Jersey Oil & Gas plc (JOG) has agreed a 50% farm-out with NEO Energy for the Greater Buchan area (GBA) licences in the North Sea.
TRANSACTION TERMS
The GBA comprises P2498 and P2170 licences, which contain the Buchan oil field, the J2 and Verbier oil discoveries and a number of exploration prospects.
JOG said that the deal with NEO “unlocks the route” to monetise more than 100 million barrels of oil equivalent.
The company will receive 12.5% carry of the Buchan field development costs included in the field development plan (FDP) as well as staged cash payments totalling £28.9 million.
NEO will carry JOG’s 50% share of the estimated $25m cost to take the Buchan field through to FDP approval.
On completion of the transaction JOG will receive $2m cash and on finalisation of the GBA development solution a further $9.4m cash.
Once the Buchan FDP receives regulatory approval, JOG will receive $12.5m cash.
NEO will pay JOG a further $5m cash payment on each approved FDP for J2 and Verbier oil discoveries.
OPERATORSHIP
JOG said that the main conditions precedent to completing the transaction are approvals from the NSTA for the transaction and the associated extension of the company’s two GBA licences.
Operatorship of the licences will transfer to NEO following completion of the deal, with first oil targeted for 2026.
PARTNER
NEO, a major UK North Sea operator, produces approximately 90,000 barrels of oil equivalent per day.
The company is backed by HitecVision, a private equity investor focused on Europe’s offshore energy industry and managing $8 billion of assets.
NEO has an option to increase its 50% interest in the Buchan licence by up to an additional 37.5% in exchange for a further cash payment.
JOG plans future farm-outs for a further 20-25% while ultimately retaining a 20-25% carried interest.
FINANCES
JOG added that the unstable fiscal conditions from the introduction and revision of the Energy Profits Levy during 2022 had been challenging, but it would be “mindful of the future fiscal attractiveness of the UK”.
The company remains “well funded” for its on-going and planned work programmes, with a cash balance of approximately £6.5 million as at 31 December 2022.
Cash payments from NEO will fund JOG’s growth strategy and provide additional working capital.
COLLABORATION
Chief executive Andrew Benitz said that the farm-out marked a major value creation moment for the company.
“[It is also] a significant de-risking of the GBA development programme, from both an operational and funding perspective, and provides the springboard from which to grow the long-term value of the business.
“We are looking forward to working collaboratively with NEO Energy to select the optimal development solution for the GBA and taking the project through to sanction and on into future production.”