Potential sale of operatorship and stake in giant undeveloped North Sea discovery underway

UK-headquartered oil and gas company Orcadian Energy has set the wheels into motion to sell a big chunk of its interest in a huge undeveloped North Sea field to an undisclosed player on the UK Continental Shelf (UKCS).

This will be enabled thanks to a non-binding heads of agreement (HoA), which Orcadian inked with an unnamed North Sea operator for a potential farm-out of the Pilot development project. As this is a provisional agreement, there is no guarantee that any transaction will occur. However, any such deal is subject to, amongst other matters, completion of due diligence; negotiation of documentation; and various regulatory and shareholder consents as well as board approvals of both firms.

According to Orcadian, it has granted this North Sea operator a commercial exclusivity period until 30 November 2023 to complete definitive documentation for the overall deal. If the deal is completed, this will enable the duo to progress the development of the Pilot field, which is perceived to be one of the largest undeveloped discoveries in the Central North Sea, with significant upside potential in the surrounding area.

The HoA outlines that the North Sea firm will become the operator of the Pilot development and will acquire an 81.25 per cent interest in Licence P2244. Based upon the competent person’s report (CPR) prepared by Sproule in 2021, the new operator will acquire net reserves or resources of 63.4 MMbbl on completion of the deal, with Orcadian retaining 14.6 MMbbl of 2P reserves, carried to first oil.

Furthermore, the two partners will work to deliver a field development plan (FDP) to the North Sea Transition Authority (NSTA) for a polymer flood development of the Pilot field with lower emissions performance. The updated development plan is anticipated to increase the field’s reserves or resources by 5-10 per cent relative to the 2021 CPR scenario audited by Sproule. While the new operator will be paying 100 per cent of the pre-first oil scope of work, Orcadian will pay its working interest share of expenditure after the first oil is achieved.

The pre-first oil development scope of work entails all development and project planning and management activities; the purchase, modification, mobilisation, and installation of a suitable FPSO and mooring; design, construction, and installation of flowlines, subsea systems, and a wellhead platform (if that is adopted in the FDP), drilling and completion of five wells on Pilot, all as defined in the NSTA approved FDP.

As a result of the HoA, the two energy players have asked the NSTA to extend the second term of licence P2244 and will also request an out-of-round application for the area of former Licence P2320, which Orcadian had to relinquish earlier this year, in support of the Pilot development and the area plan. This acreage contains extensions of the Pilot field, the likely location of a wellhead platform to be installed later in field life, and the Feugh oil and gas discovery.

Upon completion of the deal, an extension of the P2244 licence, and a licence award over former P2320, Orcadian will receive a cash consideration of up to $200,000 from the new operator with a further $3,000,000 being received on Pilot FDP approval.

Steve Brown, Orcadian’s CEO, commented: “We are delighted to have reached this agreement, which sets out a potential pathway to production for the company’s Pilot field. The Pilot field has a substantial proven reserve base with material upside potential in the surrounding area. We are delighted this transaction could enable Orcadian to retain a significant interest in the project and enjoy the long-term benefits of producing oil for the UK.

“Developing energy in our own backyard contributes to the UK’s energy security and balance of payments; delivers long-term high-quality jobs; and minimises emissions associated with satisfying the UK’s need for energy. We look forward to progressing the next stages of this proposed transaction and providing further updates.”

The Pilot oilfield is located in North Sea license P2244 Block 21/27a where Orcadian is the operator with a 100 per cent interest. This is the largest oilfield in the company’s portfolio. The field was discovered by Fina Petroleum in 1989. The development plan under discussion with the potential operator is designed to accelerate the first oil and to minimise the initial cost of the development.

Orcadian submitted a draft field development plan for the Pilot field 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.

The field development plan is said to build upon work done in the concept select process which culminated in NSTA sending a “letter of no objection” for the low-emissions concept selected by Orcadian, as announced on 1 December 2021.