JOG Targets 2026 for First Oil from Greater Buchan Area as Farm-out Deal Struck

UK North Sea-focused oil and gas company Jersey Oil & Gas (JOG) said Thursday it had agreed to farm out a 50% interest in the Greater Buchan Area in the UK North Sea to NEO Energy.

In exchange for entering into definitive agreements to divest a 50% working interest and operatorship in the GBA licences to NEO, JOG will receive 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.

The primary conditions precedent to completing the transaction are 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.

"The company will be working in partnership with NEO to select the preferred development solution, having confirmed a short list of attractive options for the GBA which utilize existing North Sea infrastructure. The unstable fiscal conditions resulting from the introduction and revision of the Energy Profits Levy during 2022 have been challenging.  As the joint venture moves forward towards first oil, which is targeted for 2026, it will be mindful of the future fiscal attractiveness of the UK," JOG said.

JOG said 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.

Andrew Benitz, CEO of Jersey Oil & Gas, commented: "We are delighted to announce this transaction with NEO Energy, a well-funded industry heavyweight and the fifth-largest producer in the UKCS.  

"The farm-out marks a major value creation moment for JOG, a significant de-risking of the GBA development program, 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."

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.

In the central North Sea area referred to as the Greater Buchan Area ("GBA"), Jersey Oil & Gas holds operatorship and 100% working interests in blocks that contain the Buchan oil field and J2 oil discovery and an 100% working interest in the P2170 Licence Blocks 20/5b & 21/1d, that contain the Verbier oil discovery and other exploration prospects.