Independent Oil & Gas takes FID on Phase 1 of its Core Southern North Sea Project

Independent Oil and Gas, the development and production company focused on becoming a substantial UK gas producer, has now completed its farm-out transaction with CalEnergy Resources (‘CER’) as announced on 26 July 2019 and taken Final Investment Decision (‘FID’) on Phase 1 of its Core Project. The Core Project comprises 410 BCF of 2P+2C reserves and resources across six discovered UK Southern North Sea (‘SNS’) gas fields.

Highlights

 

  • IOG has completed the farm out to CER of 50 per cent of its SNS upstream assets (except for the Harvey licences), the Thames Pipeline and associated Thames Reception Facilities, on the terms previously announced on 26 July 2019

 

  • IOG has received £40 million as initial consideration from CER (and other completion adjustments) and CER’s £60 million carry of IOG’s Phase 1 development costs will commence immediately

 

  • As part of the completion process, IOG and CER, have taken Core Project Phase 1 FID, initiating the development programme to deliver First Gas in July 2021

 

  • The company has also completed on the acquisition of the Thames Reception Facilities (‘TRF’), as announced on 24 July 2019

 

  • IOG has repaid in full the £17.1 million non-convertible debt held by London Oil and Gas Limited (in administration) (‘LOG’)

 

  • LOG has converted the full £10.9 million of its 2016 8 pence convertible loan principal and accrued interest into 135,464,155 new ordinary shares of one penny each in the capital of the company, which are subject to orderly market restrictions for 12 months

 

  • Further to the 12 August 2019 RNS, the full £11.6 million of LOG’s 2018 19 pence convertible loan principal and accrued interest has been restructured into long-term, unsecured, non-interest bearing loan notes, convertible at 19 pence into 60,872,631 Ordinary Shares

 

  • Under the Area of Mutual Interest (‘AMI’) agreement to pursue business development opportunities around the Thames Pipeline on a 50:50 basis, IOG and CER are planning to submit a joint application for certain blocks in the UK Offshore 32nd Round

 

Andrew Hockey, CEO, commented: “I am delighted to announce that the farm-out agreement with our new partner CalEnergy Resources Limited, announced three months ago, has now closed. Alongside our successful €100m bond raise, this confirms us as fully funded for our Core Project, which is projected to deliver over £0.5bn in pre-tax cash flow net to IOG. IOG and CER, as joint venture partners, have consequently taken Phase 1 FID. I am immensely proud of our team for delivering this major milestone and would like to thank our shareholders for their support.

“This is the culmination of a transformative year for IOG which begins a new phase in our growth. Our focus, as ever, is on delivering shareholder value. We have established a solid platform from which to generate cash flow from our existing portfolio through effective project execution. Furthermore, we have created the opportunity to generate additional value upside by bringing incremental volumes through our infrastructure.

 

“Our Southern North Sea gas business development strategy has clear competitive advantages: we have a very strong and well-aligned partner, we have our key export pipeline in place, we are an approved licence Operator, and we are fully funded to install our hub infrastructure.”

 

Farm-out Completion and Phase 1 FID  
IOG is pleased to confirm that it has completed the farm-out of 50 per cent of its SNS Assets (excluding Harvey) to CER. IOG and CER have now taken Phase 1 FID and will shortly be submitting confirmation of full funding to the OGA in support of the Phase 1 FDP approval.

CER has paid the initial cash consideration of £40 million to IOG under the terms of the farm-out. CER will also pay for up to £125 million of IOG’s development costs, usable against 80 per cent of IOG’s 50 per cent share of Core Project costs, up to caps of £60 million for Phase 1 and £65m for Phase 2 respectively. IOG will pay CER a royalty of 20.2 per cent of its net revenues from the Phase 1 fields only (i.e. 10.1 per cent of gross Phase 1 revenues, net of National Transmission System entry charges and applicable marketing fees), up to a cap of £91 million over field life.

 

In addition, IOG will receive an effective royalty interest equating to £0.50/MCF on CER’s 50 per cent share of production from certain sections of the Goddard Field after 70 BCF gross has been produced from the field up to a maximum royalty of £9.75 million. With its experienced SNS development team, IOG has retained Operatorship of the Core Project.

As previously announced, CER has the option to acquire 50 per cent of the Harvey licences within three months of completion of the Harvey appraisal well 48/24b-6. IOG continues to progress analysis of the well results in order to obtain updated resource estimates and enable CER to make an informed decision within the agreed timeframe.

As previously announced, IOG and CER have also signed an AMI to allow for future co-operation in further SNS business development activities on a 50:50 basis, with a view to leveraging the competitive advantage provided by the Core Project’s infrastructure. The partners are working together with the intention to submit a joint application for a number of blocks in the current UK Offshore 32nd Round.

CalEnergy Resources (CER)
CER is focused on upstream oil and gas projects and has interests in the UK, Australia and Poland, and is an active operator in the latter two jurisdictions. CER or its predecessors has been active in the oil and gas industry since the 1970s as a full-cycle exploration and production (E&P) company.

IOG believes that CER is a very strong and naturally well-aligned partner for IOG both in co-developing the SNS assets and in jointly acquiring and developing further upside opportunities in the Thames Pipeline Catchment Area. CER’s high calibre management team, previous experience in this area and strong technical capabilities further cement the alignment.
Berkshire Hathaway Energy Company owns CER through its UK subsidiary Northern Powergrid Holdings Company, whose primary businesses are its electricity distribution companies in the North-East of England.

LOG Debt Facilities
Further to the 12 August 2019 RNS, a number of previously announced repayment, restructuring and conversion events in connection with the LOG debt facilities have now been completed alongside the farm-out completion process.

First, all £17.1 million of non-convertible debt facilities and associated accrued interest have been repaid in full to LOG at completion.

Second, LOG has converted in full the remaining £10.9 million of its 2016 convertible loan at its conversion price of eight pence into 135,464,155 new Ordinary Shares. As such, no amount remains outstanding under this loan.

 

The company has applied to the London Stock Exchange for admission of 135,464,155 new Ordinary Shares to trading on AIM (“Admission”).  Admission is expected to occur on 29 October 2019.

 

Following Admission, there will be 476,796,905 Ordinary Shares in issue with one voting right per Ordinary Share. Accordingly, this number may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA’s Disclosure Guidance and Transparency Rules.

 

Upon Admission, LOG’s total shareholding will be 143,011,359 Ordinary Shares representing approximately 29.99% of the Company’s issued share capital, which as previously announced, will be subject to orderly market restrictions for a period of 12 months.

Third, in line with the announcement of 12 August 2019, the full £11.6 million of principal and accrued interest under LOG’s 2018 19 pence convertible loan has been restructured into the Loan Note Instrument. This consists of long-term, unsecured, non-interest bearing loan notes convertible at 19p into 60,872,631 Ordinary Shares. The Loan Note Instrument has a maturity date of 23 September 2024.

This repayment, restructuring and conversion of LOG debt has removed all previous security arrangements over IOG assets, in order for the €100 million bond to hold effective security over IOG’s post-Farm-out portfolio.

 

LOG’s existing warrants also remain in place, with no change to the current position.

 

Source: Energy-pedia