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Oilman Jim's Private Blog


Independent Oil & Gas - Corporate Update

Independent Oil and Gas plc ("IOG" or "the Company"), (AIM: IOG.L), the development and production focused oil and gas company, is pleased to provide a corporate outlook at the start of 2020, during which the primary focus will be progressing the core development project ("Core Project") in the Southern North Sea ("SNS").

Key achievements - 2019

·      Successful farm-out ("Farm-out") of 50% of Core Project to CalEnergy Resources Limited ("CER")

o  £40 million up-front payment with £125 million of development carry

o  IOG maintaining operatorship of all its assets

o  Alliance with CER for further SNS business development

·      Successful €100m bond issuance, listed on Oslo Børs

·      £19 million Institutional equity fundraise, including Board/management subscription and open offer

·      Acquisition of the onshore Thames Reception Facilities ("TRF") at Bacton Gas Terminal

·      Conversion, repayment and restructuring of previous debt facilities

·      Strengthening of board and management team

·      Final Investment Decision ("FID") taken with full funding secured

·      Core Project development underway (including first carry drawdown)

o  First gas expected in July 2021

o  Free cashflow from Core Project expected in October 2021

·      Harvey appraisal well drilled, with initial analysis indicating c.40 Bcfe mid-case recoverable volumes at Harvey and c.100 Bcfe at nearby Redwell

·      Number of licences applied for in 32nd Offshore Licensing Round in alliance with CER

Outlook - 2020

·      Phase 1 Field Development Plan ("FDP") approval

·      Formalisation of Phase 1 Platform & Subsea Infrastructure contracts

·      Start of physical platform construction

·      Offshore pipelay campaign

·      TRF refurbishment works at Bacton Gas Terminal

·      Rig contracting

·      Subsurface evaluation of Redwell-Harvey Area

·      CER decision on Redwell-Harvey Area option exercise

·      32nd Round results

·      Focused business development

2019 Review

IOG achieved significant progress in 2019, delivering a series of milestones to create a strong platform from which to deliver the Core Project. Following the restructuring of existing debt facilities, in Q2 the Company raised £19 million in equity from institutional investors, a Board/management subscription and a fully subscribed open offer. The board was also strengthened with key appointments of two new high quality non-executive directors and a new CFO.

In Q3 there followed the two major transactions of the year: the signing of the £165 million Farm-out of 50% of the Core Project assets (excluding Harvey) to CER and the €100 million bond issue (subsequently listed on the Oslo Børs). These two transactions fully funded the Core Project, paving the way for FID in October 2019. Core Project first gas is expected in July 2021 with first free cashflow later that year.

A key element in reaching FID was the Thames Reception Facilities (TRF) acquisition, for a nominal sum, which also completed in Q4 alongside the Farm-out. The TRF contains gas and liquids reception equipment for the Thames Pipeline and is to be refurbished and recommissioned as part of the Phase 1 development.

Finally, IOG drilled the appraisal well at Harvey in Q3 2019 in under two months with no HSE or Lost Time Incidents. Interpretation of the well data to date indicates an approximately 40 Bcfe structure at Harvey - analogous in size to Blythe - and the Redwell discovery extending further than previously thought to an estimated mid-case recoverable 100 Bcfe.

2020 Outlook: Phase 1 Core Project Development

Initial Phase 1 platform and Subsea, Umbilicals, Risers and Flowlines ("SURF") work has been underway since FID, along with further design and engineering work on the Bacton Terminal modifications. SURF and Platform contracts are being finalised and are expected to be announced upon approval by the UK Oil and Gas Authority (OGA) of the Phase 1 FDP, which is expected in Q1.

The joint venture with CalEnergy Resources Limited ("CER") is fully operational, with the £40 million up-front payment received and first amounts of the Phase 1 development carry drawn down.

Given the shallow water depths (20-35 metres), IOG's unmanned platforms are planned to be low cost and low CO₂ footprint facilities. Installation of both Phase 1 platforms, at Southwark and Blythe respectively, is scheduled for the first half of 2021. Meanwhile, summer 2020 will see the pipelay programme for the 24" extension from the Thames Pipeline to the Southwark platform and the other smaller diameter lines which will connect up the Phase 1 fields. Onshore planning work is accelerating for the Thames Reception Facilities refurbishment works at the Bacton Terminal, where reuse of existing facilities is in line with IOG's cost conscious and CO₂-efficient business model. The other major element of the Core Project Phase 1 is the five well drilling programme due to commence in Q1 2021. IOG is building an in-house drilling team to deliver this and expects to engage in detailed rig and services contract discussions early this year.

2020 Outlook: SNS Growth Strategy

Alongside the primary focus of delivering the Core Project on time and on budget, the Company sees a number of routes to further growth. The strategy is to deliver focused, value-accretive growth in a cost-conscious way, leveraging the opportunity value of the Core Project infrastructure.

Licensing rounds are one particular route to add value with relatively low up-front costs. IOG applied for a number of blocks in the 32nd Offshore Licensing Round jointly with CER under the Area of Mutual Interest ("AMI") agreement. The Company took a disciplined approach, focusing only on those licences with sufficient subsurface potential lying in range of tie-back to the Thames Pipeline. Awards are expected to be announced in mid-Q2 2020.

Discoveries on existing IOG acreage offer another value creation route. Further modelling and analysis is underway to provide greater clarity and definition to the c.40 Bcfe Harvey and c.100 Bcfe Redwell resource volume estimates in order to assess the commercial potential of the Redwell-Harvey Area, which lies between the Blythe and Vulcan Satellites hubs. Furthermore, CER will by 27 February 2020 decide whether to exercise its option to farm in to the Redwell-Harvey Area, in exchange for a £20 million up-front payment and a £0.95/MCF royalty on its life-of-field net gas production from Harvey. Alongside this, IOG is also undertaking further evaluations of its Goddard Flanks and Abbeydale assets.

More widely, acquisition and development or re-development of other non-owned assets in the SNS could offer further upside value for the portfolio. IOG is evaluating a number of opportunities through the primary lens of creating shareholder value via high return incremental investments. The infrastructure and hub-led strategy provides competitive advantage in the area, reduces the commerciality threshold in terms of asset size and enables opportunities for high return investments.

Andrew Hockey, CEO of IOG, commented:

"After an exciting year of progress in 2019 which culminated in declaring FID in Q4, 2020 will be a very busy period for IOG with numerous further milestones to deliver. I am delighted to have CalEnergy Resources alongside us in the project as a motivated and financially robust Joint Venture partner.

We have further strengthened the team to ensure that as Operator we execute this substantial project on time and on budget. I look forward to updating you on progress throughout the year.

Our SNS gas development strategy can provide healthy returns by delivering multiple gas assets to the highly import-reliant UK market, in both a cost and carbon conscious way. While remaining firmly focused on delivering our Core Project with maximum efficiency, we also see a variety of paths to build further shareholder value by realising the full potential of our gas hub approach and infrastructure ownership both on and offshore."

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