Dana Petroleum entering Shell’s North Sea license ahead of drilling ops

London-based and AIM-listed natural resources investing company Deltic Energy is in the process of divesting a partial stake in a Shell-operated license, containing a prospect, which is due to be drilled later this year. This will enable Dana Petroleum, a wholly-owned subsidiary of the Korea National Oil Corporation, to join the hydrocarbon exploration game once drilling activities begin.

Valaris 123 jack-up rig; Source: Valaris

Thanks to a farm-out agreement with Deltic Energy, Dana Petroleum will get a 25% interest in Shell’s license P2437, containing the Selene prospect. In combination with the existing Shell carry, this divestment results in Deltic retaining a 25% non-operated interest in license P2437 and having no exposure to 2024 drilling and testing costs up to a cap above $40 million in the case of a dry hole or $49 million in a success case.

Graham Swindells, Chief Executive of Deltic Energy, commented: “We are delighted to have strengthened the P2437 JV with the addition of an established operator like Dana who have a long history of successful exploration and development in the Southern North Sea. As a result of the transaction Deltic retains a material stake in one of the highest-impact UK exploration wells planned in 2024 while effectively eliminating our estimated cost exposure to the exploration well.”

Furthermore, Deltic will transfer 25% equity in P2437 to Dana in return for $500,000 in cash on completion to back costs incurred by the firm; Dana will carry Deltic for its residual cost exposure to the Selene well, after utilization of the existing carry from the Shell farm-out, to a value of $5 million, and $6 million in a success case; and Dana will pay its 25% share of costs from January 1, 2024.

In addition, any gross well costs incurred over $40 million in a dry hole case or $49 million in a success case and any non-well related costs incurred after the effective date of the transaction will be split along equity lines. The recent estimate of well costs from Shell calculates a total success case cost of the Selene well at $47 million. The completion of the farm-out is conditional on obtaining consent from Shell and standard regulatory consent from the North Sea Transition Authority.

According to Deltic, the Selene prospect is one of the largest unapprised structures in the Leman Sandstone fairway of the Southern Gas Basin. The company estimates Selene to contain gross P50 Prospective Resources of 318 bcf of gas – with a P90 to P10 range of 132 to 581 bcf –  with a geological chance of success of 70%.

The preparatory works for the Selene well are progressing on time and according to plan, with geophysical and geotechnical site surveys completed and critical long lead items including casing already ordered. Deltic claims that procurement processes are also well-advanced. The rig contract for the Valaris 123 jack-up has been secured, meaning that the Selene well remains on track to be drilled in 3Q 2024.

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positive well investment decision for Selene was made in July 2022. Shell’s Pensacola appraisal well and Selene will be drilled as a two-well sequence, with the rig contract and mobilization slated to begin in June-July 2024.