Deloitte Economic Assessment of Bagpuss and Blofeld Prospects
TORONTO, ONTARIO--(Marketwired - May 2, 2014) - North Sea Energy
Inc. ("NSE" or the "Company") (TSX-VENTURE:NUK) is pleased to
announce the results of an independent "Economic Assessment of
Blocks 13/24c and 13/25 (Bagpuss and Blofeld), North Sea, United
Kingdom". This report issued by Deloitte LLP ("Deloitte") on April
30, 2014, utilized the resource and geologic information developed
by Senergy (GB) Limited ("Senergy") on June 25, 2013 with an
effective date of May 30, 2013. (Please refer to the Company's
press release issued on June 27, 2013 for discussion on the risks
and level of uncertainty associated with recovery of the resources,
the significant positive and negative factors relevant to the
estimate of the resources.)
Conclusions
Deloitte's economic assessment of the Bagpuss and Blofeld
prospects indicates that, on a cumulative basis, the Best, Mean,
and High case resource estimates are commercial under the assumed
development, pricing, and cost scenarios, yielding after-tax
internal rates of return of approximately 18, 28, and 51 percent,
respectively.
A sensitivity to the economic scenarios discussed above was run
to estimate the effect of a three-year delay in the development of
the Bagpuss and Blofeld prospects on the NPV10 of the project.
Under this scenario (first production in 2019), a net decrease in
NPV10 of 30, 25, 22 percent is estimated for the Best, Mean, and
High cases, respectively.
The following tables summarise the potential economics of the
prospects as follows:
|
Net Present Value BTAX (NSE) |
|
0.00% |
|
5.00% |
|
10.00% |
|
15.00% |
|
|
|
|
|
|
|
|
|
|
|
|
Low |
Sum of Discounted Cash Flows (MM$) |
|
$ |
126.85 |
|
$ |
(8.35 |
) |
$ |
(65.30 |
) |
$ |
(90.33 |
) |
IRR |
Total Company Share Prod. (Mboe) |
|
|
4,555.13 |
|
|
4,555.13 |
|
|
4,555.13 |
|
|
4,555.13 |
|
4.5% |
Implied $/boe |
|
$ |
27.85 |
|
$ |
(1.83 |
) |
$ |
(14.33 |
) |
$ |
(19.83 |
) |
|
|
Best |
Sum of Discounted Cash Flows (MM$) |
|
$ |
1,406.39 |
|
$ |
647.08 |
|
$ |
311.70 |
|
$ |
146.23 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
20,816.24 |
|
|
20,816.24 |
|
|
20,816.24 |
|
|
20,816.24 |
|
26% |
Implied $/boe |
|
$ |
67.56 |
|
$ |
31.09 |
|
$ |
14.97 |
|
$ |
7.02 |
|
|
|
High |
Sum of Discounted Cash Flows (MM$) |
|
$ |
6,536.02 |
|
$ |
3,291.28 |
|
$ |
1,842.35 |
|
$ |
1,112.26 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
90,006.73 |
|
|
90,006.73 |
|
|
90,006.73 |
|
|
90,006.73 |
|
67% |
Implied $/boe |
|
$ |
72.62 |
|
$ |
36.57 |
|
$ |
20.47 |
|
$ |
12.36 |
|
|
|
Mean |
Sum of Discounted Cash Flows (MM$) |
|
$ |
2,656.38 |
|
$ |
1,296.08 |
|
$ |
689.51 |
|
$ |
385.71 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
38, 148.00 |
|
|
38, 148.00 |
|
|
38, 148.00 |
|
|
38, 148.00 |
|
39% |
Implied $/boe |
|
$ |
69.63 |
|
$ |
33.98 |
|
$ |
18.07 |
|
$ |
10.11 |
|
|
|
|
Net Present Value ATAX (NSE) |
|
|
0.00 |
% |
|
5.00 |
% |
|
10.00 |
% |
|
15.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
Sum of Discounted Cash Flows (MM$) |
|
$ |
(14.30 |
) |
$ |
(73.61 |
) |
$ |
(99.33 |
) |
$ |
(109.87 |
) |
IRR |
Total Company Share Prod. (Mboe) |
|
|
4,555.13 |
|
|
4,555.13 |
|
|
4,555.13 |
|
|
4,555.13 |
|
-1% |
Implied $/boe |
|
$ |
(3.14 |
) |
$ |
(16.16 |
) |
$ |
(21.81 |
) |
$ |
(24.12 |
) |
|
|
Best |
Sum of Discounted Cash Flows (MM$) |
|
$ |
719.47 |
|
$ |
303.83 |
|
$ |
121.28 |
|
$ |
32.01 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
20,816.24 |
|
|
20,816.24 |
|
|
20,816.24 |
|
|
20,816.24 |
|
18% |
Implied $/boe |
|
$ |
34.56 |
|
$ |
14.60 |
|
$ |
5.83 |
|
$ |
1.54 |
|
|
|
High |
Sum of Discounted Cash Flows (MM$) |
|
$ |
2,695.08 |
|
$ |
1,401.09 |
|
$ |
799.39 |
|
$ |
485.28 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
90,006.73 |
|
|
90,006.73 |
|
|
90,006.73 |
|
|
90,006.73 |
|
51% |
Implied $/boe |
|
$ |
29.94 |
|
$ |
15.57 |
|
$ |
8.88 |
|
$ |
5.39 |
|
|
|
Mean |
Sum of Discounted Cash Flows (MM$) |
|
$ |
1,200.65 |
|
$ |
574.55 |
|
$ |
290.12 |
|
$ |
145.62 |
|
IRR |
Total Company Share Prod. (Mboe) |
|
|
38,148.00 |
|
|
38,148.00 |
|
|
38,148.00 |
|
|
38,148.00 |
|
28% |
Implied $/boe |
|
$ |
31.47 |
|
$ |
15.06 |
|
$ |
7.61 |
|
$ |
3.82 |
|
Introduction
North Sea Energy holds a 15 percent working interest in offshore
mineral rights in the Bagpuss and Blofeld prospects of Blocks
13/24c and 13/25 (License P1943). North Sea Energy farmed out a 25
percent working interest in the Blocks to Maersk Oil, effective
August 2013. Under the farm-in agreement, Maersk Oil is to carry
100 percent of NSE's costs, subject to a cap, to drill the initial
Bagpuss Prospect exploration well including a site survey and
agreed past costs. In addition, Maersk Oil is to carry 50 percent
of NSE's costs, subject to a cap, on a Bagpuss appraisal well
should one be drilled. Premier Oil Plc., EnCounter Oil, and
Groliffe Limited hold the remaining 37.5, 15.0, and 7.5 percent
working interests in the Blocks, respectively. Premier Oil took
over as operator of the Blocks from EnCounter Oil in November
2013.
The Bagpuss and Blofeld prospects are located on the central
margin of the Halibut Horst, which is a well-defined basement
uplift at the eastern extremity of the Inner Moray Firth, in the
North Sea, United Kingdom. The Blocks are adjacent to the producing
Blake and Captain Fields. The Bagpuss and Blofeld prospects are
structural closures with an interpreted Lower Cretaceous reservoir,
located at a relatively shallow depth of approximately 1,500 feet
subsurface. The joint venture partnership is also targeting the
Granite Wash and the Granite zones that sit below the Bagpuss and
Blofeld prospects.
Field activity
The acreage containing the Bagpuss and Blofeld prospects was
first drilled by Amoco in 1981. Well 13/24a-2A encountered basement
at 1,321 feet subsea, significantly higher than anticipated. The
well encountered potentially prospective intervals between the
Lower Cretaceous sandstones and the underlying Granite Wash
interval, as evidenced by oil shows. The obtained bottom-hole core
indicated a potential oil column of over 225 ft. However, well
13/24a-2A was plugged and abandoned as a dry well by Amoco. Blocks
13/24c and 13/25 were subsequently owned by a group of companies
led by Petro Canada, which further assessed the prospects through
the acquisition of a high-resolution 2D seismic survey covering
1,051 line-km of data in July 2007. Petro Canada relinquished the
prospects in 2010 after outlining development plans and production
scenarios. Petro Canada had characterized the first well at Bagpuss
(then known as Fat Cat) as appraisal risk, with a 56 percent chance
of success.
Exploration Interest in the area has revived due to the
successful development of the heavy oil Captain Field which also
lies west along the Halibut Horst.
Available data
The estimates of recoverable petroleum volumes included in the
economic projections are based on an independent review of the
prospective resources associated with Blocks 13/24c and 13/25
prepared by Senergy according to the standards set out in the
Canadian Oil and Gas Evaluation Handbook (COGEH) and in compliance
with the requirements of National Instrument 51-101. Oil production
forecasts were developed with consideration given to the
performance and production history of the offsetting Captain Field,
as published by the U.K. Department of Energy and Climate Change.
The economic assumptions employed herein are based on data and
projections presented by Petro Canada for Blocks 13/24d and 13/25a
in a Relinquishment Report submitted to the Department of Energy
and Climate Change (DECC) in February 2010. This data was used in
conjunction with Deloitte's experience in offshore petroleum
evaluations to build cash flow projections over the economic life
of the project and draw conclusions on its commerciality going
forward.
Resource estimates
The stochastic resource estimates that form the basis of this
economic assessment were prepared in independence and compliance
with NI 51-101 regulations by Senergy, based on data made available
by North Sea Energy and the operator of the Blocks, EnCounter. The
data comprised operator information, geological, geophysical, and
engineering information and interpretations along with a series of
technical reports. Where necessary and applicable, additional data
was obtained by the independent evaluator from the public domain.
Deloitte has conducted a qualitative review of the methodology
employed by Senergy and the available sources of information and
concluded that all relevant factors impacting the evaluation of
these assets were considered, including interpretation of
geological structures and prospective zones, geological risks and
historical drilling data from the 13/24a-2A well. As such, the
results and interpretation presented by Senergy appear within
reason.
Oil pricing
Shallow fields with subsurface depths similar to those expected
at Bagpuss and Blofeld are generally associated with the production
of heavier crudes. For the purposes of this assessment, an oil
quality of 19-21 API has been assumed based on analogy to the
offsetting Captain Field. Heavy crudes, such as the Mexican Maya,
trade at approximately 90 percent of the Brent Light Crude spot
price. This discount was applied to Brent Spot prices, as projected
in the Deloitte March 31, 2014 price forecast.
The gas prices forecast in this assessment are based on the UK
NBP Escalated reference price included in the Deloitte March 31,
2014 Price Forecast. A $0.50/Mcf deduction was applied to account
for gas transportation costs.
Capital and operating expenses
The relinquishment report submitted by Petro Canada was the
basis of the capital and operating costs assumptions used in this
economic assessment. As the relinquishment report was prepared in
2010, cost estimates have been adjusted for inflation. It is
important to note that the production and well operating costs have
been assumed to have a fixed component of 65 percent, with the
remaining 35 percent being allocated as variable costs. A summary
of the estimated capital and operating costs is provided below:
|
Table 4 - Capital and operating
expenditure assumptions |
|
|
|
|
|
Exploration & Appraisal1 (MM$) |
57.41 |
50.79 |
|
Pre-Development/FEED (MM$) |
25.39 |
25.39 |
|
Facilities (MM$) |
545.42 |
545.42 |
|
D, C & T Development Wells (MM$/well)2 |
13.20 |
13.20 |
|
Fixed cost/ well/ year (MM$) |
813 |
813 |
|
Variable cost / bbl ($/bbl) |
3.68 |
3.68 |
Pre-development expenditures are expected to be incurred in
2015, with first oil projected for 2016. All cases assume that the
operator will elect to purchase (rather than lease) the FPSO units
for the two Blocks. Abandonment and reclamation costs were included
at an average cost of 2.5 MM$ per well, for both horizontal
producers and vertical injectors. All costs have been inflated at a
rate of two percent per year.
Tax rates
The tax/ fiscal regime applied to this assessment is based on
Deloitte's interpretation of the UK Government's Ultra Heavy
Oilfield tax relief program, applicable to crudes of 18° API or
heavier. Under this program, a reduced tax rate of 30 percent is
applicable up to £800 MM allowance (to a maximum of £160MM
annually), with the remainder of the income being taxed at 62
percent. Tax relief for income is inclusive of operating and
capital costs. For the purposes of this assessment, tax payments
were offset by one year in the projected cash flows.
Before Tax Cash Flow
Based on the data and assumptions discussed above, Deloitte
generated before and after tax cash flows for each level of
probability (Low, Best, High, and Mean Cases, respectively). The
tables and graphs below illustrate annual and cumulative before and
after tax cash flows over the economic life of the Bagpuss and
Blofeld prospects.
About North Sea Energy
Inc.
North Sea Energy Inc. (TSX-VENTURE:NUK) is an oil and gas
company that holds a portfolio of high impact interests focused on
the Moray Firth in the offshore UK North Sea. These interests
include Bagpuss and Blofeld (blocks 13/24c and 13/25), Norfolk
(blocks 12/16b and 12/17b), Cloud (block 14/29b), Del Monte (block
19/3) and Golden Phoenix (block 18/10a).
1Exploration and Appraisal costs were excluded under the
assumption that Maersk Oil will carry 100% of NSE's costs, subject
to a cap, to drill the initial Bagpuss Prospect exploration well
and perform a site survey.
2Average drilling, completion, and tie-in cost for horizontal
producer/ vertical injection wells.
As per CSA Staff Notice 51-327 initial production test
results should be considered preliminary data and such data is not
necessarily indicative of long-term performance or of ultimate
recovery.
Although the Company believes that the expectations
reflected in such independent economic analysis and information are
reasonable, it can give no assurance that such expectations will
prove to be correct. Since the report and information addresses
future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results may differ
materially from those currently anticipated due to a number of
factors and risks. These include, but are not limited to, the risks
associated with the oil and gas industry in general such as
operational risks in development, exploration and production,
delays or changes in plans with respect to exploration or
development projects or capital expenditures, the uncertainty of
estimates and projections relating to production rates, costs and
expenses, commodity price and exchange rate fluctuations, marketing
and transportation, environmental risks, competition, the ability
to access sufficient capital from internal and external sources and
changes in tax, royalty and environmental legislation.
Certain information included in this material constitutes
"forward-looking statements". The words "expect", "will", "intend",
"estimate" and similar expressions or statements that certain
events or conditions "may" or "will" occur identify forward-looking
statements. Forward-looking statements are necessarily based upon a
number of estimates and assumptions that, while considered
reasonable by management at the date the statements are made, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. North Sea Energy Inc.
("NSE" or the "Company") cautions the reader that such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially
different from the Company's estimated future results, performance
or achievements expressed or implied by those forward-looking
statements and the forward-looking statements are not guarantees of
future performance. These risks, uncertainties and other factors
include, but are not limited to, risks associated with the oil and
gas industry such as government regulation, environmental and
reclamation risks, title disputes or claims, success of oil and gas
activities, future commodity prices, costs of production, possible
variation in oil and gas reserves, oil and gas resources, grade or
recovery rates, failure of plant, equipment or processes to operate
as anticipated, accidents, labour disputes, the timing of estimated
future production, capital expenditures, financial market
fluctuations, requirements for additional capital, conclusions of
economic evaluations, limitations on insurance coverage, risks
associated with using third party contractors and inflation. The
Company disclaims any intention or obligation to update or revise
any forward-looking statements whether as a result of new
information, future events or otherwise, except as required by
applicable law.
A prospect is an untested exploration target that is defined
sufficiently to be considered drill-ready.
Prospective resources are those quantities of oil and gas
estimated, as of a given date, to be potentially recoverable from
undiscovered accumulations by application of future development
projects. Resource categories are as defined in the Canadian Oil
and Gas Evaluation Handbook (COGEH).
There is no certainty that any portion of the resources will
be discovered. If discovered, there is no certainty that it will be
commercially viable to produce any portion of the resources.
"Bagpuss and Blofeld" is a promote licence that expires on January
1, 2014 when a drill or drop commitment has to be made to the
Department of Energy and Climate Change ("DECC").
All Blocks are subject to conditions imposed by DECC and may
be relinquished if conditions are not met.
Net present value calculations do not represent the fair
market value of the prospects.
North Sea Energy Inc.J. Craig Anderson(416)
366-4700canderson@northseaenergy.caAuburn Partners Inc.Wesleigh
Carusi647-430-8760info@auburnparnters.com
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