UK oil & gas player getting rid of two ‘non-core’ North Sea discoveries

UK-headquartered oil and gas company Orcadian Energy has entered into a non-binding heads of agreement (HoA) with Rapid Oil Production to dispose of its interests in two North Sea discoveries, which it describes as non-core assets.

These two discoveries are Crinan and Dandy and if this deal progresses to completion, Orcadian disclosed on Wednesday that it would receive a cash consideration of $500,000 – $100,000 on the signing of a binding sale and purchase agreement (SPA), and $400,000 on Crinan FDP approval – plus a royalty on oil and gas produced from the fields.

Furthermore, the company explained that Rapid had agreed to pay an oil price-dependent royalty, ranging from 2.5 per cent to 4.0 per cent for production from these fields. These two players have also agreed that Orcadian’s deemed equity share of the Crinan discovery is 60 per cent. In addition, Rapid Oil will pay a 1 per cent royalty to TGS.

Steve Brown, Orcadian’s CEO, remarked: “We are delighted to have reached an initial agreement with Rapid Oil, on the proposed disposal of these non-core assets. Rapid Oil are focused on achieving a development plan approval for Fyne and Crinan and we believe they will be best placed to develop the Dandy fields through the same infrastructure.

“We look forward to converting these heads of terms into a binding agreement and will provide further updates as negotiations progress; and we look forward to potentially sharing in the cash flow from these discoveries  if these fields are developed.”

Orcadian highlights that there can be no guarantee that the fully termed deal will be agreed nor that oil will be produced from these assets. However, if production is achieved, any royalty payment would be spread over the life of the Crinan and Dandy developments, which is anticipated to be 10 to 20 years. As the company did not undertake any exploration activities on these two discoveries, no turnover or profits are attributable to the Crinan and Dandy subarea.

Moreover, the UK firm currently ascribes a nominal value to the Crinan and Dandy subarea of licence P2320, but if the conditions of any future sale and purchase agreement were to be satisfied and royalty was to be paid, the company’s directors believe it could be “meaningful.”

Meanwhile, Rapid is progressing with the development of the nearby Fyne field, with the intention of achieving FDP approval in 2023, and could bring Crinan into production as part of the Fyne cluster in phase two or three of the field development. This could be followed by a Dandy tie-back via Fyne, elaborated Orcadian.

Hallvard Hasselknippe, Rapid Oil Production’s CEO, commented: “We are pleased to add the potential of the Crinan and Dandy resources to our field development plan for the Fyne field, this adds approximately 7 MMbbl to our contingent resources. In particular, Crinan will be a very cost-efficient add-on as it can be drilled from the Fyne Central location.”

According to Orcadian, this agreement is subject to, amongst other items, due diligence, North Sea Transition Authority (NSTA) consent and the finalisation of binding legal documents. The firm underscores that there can be “no guarantee that a final agreement will be entered into or that this disposal will complete.”

Crinan and Dandy were discovered by Mobil in 1987 and 1990, respectively and appraised by Monument in 1998. Whilst Crinan straddles the boundary between 21/28a (Orcadian’s block) and 21/28b (Rapid Oil’s block), Dandy lies entirely within 21/28a.

Orcadian outlined that these fields were not included in its CPR contingent resource estimate as they were considered non-core and not material to the overall proposition, but were included as upside potential in the firm’s CPR.

Regarding Orcadian’s recent developments, it is worth noting that the firm received a one-year extension for license P2244, which contains the Pilot field, in November 2022.