Highlights
· Agreement of commercial terms for the sale of a 50% interest in Earlham and Orwell to MLCP and a carry arrangement to bring Earlham and Orwell into production
· Shell loan assigned to IPCNWE and loan terms restructured
· IPCNWE loans to be paid in full upon completion of assignment of Earlham and Orwell to MLCP
· Orcadian retains a 50% carried interest in the Earlham and Orwell projects
Orcadian is delighted to announce that the Company has agreed to sell a 50% interest in a sub-area of Licence P2680 to The Marine Low Carbon Power Company Ltd ("MLCP"). MLCP plan to develop Earlham and Orwell to supply the first of MLCP's Mobile Offshore Generating Units ("MOGU"), which will in turn supply carbon free energy to MLCP customers and to IPC New World Energy Ltd's ("IPCNWE") battery projects.
MLCP is a joint venture company owned by IPCNWE and Richmond Offshore Energy Ltd. IPCNWE is part of the Independent Power Corporation PLC ("IPC") group and is the largest developer of consented battery projects in the UK with 5.5 GW of capacity under development. MLCP has designed, in conjunction with GE Vernova and Capsol Technologies of Norway, a 300 MW offshore power facility with integrated carbon dioxide capture and distributed carbon dioxide storage offshore in a reservoir, most likely within the Licence P2680 sub-area.
Shell Loan
As part of the overall arrangements IPC has acquired the loan advanced by Shell International Trading and Shipping Company Limited ("Shell") to Orcadian Energy (CNS) Ltd in August 2019. The amount owed to IPC and IPCNWE is US $1.5 million. IPCNWE has agreed to convert US $1.4 million of this into funding part of the consideration for MLCP to acquire its 50 per cent stake in Earlham and Orwell. The balance of US $100,000 will be exchanged for an Orcadian loan note, dated 30 June 2026, and convertible into approximately 312,500 Ordinary shares in Orcadian at a conversion price of 25 pence per share, Orcadian may require conversion of the loan note into Ordinary shares if Orcadian's volume weighted average share price ("VWAP") in each of five consecutive trading days is 35p or above.
Farm-out Terms
Orcadian has agreed the key terms of a farm-out agreement for a sub-area of Licence P2680 with MLCP. The principal terms of the agreements have been documented in a non-binding Heads of Agreement which defines the entire suite of agreements that need to be finalised.
It is intended that the farm-out will be implemented as follows:
· MLCP will acquire from Orcadian a 50% interest in the Earlham discovery and Orwell field redevelopment by acquiring a 50% interest in a sub-area of Licence P2680, comprising blocks 50/26 and 49/30b.
· Orcadian will act as Licence Administrator through the Assessment Phase and MLCP will become Licence Administrator for the Authorisation phase which includes the preparation and submission of the Field Development Plan ("FDP") and the Environmental Statement.
· It is intended, subject to approval from the North Sea Transition Authority ("NSTA approval"), that on FDP approval MLCP will become Licence Operator for the project execution and operating phases of the project.
· This transaction is subject to NSTA approval and will be documented in a fully termed Sale and Purchase Agreement and a Joint Operating Agreement;
· The purchase price of 50% of the sub-area of Licence P2680 has been agreed to be US $2.2m, with US $1.4m payable on completion and two tranches of US $400,000 payable on achieving fuel gas quality production rates in excess of 50 MMscf/day for a 48 hour period, both 30 days after first gas and 120 days after first gas.
· Together with the convertible loan arrangements noted above, the payment upon completion will offset in full the amounts owed by Orcadian to IPC and IPCNWE;
· MLCP will carry Orcadian's share of expenditure through to first gas on the development of Earlham and Orwell;
· The carry will be repayable through MLCP having an enhanced revenue interest of 80% until the carry is fully repaid;
As a consequence of these arrangements, Orcadian will retain a 50% carried interest in the development of Earlham and the redevelopment of Orwell, and its debts to Shell and IPCNWE will be paid in full.
This is a provisional agreement and there can be no guarantee that the transactions will all complete. Any deal is subject to, amongst other matters, completion of due diligence, negotiation of detailed documentation, and various regulatory consents as well as the Board approvals of MLCP and Orcadian. The parties hope to complete the transaction during 1Q 2025.
Earlham and Orwell
Earlham has a methane resource of 114 bcf and the Company believes Orwell could deliver a further 31 bcf.
The Earlham discovery is a high-quality Leman sand accumulation with high net to gross (c. 95%), porosity of 18% and permeability of c. 250 mD. The field was discovered in 1995 by Talisman and in 1996 BP drilled a high angle appraisal, and intended development, well with a 1,559m section in the gas pay zone. In line with our strategy this is a field with high quality reservoir rocks. BP curtailed the well test and abandoned the well because of the high CO2 content in the gas.
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Development and production of the gas in Earlham is relatively straightforward given the high-quality reservoir, as no well stimulation will be required. Locating the MOGU offshore at the Earlham site dispenses with both a CO2 disposal pipeline from shore and a natural gas pipeline, the wells being located on an adjacent bridge-linked wellhead structure.
To enable this, Earlham gas will utilise a MOGU based pre-combustion CO2 removal system to reduce the CO2 content to a level which is acceptable for combustion within the LM-6000 gas turbines selected by MLCP. The captured pre-combustion CO2 will then be combined with the post-combustion captured CO2 using the Capsol Technologies' system. The combined CO2 stream will then be reinjected into either Earlham, Orwell or a nearby licensed CO2 reservoir.
It is intended that the Earlham and Orwell developments provide the gas supply and the carbon storage reservoirs for the MOGU development, subject to NSTA approval. MLCP is exploring opportunities to share offshore cable and grid connections with nearby wind farms.
Steve Brown, Orcadian CEO, said:
"The development of Earlham is intended to be the first of a number of MLCP led zero carbon energy projects which will integrate gas-to-wire and carbon capture and storage technologies to provide zero carbon balancing power which is desperately needed if the United Kingdom is to meet its net zero obligations.
"These projects are designed to proceed without requiring any government subsidy since MLCP will sell power directly to customers who value reliable, carbon free electricity which is available when renewable energy is not available or in short supply. There is no need to create a business model for CO2 storage nor to rely on government to sanction financial support for the project. This should enable an early commitment to the Earlham development.
"Earlham will be the first gas field on the UKCS to be dedicated to a facility that will capture practically all the emitted carbon dioxide for storage underground. Scope 3 emissions will be less than 5% of a conventional gas development which supplies an unabated power station. This project is one which we believe supports the government's vision of a clean UK power system in 2030 whilst crucially also delivering on the government's energy security goals."
