Western Isles FPSO - Credit: JOG (File image)
UK-based oil firm Serica Energy said Thursday it had agreed to acquire a 30% non-operated interest in the UK North Sea licenses P2498 and P2170 which together make up the Greater Buchan Area (“GBA”) from Jersey Oil & Gas.
Completion is subject to regulatory, partner, and interested party approvals and is expected to occur early in 2024. Following completion, the partners in the GBA will be Serica Energy (UK) Limited (30%), NEO Energy (50% and operator) and JOG (20%).
As a result of the transaction, Serica will have the option of participating in the redevelopment of the Buchan field and other potential developments in the GBA.
The GBA encompasses several oil and gas accumulations some 150 km north-east of Aberdeen, in the Outer Moray Firth. The largest of these accumulations is the Buchan field which produced for over thirty years, ceasing production in 2017 owing to the end of the usable life of the floating production facility.
The Concept Select Report submitted to the NSTA for the re-development of Buchan is based on a new production hub located at the Buchan field utilizing the floating production, storage, and offloading (“FPSO”) vessel currently operating on the UK Western Isles fields and planned to come off-station in the second half of 2024. The acquisition of the FPSO by NEO on behalf of the participants in the Buchan joint venture was announced on November 17, 2023.
A phased development is envisaged involving the re-development of the Buchan field in Phase 1 and the possible development of the J2 and Verbier discoveries in Phase 2. Mid-case contingent resources from the Buchan field alone are estimated to be in region of 70 million barrels of oil equivalent, making it the third largest pre-development field in the UKCS. There are other discoveries and prospects in close proximity which might provide additional tie-back opportunities to the FPSO, Serica said.
FDP in 2H of 2024
A proposed Field Development Plan (“FDP”) for Buchan is expected to be submitted to the NSTA shortly, with approval of the FDP potentially in the second half of 2024.
The development concept includes limited works on the FPSO in order to prepare it for re-deployment.
These works involve the installation of water injection booster pumps, produced water injection modifications, and preparation of the vessel for future electrification. Following the recent Innovation and Targeted Oil & Gas (“INTOG”) licence awards, there is the possibility of third-party floating wind power developments located close to the GBA. It is anticipated that the FPSO will be connected to one of these, should they become available. Oil export is planned to be via shuttle tankers.
Subject to project sanction and regulatory approval, the target for first production is late 2026. Peak production rates are expected to be around 35,000 barrels per day. Gross development costs are estimated to be in the order of £850-950 million, which under the current fiscal terms, are expected to qualify for tax relief at a rate of approximately 91%.
Serica Energy said that the transaction was structured as a farm-in, with modest up-front and contingent consideration payments, and a carry of pre-Financial Investment Decision (“FID”) and development costs.
In return for a 30% working interest in the GBA licences, on completion Serica will make a cash payment to JOG of US$ 6.8 million.
Serica is not committed under the terms of the transaction to participate in the GBA developments. In the event of participation at each relevant stage, Serica will make further payments to JOG as follows.
- US$7.5 million on approval of the Buchan FDP by the NSTA.
- A 7.5% carry of the Buchan field pre-FID and development costs (paying 37.5% for a 30% working interest). The development cost carry is capped at 7.5% of the budget approved by the Buchan Joint Venture for the development of the Buchan field at the time of the FDP. Subject to the cap, the development cost carry equates to a 1.25 carry ratio for development costs; the same as the arrangement agreed between JOG and NEO Energy earlier this year.
- US$3 million on approval by the NSTA of a J2 FDP.
- US$3 million on approval by the NSTA of a Verbier FDP.
Mitch Flegg, Chief Executive of Serica commented: “We are delighted with this transaction, which gives Serica a significant interest in the proposed Greater Buchan Area project, potentially adding a third production hub and further resilience to Serica’s North Sea portfolio. In common with our other hubs, the GBA plan involves utilizing existing infrastructure – in this case an FPSO – with the possibility of exploiting multiple accumulations in the area. Moreover, the development has been designed to deliver an industry-leading low level of carbon emissions, consistent with Serica’s objective of reducing the overall carbon intensity of its activities.
The transaction demonstrates the benefits of Serica’s strong balance sheet. Our financial strength enables us to take advantage of suitable opportunities to expand the portfolio and we will continue to take a very proactive approach to business development, while also investing in our existing portfolio and paying dividends to shareholders. The transaction is structured such that most of the consideration payable by Serica is contingent and linked to making progress in the project. Our participation will also be financially efficient with Serica benefiting from tax reliefs on its investment.
We congratulate Jersey Oil & Gas for having created and progressed the GBA project before recently transferring operatorship to NEO Energy. We look forward to working with them and NEO, including the latter’s experienced and well-respected project team.”