Orcadian Energy today announced the completion of the previously announced farm-out of an 81.25% interest in licence P2244, which contains the Pilot field, to Ping Petroleum. Ping is focused on shallow water offshore production and development opportunities and has a significant acreage holding to the East of Pilot.

This means that Orcadian Energy retains an 18.75% interest in the Pilot field development, fully carried to the first offload of oil produced from the field. Orcadian has no requirement to fund the pre-production development project work programme.

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. For medium viscosity oils like Pilot, polymer flooding significantly reduces fluid handling, and hence energy requirements and materially boosts the recovery factor. Sproule audited the reserves on the Pilot field in 2021 and attributed gross 2P reserves of 78.8 MMbbl to a polymer flood scheme. To be consistent with Ping’s reserve classification scheme these volumes will be reclassified as 2C Contingent Resources (Development Pending) until the FDP is approved. Please see the updated resource estimates for the company at the end of this press release which include management and operator estimates of the resources associated with licences offered but not yet awarded.

The near-term focus of the Ping team will be to select a suitable FPSO and prepare a FDP for submission to the North Sea Transition Authority (“NSTA”). Orcadian will support the Ping team especially on the sub-surface aspects of a draft FDP which has already been reviewed by NSTA.

The commercial terms of the transaction are summarised below:

• Ping has acquired an 81.25% interest in licence P2244, which contains the Pilot field;
• Ping has been appointed operator of the licence;
• Orcadian will retain an 18.75% fully carried interest in the Licence;
• The carry will apply to all pre-first offload expenditure up to a cap which will be based upon the field development plan budget, as submitted to 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;
• On repayment of the carry the revenue interest will revert to 18.75%
• Orcadian will now receive a $100,000 cash payment and reimbursement of certain past costs capped at £250,000;
• Orcadian will also receive a $3m payment on FDP approval.

The net result of the carry arrangements is that Orcadian will enjoy a net present value (NPV) which is marginally greater than its equity share in the NPV of the overall project, but without having to raise capital to fund the project capex.

Facility Agreement

Under the terms of the facility agreement, Shell International Trading and Shipping Company Limited (“STASCO”) has given its consent for the farm-out of 81.25% of the P2244 license to Ping.

To secure the consent Stephen Brown has given a personal guarantee to STASCO for the loan amount. STASCO also requires that Stephen Brown procures a share charge over the ordinary shares held by him and his wife in Orcadian and until such time as this can be arranged Stephen Brown has undertaken that he will not dispose of nor create security over the shares.

Steve Brown, Orcadian’s CEO, said:
“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.

“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.”

KeyFacts Energy: Orcadian Energy UK country profile   l   KeyFacts Energy: Ping Petroleum UK country profile
KeyFacts Energy: Farm-in agreements