New operator takes the reins at UK’s huge undeveloped field ahead of development plan submission

UK-headquartered oil and gas player Orcadian Energy has divested a lion’s share of its interest in a giant undeveloped North Sea field on the UK Continental Shelf (UKCS) and passed the operatorship baton to Ping Petroleum UK.

Orcadian Energy disclosed non-binding heads of agreement (HoA) with an unnamed North Sea player in September 2023 for a potential farm-out of an 81.25% interest in license P2244, containing the Pilot development project, which is perceived to be one of the largest undeveloped discoveries in the Central North Sea, with significant upside potential in the surrounding area.

Ping Petroleum, which has now been identified as the buyer, has a significant acreage holding to the east of Pilot and is the new license operator. Since the farm-out has now been completed, Orcadian Energy has retained an 18.75% interest in the Pilot field development, fully carried to the first offload of oil produced from the field. The company confirms that it has no requirement to fund the pre-production development project work program.

Furthermore, the carry will apply to all pre-first offload expenditures up to a cap which will be based upon the field development plan budget, as submitted to the North Sea Transition Authority (NSTA), inclusive of contingencies, and will be repaid by a combination of a reduced revenue interest of 10% and any cash tax benefits enjoyed by Ping related to the carry expenditure.

Steve Brown, Orcadian’s CEO, highlighted: “The Pilot development is a fantastic opportunity for our new partners, Ping, the UK oil and gas industry more widely, and of course for Orcadian. I am very excited by the prospects for the development and as the major shareholder have facilitated the farm-out by providing a personal guarantee further demonstrating my commitment to Orcadian.

“Heavy, viscous oils make up a high proportion of the UK’s undeveloped discovered resources and we believe that in a post-transition world we will still need hydrocarbons, specifically heavy oils and gas. Heavy oils can supply the lubricants, asphalt, and anode grade petroleum coke markets which will continue to grow even as gasoline and diesel demand falls.”

According to Orcadian, it will now receive a $100,000 cash payment and reimbursement of certain past costs capped at £250,000. In addition, the firm will receive a $3 million payment on the approval of the field development plan (FDP). On the other hand, the near-term focus of the Ping team will be to select a suitable floating production, storage, and offloading (FPSO) and prepare the FDP for submission to the NSTA.

Moreover, Orcadian intends to support Ping, especially on the sub-surface aspects of a draft FDP that has already been reviewed by NSTA, which confirmed its preparedness in October 2023 to agree to an extension of the second term of license P2244, subject to certain conditions. The extension would change the expiry date of the second term of P2244 from November 30, 2023, to November 30, 2025.

Since the Pilot project is intended to benefit from the application of polymer flooding technology which is enjoying consistent success on Ithaca’s Captain EOR project, Brown emphasized: “Application of well proven polymer flooding technology early in a viscous oil development can significantly reduce emissions associated with the production process. Ping has been at the forefront of planning field developments that take advantage of renewable power, and we are confident that Ping can put together a very low emissions development scheme for Pilot.

“We are delighted to be working with the Ping team to bring this project to fruition. They are commercially and technically innovative and have built a team here in the UK which is not just a replication of a big company structure, but one which is capable of delivering a really innovative and cost-focussed project for us all.”

The Pilot field was discovered by Fina Petroleum in 1989. Orcadian submitted a draft field development plan to NSTA in June 2022, under which the project would be developed with an FPSO vessel and a pair of wellhead platforms with power provided by a floating wind turbine.

Based upon the competent person’s report (CPR) prepared by Sproule in 2021, the Pilot field contains gross 2P reserves of 78.8 MMbbl attributed to a polymer flood scheme. These volumes will be reclassified as 2C contingent resources until the FDP is approved to be consistent with Ping’s reserve classification scheme.