Independent Oil and Gas plc has completed its farm-out transaction with CalEnergy Resources Limited (“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 BCF¹,² 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 (the “Farm-out”), on the terms previously announced on 26 July 2019
• IOG has received £40m as initial consideration from CER (and other completion adjustments) and CER’s £60m 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 £17.1m non-convertible debt held by London Oil and Gas Limited (in administration) (“LOG”)
• LOG has converted the full £10.9m of its 2016 8p convertible loan principal and accrued interest into 135,464,155 new ordinary shares of 1 penny each in the capital of the Company (“Ordinary Shares”), which are subject to orderly market restrictions for 12 months
• Further to the 12 August 2019 RNS, the full £11.6m of LOG’s 2018 19p convertible loan principal and accrued interest has been restructured into long-term, unsecured, non-interest bearing loan notes, convertible at 19p into 60,872,631 Ordinary Shares (“Loan Note Instrument”)
• 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 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 £40m to IOG under the terms of the farm-out. CER will also pay for up to £125m 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 £60m 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 £91m 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 £9.75m. 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.

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