. This conclusion was driven by the ability to re-use existing infrastructure that can be located directly at the Buchan field and, with limited modifications, make the FPSO “electrification-ready” upon its redeployment. This will enable the vessel to have the potential to be connected to one of the anticipated third-party floating wind power developments that are intended to be located in close proximity to the GBA following the recent Innovation and Targeted Oil & Gas (“INTOG”) licence awards made by Crown Estate Scotland.
Importantly, the preferred development solution aligns with the North Sea Transition Authority’s (“NSTA”) obligations to maximise the economic recovery of reserves and assist with achieving the UK government’s net zero target. Consequently, the NSTA issued a letter confirming it had no objections to the Concept Select Report submitted in support of the Buchan re-development programme utilising the redeployment of the Western Isles FPSO.
The Western Isles FPSO that is being acquired by NEO on behalf of the Buchan field partners is currently operating in the UK North Sea and is owned by Dana Petroleum (E&P) Limited (76.9188%), as operator, and NEO (23.0812%). The FPSO is a high-quality vessel that has been in operation since early 2017 and is scheduled to come off-station as part of the planned cessation of production of the Western Isles fields around the second half of 2024. The operational capabilities of the vessel, along with its relatively limited service-life to date, make the FPSO an excellent fit for use on the planned redevelopment of the Buchan field.
Following handover of the vessel to NEO, as the Buchan field operator, it is planned for a relatively modest work programme to be undertaken in order to prepare the FPSO for redeployment on Buchan. The works will essentially involve the installation of water injection booster pumps, produced water injection modifications and preparation of the vessel for future electrification. These modifications are expected to be completed by early 2026, such that the vessel can be deployed to the field location and hooked up ready for the anticipated start-up of production in late 2026.
Agreements have been executed to acquire the 76.9188% interest in the vessel not currently owned by NEO. The main terms of the acquisition commit the Buchan field partners to acquire the vessel upon the approval of the Buchan FDP. Prior to this milestone being achieved, the Buchan partners are responsible for the costs of storing the vessel from the date of handover, which is anticipated to be in the second half of 2024. The FPSO acquisition and associated costs forms part of the previously announced farm-out carry arrangements agreed between NEO and JOG.
NEO Farm-out Transaction
As a result of executing the FPSO acquisition agreement, the Company is now due to receive a further cash payment from NEO of $9.4 million associated with finalisation of the GBA development solution.
Further to the farm-out transaction completed with NEO earlier this year, the Company has a 50% working interest in the GBA licences. Through the expenditure carry arrangements agreed with NEO, the Company is being fully carried for its 50% share of the estimated $25 million cost to take the Buchan field through to FDP approval. The Company will also be carried for 12.5% of the Buchan field re-development costs (equivalent to a 1.25 carry ratio).
In line with JOG’s stated strategy to farm-out a further interest in the GBA licences, it is targeted for the Company to ultimately retain a fully carried 20-25% interest in the Buchan re-development.
Buchan Development Activities
Work is currently progressing well on the FEED studies that require completion ahead of FDP approval and the development moving into the execution phase of activities. This work primarily involves specification of the planned drilling programme, the design of the subsea infrastructure connecting the wells to the FPSO, and finalisation of the modifications programme that is required to prepare the FPSO for redeployment. Additionally, preparation of the Environmental Statement for the Buchan redevelopment is on-going and it is expected that this will be submitted to the regulator prior to the end of the year, along with the draft FDP.
The first phase of the planned GBA work programme involves re-development of the Buchan field, with the start-up of production targeted for late 2026. Subsequent phases are expected to involve the tie-back of the Verbier and J2 discoveries that lie within the GBA licence area and the potential for regional third-party discoveries to be tied back to the FPSO.
An updated presentation with further details on the Buchan redevelopment project has been uploaded to the Company’s website.
Reabold has announced that it has agreed to increase its interest in LNEnergy Limited by 0.8% through a partial exercise of the Second Option, whereby the Company has subscribed for 11 new ordinary shares in LNEnergy’s share capital for a cash consideration of £150,000. The Partial Exercise has been executed pursuant to an amendment of the Second Option agreement between LNEnergy and the Company, which will be funded by Reabold from its existing cash resources. This will take Reabold’s shareholding in LNEnergy to approximately 18.4% of LNEnergy’s enlarged share capital.
The Company will retain the right, at its sole discretion, to invest a further £1,650,000 under the Second Option, as announced on 9 May 2023 and 12 September 2023, in share capital of LNEnergy which, if exercised by Reabold, would result in the Company holding a 26.1% interest in the enlarged share capital of LNEnergy.
LNEnergy’s primary asset is an exclusive option over a 90% interest in the Colle Santo gas field. The Colle Santo gas field is a highly material gas resource with an estimated 65Bcf of 2P reserves, with two production wells already drilled and flow-tested, making the field development ready. LNEnergy believes that the field has the potential to generate an estimated €11-12m of gross post-tax free cash flow per annum.
Reabold has published a competent person’s report in relation to Colle Santo, which can be found on its website at the following hyperlink: www.reabold.com/investors/reports-presentations
The cash proceeds received by LNEnergy from the Partial Exercise will be used to accelerate the work programme at the Colle Santo gas project. Reabold’s additional investment through the Partial Exercise will increase its exposure to this material gas resource, as well as progressing the work programme associated with the early production programme.
Sachin Oza, Co-CEO of Reabold, commented:
“We are delighted once again to be able to further increase our interest in LNEnergy, and therefore our exposure to the Colle Santo gas project. Colle Santo holds significant gas reserves and can be a valuable source of domestic energy supply for Italy. We are pleased with the progress that has been made so far, including the recent Letter of Intent signed between LNEnergy and the Italian EPC company to provide vendor financing for the project, thereby substantially reducing the upfront capex for the development. We look forward to updating our shareholders as the project progresses.”
This modest increase in RBD’s direct holding in LNEnergy is good news as it shows that the project is very much underway following positive permitting news and is moving into the operational phase. In addition and perhaps more importantly, the partnership between LNEnergy and an Italian EPC company has been cemented by a Letter of Intent signed between LNEnergy and the Italian EPC company which will provide vendor financing for the project.
1 RPS estimate, September 2022
Unless otherwise defined, capitalised terms used in this announcement have the same meanings as ascribed to them in the Company’s announcement of 9 May 2023 entitled “Investment in LNEnergy”.
After 40 years in the planning and a star studded opening night, the new Las Vegas F1 Grand Prix lasted just 8 minutes after a manhole cover lifted underneath Carlos Sainz’s car and ripped out the bottom. But given the noise you would have thought a real tragedy had happened, it’s only a manhole cover and it’s happened before…
It’s an international break for the Euro qualifiers and Scotland who are already through drew 2-2 in Georgia last night. Tonight England host Malta and Northern Ireland go to Finland, tomorrow Armenia host Wales and on Sunday Scotland entertain Norway.
The Toffees have been docked 10 points by the Premier League for breaching profit and sustainability rules which puts them at the bottom of the table. There is much more to come from this story you mark my words.
And the Cheltenham three day weekend starts today which is a brilliant way to spend hours watching the racing, I wish…