(Alliance News) - Independent Oil & Gas PLC said on Friday that it has entered a farmout agreement with CalEnergy Resources Ltd for half of its southern North Sea assets, sending its shares up.
Shares in Independent Oil were up 33% at 21.30 pence each in London on Friday afternoon.
CalEnergy will pay the UK-focused gas & oil company an initial GBP40.0 million cash payment and could pay an additional GBP125.0 million in core project costs.
Independent Oil said CalEnergy could finance GBP60.0 million in phase one development costs and GBP65.0 million could be paid during phase two.
CalEnergy will receive 20% of Independent Oil's net revenue from the first phase of development, up to a cap of GBP91.0 million.
In addition, CalEnergy could pay a royalty capped at GBP9.8 million based on production in the Goddard field, which is 70 kilometres off the Norfolk coast and is part of Independent Oil's second phase of development.
The southern North Sea, which comprises of Independent Oil's upstream assets, as well the Thames Pipeline and Thames Reception Facilities are included in the farm-out. The company Harvey licenses are excluded from the agreement, however.
CalEnergy will have the option to farm in to 50% of the Harvey licenses within three months after the completion of the appraisal well, Independent Oil said. If CalEnergy did pursue this option, it would pay a further GBP20.0 million in cash.
Uncapped royalties would also be included in the agreement and if the Harvey field produces 129 billion cubic feet of natural gas, its best estimate, CalEnergy would pay GBP61.3 million, Independent Oil said.
The two companies also signed an area of mutual interest agreement to pursue further business development on the Thames Pipeline.
Chief Executive Andrew Hockey said: "The successful Farm-out to a partner of the stature of CalEnergy Resources, part of Berkshire Hathaway Energy Company, is a landmark transaction for Independent Oil & Gas which should deliver very significant value for our shareholders both now and in the future.
"This transaction with CalEnergy is a strong validation of our exciting portfolio of upstream and infrastructure assets, as well as our focused southern North Sea gas strategy which can generate exceptional shareholder returns."