Further to our announcement of 20 January 2020, Egdon Resources plc (AIM:EDR) is pleased to announce the signature of a Farm-In Agreement with Shell U.K. Limited ("Shell") in relation to UK offshore licences P1929 and P2304 ("the Licences") which contain the Resolution and Endeavour gas discoveries respectively.
Egdon subsidiary, Egdon Resources U.K. Limited ('ERUK') currently holds a 100% interest in both licences.
Under the terms of the farm-in agreement;
· Shell will acquire a 70% working interest in Licences P1929 and P2304, and be appointed as the licence operator
· ERUK will retain a 30% non-operated interest in the Licences
· As consideration, Shell will pay 85% of the costs of the acquisition and processing of a 3D seismic survey covering both the Resolution and Endeavour gas discoveries with the carry on the acquisition costs capped at US$5 million gross, beyond which it would pay 70% of the costs ; and
· Shell will also pay 100% of all studies and manpower costs up to a well investment decision on the Licences
The farm-in is conditional upon;
· Approval from the Oil & Gas Authority ("OGA"); and
· Agreement of a mutually acceptable forward work programme and timeline with the OGA
In December 2019 Egdon announced that the OGA had granted extensions to the Licences to 31 May 2020 subject to securing a farm-in agreement by 31 January 2020 (which this agreement fulfils) and to demonstrating by the 31 March 2020, that the Licensees are on track to deliver a future programme of 3D seismic data acquisition across both Licences (which is in progress). Egdon and Shell will now engage with the OGA to agree the nature and timing of the forward work programme which will enable further licence extensions to be granted to accommodate this.
A Competent Person's Report prepared by Schlumberger Oilfield UK PLC (April 2019) reported Mean Contingent Gas Resources of 231 billion cubic feet of gas ("bcf"), with a P90 to P10 range of 100 to 389 bcf, attributable to the Resolution gas discovery (P1929). The Resolution discovery was made by Total in 1966 when well 41/18-2 flow tested gas from the Permian aged Zechstein carbonate (limestone) reservoir. Additionally, Egdon estimates that the Endeavour gas discovery (P2304) contains Mean Contingent Resources of 18 bcf, with a P90 to P10 range of 10 to 28 bcf.
Commenting on Shell's farm-in to these licences, Mark Abbott, Managing Director of Egdon Resources plc, said:
"We are delighted to have signed a farm-in agreement with Shell in respect of these highly prospective licences. This transaction validates our views on the potential of these blocks and introduces a highly experienced and respected operator to progress appraisal activity on the Resolution and Endeavour gas discoveries. In difficult market conditions Egdon has secured a substantial carry on costs to the well investment decision whilst retaining a material 30% interest in the licences.
Our immediate focus will be to work with Shell to agree a forward work programme and timeline for the licences with the OGA. The first part of this work programme will be the acquisition of a marine 3D seismic survey to enable a decision on the contingent appraisal well. We look forward to working with Shell and benefitting from their substantial worldwide operational experience and expertise, including in the development of carbonate reservoirs of this type."