NEO Energy farming into UK player’s North Sea oil project

UK-headquartered Jersey Oil & Gas (JOG) has agreed to farm out a partial stake in an asset on the UK Continental Shelf (UKCS) to the HitecVision-backed NEO Energy.

Back in March 2021, Jersey revealed its preferred development concept for the Greater Buchan Area development with Phase 1 being a single integrated wellhead, production, utilities, and quarters (WPUQ) platform located at the Buchan field. At the time, the firm disclosed that it would launch a farm-out process ahead of the final investment decision expected in 2022. A few days later, Jersey confirmed that the planned farm-out process was formally launched. The firm was in the process of finalising the farm-out deal at the end of March 2023.

While announcing the farm-out of a 50 per cent interest in the Greater Buchan Area (GBA) licences with NEO Energy on Thursday, 6 April 2023, Jersey Oil & Gas explained that the deal would deliver material value, including cash payments, funding through to field development plan (FDP) approval and a minimum 12.5 per cent development expenditure carry to first oil for the 50 per cent interest retained by the company.

According to the UK firm, this farm-out will unlock the route to finalising the GBA development solution and monetisation of resources in excess of 100 million barrels of oil equivalent while providing a clear path to development sanction and first oil, with the opportunity to create further value through additional farm-out transactions. The two players are committed to evaluating options to give the GBA development flagship status for its low-carbon credentials through the use of existing infrastructure and potential low-carbon electrification options.

Andrew Benitz, CEO of Jersey Oil & Gas, commented: “We are delighted to announce this transaction with NEO Energy, a well-funded industry heavyweight and the fifth largest producer in the UKCS. The farm-out marks a major value creation moment for JOG, a significant de-risking of the GBA development programme, from both an operational and funding perspective, and provides the springboard from which to grow the long-term value of the business.”

In exchange for entering into definitive agreements to divest a 50 per cent working interest and operatorship in the GBA licences to NEO, Jersey will receive a 12.5 per cent carry of the Buchan field development costs included in the FDP approved by the North Sea Transition Authority (NSTA), equivalent to a 1.25 carry ratio; along with a carry for Jersey’s 50 per cent share of the estimated $25 million cost to take the Buchan field through to FDP approval.

In addition, Jersey will get a $2 million cash payment on completion of the transaction; a $9.4 million cash payment upon finalisation of the GBA development solution; a $12.5 million cash payment on approval of the Buchan FDP by the NSTA; and a $5 million cash payment on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries. Furthermore, the primary conditions precedent to completing the transaction are receipt of the approvals from the NSTA for the transaction and the associated extension of Jersey’s two GBA licences. 

Upon completion, operatorship of the licences will transfer to NEO Energy. Therefore, Jersey will be working in partnership with NEO Energy to select the preferred development solution, having confirmed a short list of attractive options for the GBA, which utilise existing North Sea infrastructure. The UK player intends to farm out additional equity in the GBA licences to ultimately retain a 20-25 per cent carried interest in the development following FDP approval.

In line with this, NEO Energy has an option to increase its 50 per cent interest in the Buchan licence by up to an additional 37.5 per cent in exchange for a further cash payment should any of Jersey’s equity share in the development remain unfunded ahead of FDP submission, with such payment being the pro-rated balance of future cash payments due to the firm post completion in relation to the GBA development solution and Buchan FDP.

Based on Jersey’s plans disclosed in 2021, Phase 1 facilities are expected to be designed to accommodate Phase 2 and Phase 3 of the development. While Phase 2 is expected to develop the J2 West, J2 East, and Verbier East discoveries via a subsea tie-back to the GBA platform, Phase 3 is planned to develop the Verbier West discovery via connection to the Phase 2 subsea infrastructure. The field life is anticipated to be 31 years. The facilities will be powered from shore.

“The unstable fiscal conditions resulting from the introduction and revision of the Energy Profits Levy during 2022 have been challenging. As the joint venture moves forward towards first oil, which is targeted for 2026, it will be mindful of the future fiscal attractiveness of the UK,” explained Jersey.

Moreover, the UK firm highlights that it remains well funded for its ongoing and planned work programmes, with a cash balance of approximately £6.5 million as of 31 December 2022. The company intends to use the cash payments anticipated to be received from NEO, following the completion of the transaction, to pursue its growth strategy and provide additional working capital.

The total GBA acreage is estimated to contain 172 million barrels of oil equivalent (MMboe) of discovered P50 recoverable resources net in addition to the significant exploration upside potential of approximately 168 MMboe of prospective resources close to the firm’s planned Buchan platform.

“We are looking forward to working collaboratively with NEO Energy to select the optimal development solution for the GBA and taking the project through to sanction and on into future production,” concluded Benitz.

Located in the heart of the Central North Sea, Jersey’s stake in the GBA project includes operatorship and 100 per cent working interests in blocks that contain the Buchan oil field and J2 oil discovery and a 100 per cent working interest in the P2170 Licence Blocks 20/5b & 21/1d, that contain the Verbier oil discovery and other exploration prospects.