GBA Farm-Out to Serica Energy

Jersey Oil and Gas PLC

23 November 2023

 

23 November 2023

Jersey Oil and Gas plc

("Jersey Oil & Gas", "JOG" or the "Company")

GBA Farm-Out to Serica Energy

Jersey Oil & Gas (AIM: JOG), an independent upstream oil and gas company ‎focused on the UK Continental Shelf region of the North Sea, is pleased to announce that it has agreed to farm-out a 30% interest in the Greater Buchan Area ("GBA") licences to Serica Energy (UK) Limited (the "Serica Farm-out").  Upon completion of the Serica Farm-out, JOG will have a 20% interest in the GBA licences and a full carry on the capital expenditure required to bring the Buchan field into production.

Highlights:

§ Fully Funded: The transaction delivers material value to JOG and results in the Company having a fully funded 20% interest in the on-going Buchan redevelopment project

§ Strong industry partner: Serica is a leading mid-tier UK oil and gas company producing more than 40,000 barrels of oil equivalent per day, further strengthening the quality of the GBA joint venture

§ Milestone payments: $18 million of the $38 million cash payments attributable to the two GBA farm-outs will have been received upon completion of the Serica transaction

§ Value creation: Clear path to development sanction and first oil, with JOG's fully funded position meaning the Company is underpinned by exposure to zero-capex flowing barrels

§ Future cash generation: Once onstream, JOG will be a non-operated partner entitled to 20% of production from the Buchan field

§ Low carbon development: redeployment of an existing floating production, storage and offloading ("FPSO") vessel that is planned for future connection to a nearby floating wind power development makes the Buchan redevelopment solution the option with the lowest full-cycle carbon footprint

Transaction Summary

The farm-out transaction with Serica is on identical pro-rata terms to that previously completed with NEO Energy ("NEO") earlier in the year.  In aggregate, the two transactions result in JOG retaining a 20% interest in the GBA licences, a full carry on the capital expenditure required to bring the Buchan field into production and a number of milestone cash payments.  Upon completion of the Serica Farm-out, the combined cash payments received from the two farm-outs will be over $18 million, with a further $20 million due to be paid to JOG at Buchan Field Development Plan ("FDP") approval.

In exchange for entering into definitive agreements to divest a 30% working interest in the GBA licences, the Company is set to receive from Serica:

§ 7.5% carry of the estimated $25 million cost to take the Buchan field through to FDP approval

§ 7.5% carry of the Buchan field development costs, up to the budget included in the approved FDP; equivalent to a 1.25 carry ratio

§ $6.8 million cash payment on completion, which includes a $5.6 million payment associated with the finalisation of the GBA development solution and associated acquisition of the "Western Isles" FPSO

§ $7.5 million cash payment on approval of the Buchan FDP by the NSTA

§ $3 million cash payments on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries

The primary condition precedent to completing the Serica Farm-out is receipt of approval from the NSTA for the transaction.

Buchan Development Plan

Following the recent announcement regarding the acquisition of the "Western Isles" FPSO, all the main components of the Buchan redevelopment plan have now been defined.  The field is to be produced through the use of up to five subsea production wells, supported by two water injection wells.  These will be tied back to the FPSO, which will be modified to be "electrification-ready" prior to redeployment to the field.  This will enable the vessel to have the potential to be connected to one of the anticipated third-party floating wind power developments that are intended to be located in close proximity to the GBA following the recent Innovation and Targeted Oil & Gas ("INTOG") licence awards made by Crown Estate Scotland.

Work is progressing on the Front End Engineering and Design ("FEED") studies that require completion ahead of FDP approval and the development moving into the execution phase of activities.  The total capital expenditure forecast for the Buchan redevelopment is estimated by the Operator, NEO, to be approximately £850-950 million (gross cost) to bring into production over 70 million barrels of oil equivalent (95% oil), with peak production rates of approximately 35,000 barrels of oil equivalent per day.  This estimate will be refined as part of completing FEED and the contract tendering activities that precede finalisation of the FDP.  As a result of the farm-out transactions, the Company's share of the capital expenditure included in the approved FDP work programme and budget will be fully carried by NEO and Serica.  The transactions unlock the route to monetising total estimated GBA resources in excess of 100 million barrels of oil equivalent.

Approval of the Buchan FDP is scheduled for 2024, with first production forecast for late 2026.  Following the start-up of production from Buchan, subsequent phases are expected to involve the tie-back of the Verbier and J2 discoveries that lie within the GBA licence area and the potential for regional third-party discoveries to be tied back to the FPSO.

Andrew Benitz, CEO of Jersey Oil & Gas, commented:

"We are thoroughly delighted to announce the farm-out transaction with Serica Energy.  Not only does it bring a further high-quality partner into the joint venture, but it unlocks exceptional value for the Company and delivers upon our overall objectives for the GBA farm-out strategy.  The transaction provides JOG with multiple cash payments, but most importantly, a fully funded 20% working interest in the Buchan redevelopment project, transforming the Company and providing us with the springboard from which to realise long term shareholder value."

Enquiries:

Jersey Oil and Gas plc	Andrew Benitz	C/o Camarco: 020 3757 4980
Strand Hanson Limited	James Harris Matthew Chandler James Bellman	Tel: [phone]
Zeus Capital Limited	Simon Johnson	Tel: [phone]
Cavendish Capital Markets Limited	Neil McDonald Leif Powis	Tel: [phone]
Camarco	Billy Clegg Rebecca Waterworth	Tel: [phone]

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Additional Information

The Company's GBA interests comprise the P2498 and P2170 licences, which contain the Buchan oil field, the J2 and Verbier oil discoveries and a number of exploration prospects.

The farm-out agreements contain representations, warranties and indemnities given by the Company to Serica in relation to, amongst other things, title and capacity to the GBA licences.  The Company's maximum aggregate liability under such warranties and indemnities is limited to an amount equal to the aggregate of the cash payments and costs carried by Serica under the agreement (to the extent such amounts are received).  The agreement is governed by English law.

Notes to Editors:

Jersey Oil & Gas is a UK E&P company focused on building an upstream oil and gas business in the North Sea. The Company currently holds a 50% interest in each of licences P2498 (Blocks 20/5a, 20/5e and 21/1a) and P2170 (Blocks 20/5b and 21/1d) located in the UK Central North Sea and referred to as the "Greater Buchan Area."  Licence P2498 contains the Buchan oil field and J2 oil discovery and licence P2170 contains the Verbier oil discovery.  Following completion of the farm-out transaction with Serica Energy (UK) Limited, the Company will retain a 20% interest in each of the GBA licences.

JOG is focused on delivering shareholder value and growth through creative deal-making, operational success and licensing rounds. Its management is convinced that opportunity exists within the UK North Sea to deliver on this strategy and the Company has a solid track-record of tangible success.

About Serica Energy

Serica Energy is a British independent oil and gas exploration and production company with a portfolio of UKCS assets and is listed on the London Stock Exchange.  Following the recent acquisition of the entire issued share capital of Tailwind Energy Investments Ltd, the Company has a balance of gas and oil production and is responsible for about 5% of the natural gas produced in the UK, a key element in the UK's energy transition.

Serica's producing assets are focused around two main hubs: the Bruce, Keith and Rhum fields in the

UK Northern North Sea, which it operates, and a mix of operated and non-operated fields tied back to

the Triton FPSO.  Serica also has operated interests in the producing Columbus (UK Central North Sea)

and Orlando (UK Northern North Sea) fields and a non-operated interest in the producing Erskine field

in the UK Central North Sea.

Forward-Looking Statements

This announcement may contain certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with an oil and gas business.  Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the Company's control or otherwise within the Company's control but where, for example, the Company decides on a change of plan or strategy.

All figures quoted in this announcement are in US dollars, unless stated otherwise.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended by virtue of the Market Abuse (Amendment) (EU Exit) Regulations 2019.

 

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