Further to the announcements of 18 September 2023 and 1 December 2023, the Company is pleased to confirm it has executed a conditional Sale and Purchase Agreement ("SPA") with Ping Petroleum UK plc ("Ping") for the farm-out of an 81.25% interest in the Company's flagship asset, the Pilot Development project (Licence P2244) (the "Transaction").
The total consideration due under the SPA is US$3,100,000 (plus the payment of certain historic costs incurred by Orcadian to date).
The initial consideration of US$100,000 is payable on completion (being the date that P2244 is transferred to Ping, which will occur when the conditions set out below are satisfied ("Completion"). It is anticipated Completion will occur before the end of March 2024. On Completion, Ping will become operator of the Licence. Ping will pay the balance of the consideration (US$3,000,000) on approval by the North Sea Transition Authority ("NSTA") of a Field Development Plan ("FDP") for the Pilot Field. The FDP is currently anticipated to be submitted during 2024. Further updates will be provided as this progresses.
The SPA is conditional on, amongst other matters, Orcadian shareholder approval.
· Orcadian has executed a conditional Sale and Purchase Agreement with Ping, which details the farm-out of the Pilot development project.
· Orcadian has now requested NSTA approval for the assignment of an 81.25% interest in the P2244 licence to Ping, and the appointment of Ping as operator of the P2244 licence, as required by the NSTA.
· The Pilot field is one of the largest undeveloped discoveries in the Central North Sea, with significant upside potential in the surrounding area.
· Subject to satisfaction of the outstanding conditions, Ping will acquire an 81.25% interest in Licence P2244 and will become operator of the Pilot licence and development project.
· Based upon the Competent Person's Report ("CPR") prepared by Sproule in 2021, Ping 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.
· Following completion, Ping and Orcadian will work to deliver a FDP to the NSTA for a polymer flood development of the Pilot field, with industry leading emissions performance.
· Orcadian management believe this updated development plan could increase ultimate Pilot field recovery by 5-10% relative to the 2021 CPR scenario audited by Sproule.
· Under the terms of a proposed Joint Operating Agreement ("JOA"), which is a condition of the SPA, Orcadian will retain an 18.75% carried interest in the Pilot development with Ping paying 100% of the pre-first oil scope of work.
· As announced on 25 October 2023, Orcadian and Ping previously requested that NSTA extend the second term of licence P2244 and were granted a two-year extension to the second term of the licence. This extension remains conditional upon completion of the farm-out prior to the end of March 2024.
· Orcadian and Ping are also negotiating a Joint Bidding Agreement ("JBA") in respect of, and requested 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.
Steve Brown, Orcadian's CEO, commented:
"We are delighted to have executed this agreement with Ping and look forward to completing the documentation and receiving all the necessary approvals so that the deal can complete before end 1Q 2024.
We believe this deal will be transformational for Orcadian. Not only does it set out a clear pathway to production for the Pilot field, but also provides a number of opportunities, which we are excited about, in the wider Western Platform area which this partnership will enable us to grasp.
The Board consider Ping to be an innovative operator that understands how to deliver development projects that concord with the NSTA's net zero goals. Ping is the owner of the Excalibur FPSO and has engaged with the owners of a number of floating production storage and offloading (FPSO) redeployment candidates and we believe they can identify the right solution for Pilot very quickly. We have been impressed with Ping's commercial agility and technical ability, and we look forward to working with the Ping team to deliver a successful Pilot development.
The UK needs clean, new, producing fields to meet its twin goals of Energy Security and Net Zero. We believe that Pilot is an essential part of that future portfolio of North Sea production and that the benefits to the balance of payments, the economy and for workers in the industry are clear."
The Pilot field is the Company's core asset and securing a partner to farm-in to the project and finance the development of the Pilot discovery has been the Company's key focus since its foundation. Pilot was discovered by Fina Petroleum in 1989 and is well appraised. The development plan under discussion with Ping is designed to phase the project to maximise opportunities for learning and to minimise the initial cost of the development.
The Pilot field has 2P Reserves of 78.8 MMbbl, as audited by Sproule in April 2021, a copy of the Sproule report is contained in the Company's Admission document, which can be found on the Company's website. The proposed revised plan could, based on Orcadian management's internal estimates, result in an uplift to this resource estimate; but the overall outcome will be dependent on the precise plan adopted by the partnership. The Company intends to update the Competent Person's Report for Pilot once the FDP has been finalised.
The SPA includes a number of conditions precedent including, but not limited to, Orcadian shareholder approval; completion of commercial and legal due diligence by Ping; execution of the JOA referred to above; approval of the transaction (and variations to the existing agreements in place, where appropriate) from the NSTA, Shell, TGS ASA, and Ping's parent company board and, if required, shareholders. Completion of the Licence assignment is subject to the satisfaction, or waiver, of the conditions precedent and is required to occur before the end of March 2024. Whilst there can be no guarantee that these conditions will be satisfied, the Directors have every expectation that they will be. Further updates will be provided as the conditions are satisfied.
As set out above, the parties have agreed the key terms of a JOA for the Pilot licence.
SPA: Key Terms and Consideration Payable
The key terms documented in the SPA are as follows:
· The SPA requires that the JOA will include an agreement that Ping will pay all of Orcadian's share of costs incurred in relation to the pre-first oil development scope of work on the Pilot field, and any other costs relating to the Pilot development incurred prior to first oil.
· On completion, Ping will be assigned an 81.25% interest in the Pilot licence and on transfer of the licence interest Orcadian will receive a payment of US$100,000. In addition, on FDP approval Ping will pay Orcadian US$3,000,000.
· Ping has agreed to cooperate with the Company to settle the historic and future liabilities to TGS, to a maximum value of US$1,072,000.
· On transfer of the licence interest, Ping will pay to the Company a pre-first oil adjustment payment, being an amount equal to the costs incurred by Orcadian between 1 July 2023 and Completion in relation to the Pilot Licence (P2244). This is capped at £250,000.
· The agreement contains usual commercial warranties and indemnities for an agreement of this type.
· On completion, Ping will become the operator of the Pilot development project.
Orcadian will continue to provide sub-surface support to the Ping team, to build upon the work undertaken by Orcadian to prepare a development plan for Pilot.
The two companies also intend to execute a JBA in respect of the area of former licence P2320. Orcadian and Ping have requested that NSTA permit an out-of-round licence application for that area. 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. Subject to execution of the JBA, Orcadian will receive a further US$100,000 on award of a licence over the area of former licence P2320.
As set out in the Company's audited accounts dated 30 June 2022 ("Audited Accounts") the asset which is the subject of this transaction (the Pilot field (P2244) is an exploration asset and accordingly generates no turnover, profits or losses. In the Audited Accounts the book value of P2244 is £2.75 million.
The Directors intend to utilise the proceeds from this transaction for working capital purposes and to further develop the other assets in the Company's portfolio.
AIM Rule 15 and Notice of General Meeting
Pursuant to AIM Rule 15, the Transaction is treated under the AIM Rules as a fundamental change of business. Accordingly, the Transaction is conditional, amongst other items, on the consent of Orcadian's shareholders being given in a general meeting. The Company intends to prepare and dispatch a circular detailing the Transaction and convene a general meeting to seek approval for the Transaction, as soon as possible. A further announcement will be made when the general meeting is convened and the associated circular is dispatched.
The Company's current cash balance is £115,000, which based on current internal forecasts is expected to provide sufficient working capital for the Company until the first quarter of 2024. However, the Company confirms it is in advanced discussions with regards to a potential equity fundraising, and expects to provide an update to the market shortly. The Board continues to manage cash on a prudent basis as it seeks to add significant value for shareholders.
Qualified Person's Statement
Pursuant to the requirements of the AIM Rules and in particular, the AIM Note for Mining and Oil and Gas Companies, Maurice Bamford has reviewed and approved the technical information and resource reporting contained in this announcement. Maurice has more than 33 years' experience in the oil & gas industry and 3 years in academia. He holds a BSc in Geology from Queens University Belfast and a PhD in Geology from the National University of Ireland. Maurice is a Fellow of the Geological Society, London, and a member of the Geoscience Energy Society of Great Britain. He is Exploration and Geoscience Manager at Orcadian Energy.