Orcadian Energy, the North Sea focused oil and gas development company, today announced its unaudited results for the six months ended 31 December 2023.

Highlights:

• Agreed the terms for a conditional disposal of an 81.25% interest in licence P2244, which includes the Pilot project, to Ping Petroleum UK
• If completed, all costs associated with the remaining 18.75% interest in Pilot to be carried by Ping until first production from Pilot*
• Secured a two-year extension to the P2244 licence, subject to completion of the disposal to Ping
• Completed the seismic inversion of the Catcher North seismic survey with TGS, which covers the Elke field, and conducted quantitative interpretation work to help refine field outline and assist in identification of development well locations
• Raised £350k before expenses on 2 October 2023, and £500k before expenses on 18 December 2023

Post period Highlights:

• Offered two licences in the 33rd Round adding a very large viscous oil discovery, and a series of shallow gas prospects, to our project inventory

Activity Focus:

• To finalise a farm-out deal for the Pilot development project
• To maximise the value of the Company’s satellite discoveries and prospects
• To prepare for awards of new licences in the 33rd Round

Steve Brown, Orcadian’s CEO, commented:
“In the second half of 2023 we struck the deal which we have been seeking since we first signed the Pilot licence. The deal with Ping Petroleum is transformational for us and, whilst completion is still subject to the satisfaction of certain conditions, the board remain confident that these conditions will be satisfied before the end of this quarter.

“We are also delighted to have replenished our inventory of projects with the award of the 292 MMbbl (gross 2C resource) Fynn Beauly discovery. We see opportunities to deploy geothermal heat sources to raise the reservoir temperature and boost production rates sufficiently to enable a polymer flood of the reservoir to be highly successful.

“The 33rd Round awards also included our first gas project and we are very pleased to have been awarded a licence covering nine North Sea blocks with an unrisked P50 prospective resource of over 300 bcf with a P10 upside potential of over 500bcf.”

Chairman & CEO’s Statement

The second half of 2023 has been transformational for Orcadian, on 7 December 2023 we announced the signature of a conditional sale and purchase agreement (the “SPA”), for an 81.25% interest in licence P2244, which contains the Pilot project, with Ping Petroleum UK plc (“Ping”). The deal includes a carry of all costs associated with Pilot until first production from the Pilot field as well as a $3 million payment due on Pilot FDP approval.

Virtually every company that announces a significant transaction describes it as transformational, but for Orcadian to bring in a partner to develop the material oil resources in the Pilot field, would be truly transformational. Pilot is one of the largest undeveloped fields in the Central North Sea with audited 2P reserves of 79 MMbbl. Our team’s focus has been to find a partner that shares our vision for the project and to strike a deal which minimises the extent of asset and shareholder dilution. That is now accomplished and we can now focus on supporting Ping to satisfy all outstanding conditions to complete the SPA. Once completed, the focus will be on working with Ping to prepare a field development plan which optimises value for every party, and which can deliver first production from Pilot.

Ping is an excellent partner for Orcadian. They are innovative and committed to the UKCS. They may be an unfamiliar name to many, but they have been operating on the UKCS since their first deal with Shell and Exxon in 2015. They, alongside their partners Hibiscus Petroleum, operate the Anasuria cluster which lies about 40km to the northeast of Pilot.  They are a subsidiary of a listed Malaysian conglomerate, Dagang NeXchange Berhad, or DNeX, which is a multinational corporation with diverse businesses in Technology, Energy, and Information Technology. DNeX has access to capital from financial markets in the Far East that recognise the value of low-emissions oil and gas assets rather better than our domestic markets do.

The conditions precedent to the SPA include: Orcadian shareholder approval, received on 17 January 2024; completion of commercial and legal due diligence by Ping, which we understand is now complete; finalisation and execution of the Joint Operating Agreement, which is still ongoing; approval of the transaction by the NSTA, received on 4 January 2024; approval of the transaction and variations to the existing agreements in place (where appropriate) from Shell and TGS, still ongoing; and finally approval of the transaction by the Ping board and the board of DNeX, Ping’s parent company, which is expected during March 2024; plus additional standard conditions to a transaction of this nature which are also expected to be satisfied before March 2024.

The licence extension granted by NSTA requires that the assignment of the interest in P2244 completes by the end of March 2024. We remain confident that this will be achieved, and are looking forward to Ping progressing the implementation of the Pilot development scheme.

The second half of 2023 was dominated by negotiating and documenting this deal. We had hoped to have reported a number of licence awards during 2023, but for a multitude of reasons the award of licences by NSTA was delayed, with the first tranche being announced in October 2023. None of the areas we had applied for were awarded in this tranche. So it took until 2024, more than a year after our applications were submitted, for those efforts to bear fruit.

On 31 January 2024 NSTA announced a second tranche of awards in the 33rd Round. Orcadian was successful in both of its applications within the areas awarded. The area of the third application has not yet been awarded and we remain hopeful that we will be awarded a further licence.

These awards open up new possibilities for Orcadian as we have added a gas leg to our viscous oil development strategy. Nevertheless, we still see great potential value in viscous oil opportunities.

The role of gas in displacing coal from power generation and in backing up wind powered grids is well acknowledged. As the transition to net zero proceeds, viscous oils will still be needed for multiple uses beyond combustion: lubricants, asphalt and anode-grade petroleum coke are all significant markets that have a much brighter future than the gasoline market. Viscous oils, especially the relatively low sulphur content oils that Orcadian has under licence, are considered prized pre-cursors of these materials.

The Fynn award, which lies next to our former P2516 licence, contains a very substantial viscous oil discovery which has a gross P50 contingent recoverable resource of 292 MMbbl, based upon the latest internal estimates as presented to NSTA by Parkmead (E&P) Limited, the proposed operator. About 88% of the resource on a best technical case is estimated to lie within the area of the offered licence, so we estimate we have added some 129 MMbbl of 2C contingent resource to our portfolio. However this is an internal estimate, that has not been audited, and it provided for guidance purposes only.

Orcadian intends to hold a 50% working interest in the Fynn licence which covers blocks 14/15a, 14/20d and 15/11a.

Our joint work on P2516 gave us the confidence to apply for this block and we can do no better than acknowledge our partner Parkmead’s observations on this award which was incorporated in their announcement dated 5 February 2024. As set out above, the estimates contained within it are Parkmead’s own internal estimates and have not been audited, so should not be relied upon and are provided for guidance purposes only:

“This important award consists of a licence covering Blocks 14/15a, 14/20d and 15/11a situated in the Central North Sea. Parkmead will be operator and hold a 50% working interest, alongside its partner Orcadian Energy (CNS) Limited. The new licence contains seven undeveloped oil discoveries within Mesozoic and Palaeozoic reservoirs. The most substantial of these is Fynn Beauly.

“Fynn Beauly is one of the largest undeveloped oil accumulations in the UK, with estimated gross P50 contingent resources of 292 million barrels. This large heavy oil discovery is situated between the prolific Claymore and Piper fields. The field extends across all three awarded blocks and is estimated to contain oil-in-place of between 740 and 1,330 million barrels. This is an important award because the acreage which encapsulates this significant oil field has not previously been licensed to a single partner group, creating an exciting opportunity for Parkmead and Orcadian to advance the development of this substantial, previously untapped resource.

“The current licence commitment requires no major capital outlay.  The work programme is focused on assessing the feasibility of reducing Fynn Beauly oil viscosity using enhanced oil recovery techniques. This work will include assessing the potential to utilise geothermal energy as part of the recovery mechanism to avoid the need for injected hot water.  This would allow for the delivery of a successful development of this major field which is in line with the NSTA’s Net Zero Strategy.”

We are also excited by our second offer of award which lies to the southeast of Pilot, and consider the area has excellent potential for the discovery of gas. The UK is desperately short of gas and deeply reliant on uninterrupted supplies from Norway, which could, if tensions escalated, easily be targeted by an unfriendly power. As we know from the destruction of the Nordstream pipelines, this type of cross-border infrastructure is vulnerable. The balance of the UK’s gas comes from the LNG market and CO2 emissions associated with that production and transport are many times greater than existing UK gas production. New gas production, developed with an eye to reducing emissions, can also be produced with much lower emissions than the aging UK fields which supply us today.

New gas developments are the only way to mitigate our security of supply concerns, whilst minimising emissions; so to have uncovered, and then won, a significant potential resource on our own doorstep is a matter of great pride.

The Mid North Sea High award contains shallow gas prospects and leads which contain 336 bcf of gross prospective recoverable resource on a P50 basis (this estimate is an Orcadian management estimate, which is provided for guidance only, and was submitted in the licence application). The two largest prospects – Glenlough and Breckagh – are estimated to account for about 80% of the identified resource potential. Orcadian applied in partnership with Triangle Energy, an Australian listed energy company. Orcadian would be licence administrator and would hold 50% of the offered licence.

The Mid North High Sea licence covers blocks 29/16, 29/17, 29/18, 29/19, 29/21, 29/22, 29/23, 29/27 and 29/28.

We have a couple of interesting development concepts for any discoveries here, and we see the potential to use wind power to compress the gas for export as an excellent example of how new developments can be designed to deliver new gas production with emissions far below LNG imports and wholly within our own borders.

We are looking forward to working with both Parkmead and Triangle to bring these projects to fruition as soon as possible.

Finally, I would also like to take this opportunity to thank all our shareholders for their continued support and look forward to providing further updates as appropriate on what we believe will be a key year for the Company and the development of Pilot.

Joe Darby, Chairman and Steve Brown, CEO

KeyFacts Energy: Orcadian Energy UK country profile