LONDON (Alliance News) - Independent Oil and Gas PLC Thursday said the plan to drill a well on the Skipper licence in the UK North Sea is in the "advanced stages", but the company still has a lot of work to do before it can drill.
Independent Oil said the planning work for the well was already at an advanced stage as far back in September, as it pushes to try to drill it before the end of the year. However, the company needs to secure permits and funding and to complete the deal which will see the company take full control of the licence, before the well can be drilled.
The company already applied for an extension to the licence back in August to give it more time to source contractors and finalise financing for the work programme on the licence, after an "internationally listed group" pulled out of a deal which was set to inject USD10.0 million of equity funding, alongside a large debt facility, into the company.
Independent Oil currently owns 50% of the Skipper licence, but struck a deal earlier this year to purchase the other 50% of the licence held by Alpha Petroleum Resources Ltd to take full control.
Although it has signed that deal, Independent Oil cannot complete the transaction until it sources some funding to ensure it can afford to drill the well on the licence. The acquisition is dependent on securing funding for the well.
"Drilling this well on Skipper secures the licence, allows Independent Oil to complete the agreed acquisition of 50% of the licence from Alpha and subject to Oil and Gas Authority and Department for Energy and Climate Change approval, will see [the company] become a licence operator in the UK Continental Shelf," said Chief Executive Mark Routh.
Back in October, Independent Oil's financial position became dire as it warned it only had enough funds to last a month or two, before raising GBP150,000 to keep it ticking over.
On Thursday, the company said GE Oil & Gas, the company which will provide the wellheads and other equipment to drill the well, has agreed to provide the company with a GBP2.0 million loan to part-fund the Skipper well, suggesting it is still not enough to push forward.
Independent Oil also said Weatherford Technical Services Ltd has agreed to extend the repayment date for a USD2.0 million loan provided to the company to December 2016 from the original deadline of September 2016.
On top of its funding problems, Independent Oil still needs to secure a rig to drill the well and strike deals with other service companies to secure the logistical support needed.
"Discussions are ongoing with other service providers for the rig as well as vessels, helicopters and logistics support. The directors currently expect discussions to be concluded and the necessary contracts entered in to in short order," said the company.
AGR Well Management has been providing well planning support to the company and, subject to regulatory approval, will operate the Skipper well.
Independent Oil said it has agreed that "all or part" of the costs for the Skipper well will be deferred, apart from the costs incurred through work carried out by AGR Well Management.
Those costs owed to AGR Well Management will be satisfied through a combination of cash and shares. Importantly, Independent Oil said it may have to gain shareholder approval should it need or choose to satisfy the fees via shares.
Another barrier to Independent drilling the well is permitting. The company is still waiting for a drilling permit from the UK Oil and Gas Authority, and did not reveal when it expects that to be awarded. It said all technical and environmental submissions, including the permits, are "progressing".
"Commencement of drilling is contingent upon the timing of approvals relating to well permitting, completion of well funding, completion of the acquisition of the other 50% of Skipper, and transfer of operatorship," said the company.
Once drilling operations can finally start, the well will be drilled to 5,600 feet to try to retrieve good quality oil samples and to test the reservoirs in order to collect data which will be used to plan the wider development over the Skipper licence.
Independent Oil said an approved field development plan would lead to its 34.1 million barrels of contingent resources being converted into 2P reserves. Based on those barrels, the company believes the breakeven Brent price for the project is around USD34 per barrel, considerably lower than current prices.
Brent was trading below USD47 per barrel on Thursday morning.
"The results from the well should allow us to prepare the field development plan, which upon approval will convert this contingent resource into proven reserves. This would see a more than ten-fold increase in Independent Oil's proven reserves," said Routh.
The Skipper well also will drill into two mapped reservoir structures beneath the Skipper oilfield in the Lower Dornoch and Maureen formations, where Independent Oil believes there could be an additional 46.0 million barrels of oil in place. If oil is found there, the company said it will co-develop them with the Skipper oilfield that lies above.
"We are absolutely committed to the future of the North Sea and whilst this may be seen as a counter cyclical investment, we are confident that the economics are robust at today's prices and will only improve if and when commodity prices recover," said Routh.
Independent Oil shares were down 5.7% to 6.25 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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