(Sharecast News) - UK energy company Egdon Resources announced its decision to farm into the onshore production licence PL081 on Monday, as part of the farmout option agreement it inked with York Energy UK in February.
The AIM-traded firm said that in addition, an agreement had been signed by both Egdon and York with Cuadrilla North Cleveland - the sole licensee of PEDL347.
It said that agreement would lead to a mutual farm-in, and would equalise the interests between the two licences.
Both licences encompass the Weaverthorpe Prospect, located at a shallow depth of 1,000 metres, and identified in the Sherwood Sandstone of the Triassic period.
Egdon said the prospect is positioned directly above the interpreted gas pay of the Fordon-2 well, which BP drilled in 1974.
Over the recent six-month option tenure with York, Egdon had successfully reprocessed and interpreted 214 kilometres of 2D seismic data.
Additionally, it had executed more technical and operational research to underscore the commercial potential of the prospect.
The agreement would see the three parties - Egdon, York, and Cuadrilla - redistribute the legal and beneficial interests in both licences.
Following the distribution, the holdings would be Egdon with 52.5%, Cuadrilla with 25%, and York with 22.5%.
Egdon would become the official operator of the licences, and after the recovery of Egdon's farm-in costs, an added 2.5% interest from both licences would be allotted to York.
The parties had pledged to finalise the agreement within the coming six weeks, with a view to discuss and establish a joint operating agreement for the licences in the subsequent six-week period.
Egdon said it had committed to bear the full costs related to the planning, drilling, logging, and testing of the Weaverthorpe Prospect under the licences, with the work programme having a three-year completion window.
Under the original agreement, Egdon had taken care of the work during the option period, and was also responsible for covering 100% of the 2023 licence fees for PL081.
Additionally, Egdon would compensate York with £0.1m, which would be reduced by any 2023 licence fees that had been settled or were pending.
The company would also handle the regulatory and legal costs associated with transferring the licence interests and operatorship.
"Our technical, commercial and operational due diligence has confirmed our previous view that Weaverthorpe is a robust and commercially attractive conventional gas prospect, spanning the PL081 and PEDL347 licences," said managing director Mark Abbott.
"This has triggered the exercise of the option on PL081 and an agreement with Cuadrilla in respect of PEDL347, which when concluded, will cover the entire prospect area and allow the optimal appraisal and development of Weaverthorpe on behalf of the new joint venture.
"Indigenous gas resource like Weaverthorpe provide local employment and generate taxes whilst having compelling environmental and security of supply benefits by reducing the UK's increasing reliance on imports of LNG which carry significantly higher pre-combustion emissions."
Abbott said producing gas from Weaverthorpe would be "fully aligned" with the government's Energy Security Strategy and net zero targets.
"We look forward to working with York, Cuadrilla and our wider stakeholders on delivering the planned work programme over the coming period."
At 0841 BST, shares in Egdon Resources were down 2.33% at 4.2p.
Reporting by Josh White for Sharecast.com.
