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Serica Energy plc subsidiary Serica Energy (UK) Limited is acquiring 30 percent non-operated interest in the P2498 and P2170 licenses in the North Sea, or the Greater Buchan Area (GBA), from Jersey Oil & Gas (JOG).
The GBA encompasses several oil and gas accumulations around 93.2 miles (150 kilometers) northeast of Aberdeen, in the Outer Moray Firth. The largest of these accumulations is the Buchan field which has produced for over 30 years, ceasing production in 2017 due to the end of the useable life of its floating production facility. Upon the closing of the acquisition, Serica will have the option of participating in the re-development of the Buchan field and other potential developments in the GBA.
The completion of the acquisition, expected in early 2024, is subject to regulatory, partner and interested party approvals, Serica and JOG said in separate news releases. After completion, NEO Energy retains a 50 percent interest in the GBA and remains its operator, with Serica and JOG holding 30 percent and 20 percent, respectively.
The transaction is structured as a farm-in, with modest up-front and contingent consideration payments, and a carry of pre-financial investment decision (FID) and development costs, Serica said. The transaction consideration is for a cash payment of $6.8 million, subject to adjustments between buyer and seller to reflect an economic date for the transaction of April 1. Under the terms of the transaction, Serica said it is not committed to participate in the GBA developments.
JOG said the farm-out transaction with Serica is on identical pro-rata terms to that previously completed with NEO Energy in June. In aggregate, the two transactions result in JOG retaining a 20 percent interest in the GBA licenses, a full carry on the capital expenditure required to bring the Buchan field into production and a number of milestone cash payments. Upon completion of the Serica farm-out, the combined cash payments received from the two farm-outs will be over $18 million, with a further $20 million due to be paid to JOG upon the Buchan field development plan (FDP) approval.
Following the recent announcement to acquire the Western Isles floating, production, storage and offloading (FPSO) vessel, JOG said all the main components of the Buchan redevelopment plan have now been defined. The field will be produced through the use of up to five subsea production wells, supported by two water injection wells, which will be tied back to the FPSO. The vessel can be connected to one of the anticipated third-party floating wind power developments near the GBA following the recent Innovation and Targeted Oil & Gas license awards made by Crown Estate Scotland, JOG added.
The front-end engineering and design (FEED) studies need to be completed ahead of field development plan (FDP) approval and the development moving into the execution phase of activities. NEO estimates the total capital expenditure for the Buchan redevelopment to be approximately $1.07 billion to $1.2 billion (GBP 850 million to 950 million) gross to bring into production over 70 million barrels of oil equivalent, with peak production rates of approximately 35,000 barrels of oil equivalent per day.
The approval of the Buchan FDP is scheduled for 2024, with the first production forecast for late 2026, JOG said. Following the start-up of production at Buchan, subsequent phases are expected to involve the tie-back of the Verbier and J2 discoveries that lie within the GBA license area and the potential for regional third-party discoveries to be tied back to the FPS, the company added.
“We are delighted with this transaction which gives Serica a significant interest in the proposed Greater Buchan Area project, potentially adding a third production hub and further resilience to Serica’s North Sea portfolio”, Serica Chief Executive Mitch Flegg said. “In common with our other hubs, the GBA plan involves utilizing existing infrastructure – in this case an FPSO – with the possibility of exploiting multiple accumulations in the area. Moreover, the development has been designed to deliver an industry-leading low level of carbon emissions, consistent with Serica’s objective of reducing the overall carbon intensity of its activities”.
“The transaction demonstrates the benefits of Serica’s strong balance sheet. Our financial strength enables us to take advantage of suitable opportunities to expand the portfolio and we will continue to take a very proactive approach to business development, while also investing in our existing portfolio and paying dividends to shareholders. The transaction is structured such that most of the consideration payable by Serica is contingent and linked to making progress in the project”, Flegg continued. “Our participation will also be financially efficient with Serica benefitting from tax reliefs on its investment”.
“We are thoroughly delighted to announce the farm-out transaction with Serica Energy”, JOG CEO Andrew Benitz said. “Not only does it bring a further high-quality partner into the joint venture, but it unlocks exceptional value for the company and delivers upon our overall objectives for the GBA farm-out strategy. The transaction provides JOG with multiple cash payments, but most importantly, a fully funded 20 percent working interest in the Buchan redevelopment project, transforming the company and providing us with the springboard from which to realize long term shareholder value”.
To contact the author, email rocky.teodoro@rigzone.com
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