UK-focused oil and gas company Jersey Oil & Gas has received an extension to the Second Term of its P2498 "Buchan" license in the UK North Sea from the North Sea Transition Authority ("NSTA").
Also, the NSTA has approved Jersey Oil & Gas' request to assign a 50% working interest in both licence P2498 and licence P2170 ("Verbier") to NEO Energy ("NEO"), as part of the Greater Buchan Area farm-out transaction announced in April.
The second term of licence P2498 has been extended by 18 months to February 28, 2025.
Jersey Oil & Gas asked for the extension to provide the licensees with the time required to prepare a Field Development Plan ("FDP") for the redevelopment of the Buchan field, which is planned for submission to the NSTA during 2024.
Following FDP approval, the license moves into the Third Term, which covers the development and production phase of activities for the life of the field.
"Following these approvals, the company has now satisfied the conditions precedent associated with the farm-out of the 50% interest in license P2498 to NEO. In terms of the P2170 licence assignment to NEO, the company is in the process of completing the final outstanding condition precedent. It is anticipated that completion of both licence assignments will occur in June 2023," Jersey Oil & Gas said.
Farm-out terms
As previously reported, in exchange for entering into definitive agreements to divest a 50% working interest and operatorship in the GBA licenses to NEO, JOG will receive a a12.5% carry of the Buchan field development costs included in the FDP approved by the North Sea Transition Authority ("NSTA"); equivalent to a 1.25 carry ratio; Carry for JOG's 50% share of the estimated $25 million cost to take the Buchan field through to FDP approval; 2 million cash payment on completion of the transaction; $9.4 million cash payment upon finalization of the GBA development solution; $12.5 million cash payment on approval of the Buchan FDP by the NSTA; $5 million cash payment on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries.
JOG said back in April that the primary conditions precedent to completing the transaction were receipt of the approvals from the NSTA for the transaction and the associated extension of the company's two GBA licenses. Following completion of the transaction, operatorship of the licenses will transfer to NEO.
JOG said in April it planned to farm out additional equity in the GBA licenses in order to ultimately retain a 20-25% carried interest in the development following FDP approval.
NEO has the option to increase its 50% interest in the Buchan licence by up to an additional 37.5% in exchange for a further cash payment should any of JOG's equity share in the development remain unfunded ahead of FDP submission, with such payment being the pro-rated balance of future cash payments due to JOG post completion in relation to the GBA development solution and Buchan FDP.
Jersey Oil & Gas, in March 2021, announced the concept selection for the Greater Buchan Area project, with the development centered around a single, normally manned, integrated wellhead, production, utilities, and quarters platform, powered from shore, to be located at the Buchan field.
In April 2022, the company said work was progressing "to expand the development options in order to facilitate the farm-out process, with opportunities to utilize existing infrastructure for future production from the GBA under evaluation."
It said at the time that engineering studies were being completed in collaboration with the various counterparties to validate and de-risk the different development solutions and facilitate the negotiation of commercial constructs for the GBA farm-out.
Jersey Oil & Gas said in its April 28, 2022, update that the range of competing development solutions, including tie-backs to existing platforms and re-use of available FPSOs, could enhance the overall development economics.
Announcing the farm-out deal with NEO in April 2023, JOG said that the first oil from the Buchan area was targeted for 2026.