Ithaca Energy Inc. (“Ithaca” or the “Company”) announces the execution of a farm-out transaction with Shell UK Limited (“Shell”) in respect of the UK exploration assets acquired pursuant to the acquisition of Valiant Petroleum plc (“Valiant”), completed on 19 April 2013 (the “Acquisition”).
The Company has now substantially reduced its exposure to all remaining firm UK exploration well expenditure commitments transferred as part of the Acquisition. The Company also confirms the commencement of the Norvarg appraisal well, operated by TOTAL E&P Norge, in PL535 located in the Barents Sea.
Summary
Since the announcement of the Acquisition, the Company has reduced its net exploration expenditure commitments by over $45 million. This leaves approximately $30 million of remaining committed UK exploration expenditure, mainly consisting of the Handcross well.
The costs of the committed exploration and appraisal wells transferred to Ithaca as a result of the Acquisition were accounted for in the price paid for Valiant, with no exploration success assumed from those wells.
The Company will continue to pursue farm-outs and divestments of the existing UK exploration license interests to further minimise exploration expenditure, whilst continuing to be exposed to the potential upside associated with several high impact wells.
Beverley Farm-Out
Ithaca has entered into an agreement with Shell to farm-out half of the Company’s 40% non-operated interest in UK license P1792, covering blocks 21/30f and 22/26c in the Central North Sea. The farm-out is in exchange for a partial carry of Ithaca’s 20% share of the costs of a well on the Beverley prospect, with the license terms requiring the well to be drilled by early 2015. The license contains the Beverley prospect and the Belinda and Evelyn discoveries. The Beverley prospect lies on the flank of an undrilled salt diapir, analogous with other structures in the area, and is located close to the Shell-operated Gannet fields.
The agreement with Shell is subject to normal regulatory consents.
Norwegian Appraisal Well Spuds
The Company also confirms an appraisal well (7225/3-2) on the Norvarg discovery, located in PL535 in the Norwegian sector of the Barents Sea, has commenced. The well, operated by TOTAL E&P Norge, is being drilled to prove up the volume potential in the north-eastern segment of the Norvarg closure. Drilling operations (not including testing) are anticipated to last for at least 70 days.
The Norwegian exploration and appraisal portfolio transferred from Valiant benefits from the 78% tax refund system that the Norwegian government has in place, thus enabling the cost exposure to exploration risk to be substantially mitigated.
Press Release, May 13, 2013