27 January 2020
Jersey Oil and Gas plc
("Jersey Oil & Gas", "JOG" or the "Company")
Acquisition of Equinor UK Limited's interest in Licence P2170 and Corporate Update
Jersey Oil & Gas plc (AIM:JOG), an independent upstream oil and gas company focused on the UK Continental Shelf ("UKCS") region of the North Sea, is pleased to announce that it has entered into a conditional Sale and Purchase Agreement ("SPA") to acquire operatorship of, and an additional 70% working interest in, Licence P2170 (Blocks 20/5b and 21/1d) ("Licence P2170") from Equinor UK Limited ("Equinor") (the "Acquisition"). The consideration for the Acquisition consists of two milestone payments and a royalty based on potential future oil volumes produced from the Verbier Upper Jurassic (J62-J64) reservoir oil discovery (the "Verbier Field"), as further detailed below.
Acquisition Highlights:
· Acquisition of an additional 70% interest in, and operatorship of, Licence P2170 including the Verbier oil discovery
- Contingent payments of:
§ US$3 million upon sanctioning by the UK's Oil & Gas Authority ("OGA") of a Field Development Plan ("FDP") in respect of the Verbier Field; and
§ US$5 million upon first oil from the Verbier Field
- Certain royalty payments on the first 35 million barrels of oil produced from the Verbier Field calculated on the basis of a 70% working interest for on-block volumes
· Increases total 2C discovered resources across the Greater Buchan Area ("GBA") by 17.5 mmboe to 142 mmboe net to JOG
- Increases ownership of multiple high-impact exploration opportunities within Licence P2170
- Acquisition simplifies licence ownership structure ahead of GBA farm-out process
· Adds an estimated US$506 million of post-tax cashflow, taking the GBA development estimate of post-tax cashflow to US$3.17 billion net to JOG and increases the estimated net NPV of the GBA development project to US$1.15 billion
Corporate Update:
· Highly experienced Project Team hires made to advance the planned GBA development
- Concept Select underway
§ Detailed subsurface and engineering workstreams progressing to deliver a development concept
§ Key project gate of concept selection due Q3 2020
· Year-end 2019 cash position of approximately £12m
- Fully funded through Concept Select and into Q2 2021
· Planned launch of GBA farm-out process post Concept Select
- Including the Buchan oil field, the Verbier, J2 and Glenn oil discoveries and a material portfolio of nine exploration prospects
· Integration of 2018 3D seismic data into regional mapping significantly progressed
- Materially improved imaging of subsurface across the GBA
- Revised net prospective resources increased to in excess of 230 mmboe including new prospects identified within Licence P2170
· In line with our strategy to provide cleaner, safer energy JOG is progressing a number of initiatives
- JOG is now a proud signatory of the United Nations Global Compact, the world's largest corporate sustainability initiative
- Progressing studies for platform electrification and for the GBA development potentially to be a regional power hub
Andrew Benitz, CEO of JOG, commented:
"Acquiring further discovered oil volumes enhances JOG's project value considerably and at the same time strengthens our plan to bring Verbier into future production through the GBA development, which is a truly exciting opportunity to showcase what is possible with new developments in the UKCS. We are working closely with the OGA and leading contractors to introduce technologies to enable the GBA development to be at the forefront of the energy transition as well as being a new area hub that encourages regional industry collaboration to maximise the economic recovery of resources in this prolific part of the Central North Sea."
"We are now well placed to progress our development plans through Concept Select, before launching a farm-out process to attract industry partners to join us in unlocking the significant value that exists within the Greater Buchan Area."
Enquiries:
Jersey Oil & Gas plc |
Andrew Benitz, CEO |
C/o Camarco: Tel: 020 3757 4983 |
Strand Hanson Limited |
James Harris Matthew Chandler James Bellman |
Tel: 020 7409 3494 |
Arden Partners plc |
Paul Shackleton Benjamin Cryer |
Tel: 020 7614 5900 |
BMO Capital Markets Limited |
Jeremy Low Tom Rider |
Tel: 020 7236 1010 |
Camarco |
Billy Clegg James Crothers |
Tel: 020 3757 4983 |
ADDITIONAL INFORMATION
Terms of the Acquisition
The consideration for the Acquisition consists of two milestone payments and a royalty based on future volumes of oil produced from the Verbier Field, as outlined below:
· Milestone Payments:
- US$3 million upon the UK's Oil & Gas Authority sanctioning a Field Development Plan ("FDP") for the Verbier Field
- US$5 million upon first oil from the Verbier Field
· Royalty Terms:
- A gross revenue royalty on the oil production generated from the Verbier Field calculated on a 70% working interest for on-block volumes at the following levels:
§ 5% for the first 12 million barrels of oil produced and sold
§ 4% for the subsequent 13 million barrels of oil produced and sold
§ 2% for the next 10 million barrels of oil produced and sold
The Acquisition is conditional on OGA approval, anticipated in Q1 2020.
Background to the Acquisition and GBA Development Plans
JOG holds a significant acreage position in the GBA within the Central North Sea. The Company's interests in the GBA include operatorship and 100% working interests in blocks that contain the Buchan oil field and the J2 and Glenn oil discoveries, as well as Licence P2170 in which JOG holds an existing 18% working interest, which contains the Verbier Field discovery, assessed at 25 million barrels of contingent recoverable oil in addition to multiple exploration prospects. On completion of the Acquisition, JOG will assume operatorship and secure a further 70% interest in Licence P2170 from Equinor taking its total working interest in the licence to 88%.
For JOG, the Acquisition will add an estimated 17.5 million barrels of discovered oil volumes to its existing resource base within the GBA. This material addition will result in JOG owning in excess of 140 million barrels of contingent recoverable oil, being 98% of all discovered oil within the GBA. The Verbier Field is located 6km to the North West of Buchan and, following completion of the Acquisition, JOG will own and operate all of the three initial core components of its planned Buchan hub development, being the Buchan oil field together with the J2 and Verbier oil discoveries.
JOG has worked collaboratively with Equinor since the latter farmed into Licence P2170 in 2016, which led to the Verbier oil discovery being drilled in October 2017. In the Competent Person's Report ("CPR") completed by Rockflow Resources Limited for JOG in October 2019, the gross post-tax cashflow associated with a Verbier Field tie back to Buchan was assessed to be US$723 million. This Acquisition consequently adds an estimated US$506 million of post tax cashflow to JOG and the estimated NPV of the GBA development project, net to JOG increases to US$1.15 billion with the estimated post tax cash flow increasing to US$3.17 billion.
It is JOG's vision to provide cleaner, safer energy in the most responsible way. JOG is now a proud signatory of the United Nations Global Compact, the world's largest corporate sustainability initiative. As a fundamental deliverable for Concept Select for the GBA development project, JOG contracted KBR Ltd, a leading engineering consultancy, to evaluate power solutions for the GBA. The study is assessing the best location and mode for the generation of power for the Buchan hub and the potential distribution of electric power, from Buchan, as a regional power hub. Phase 1 of this study evaluated and confirmed the technical feasibility of platform electrification. JOG will seek to introduce technologies to enable the planned GBA development to be at the forefront of the energy transition.
Subject to receiving approval from the OGA for the Acquisition, JOG will initiate a work programme to advance the Verbier Field discovery to an FDP decision with the primary objective being to develop it as part of JOG's overall GBA development plans. In parallel with the Acquisition and as part of its wider funding strategy, the Board considered further strengthening the Company's balance sheet. In light of the anticipated level of industry appetite for a potential farm-out and the fact that the Acquisition has nominal up-front consideration, the Board has concluded that now is not the optimum time to do so.
In light of the size and materiality of the planned GBA new area hub development project, the Company will seek to actively collaborate with industry partners, both regionally, to attract more discovered resources to the hub, and commercially, through the introduction of one or more potential new project partner(s) via value-enhancing development carry farm-ins.
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014.
