Activity Update
June 25 2009 - 1:00AM
UK Regulatory
TIDMEO.
RNS Number : 4641U
EnCore Oil PLC
25 June 2009
Press Release
For immediate release: 25 June 2009
EnCore Oil plc ('EnCore' or 'the Company')
Activity Update
EnCore Oil plc is pleased to announce an update on its activities.
OFFSHORE ACTIVITIES
Breagh: Following the successful testing of the Breagh horizontal well in
January 2009, located in block 42/13a in the UK Southern North Sea, the company
confirms that along with its partners, it is now in exclusive negotiations with
a third party with regards to the sale of an aggregate 70 per cent equity
interest in the Breagh gas discovery. EnCore intends to sell the whole of its 15
per cent equity in this and the adjacent licences. A sale and purchase agreement
is expected to be signed in the coming weeks and a further announcement will be
made at that time.
Cladhan: (formerly known as Bowstring East) Plans are underway for an appraisal
well to be drilled on the Cladhan light oil discovery located in block 210/29a
in the UK Northern North Sea. Timing of the well is still to be finalised, but
it is likely that this will be Q4 2009 or Q2 2010. EnCore holds a 16.6 per
cent. interest in the discovery and the licence operator is Sterling Resources
Ltd. The initial well, drilled in November 2008, confirmed the presence of a
stratigraphically trapped 110 ft light oil column with no apparent oil-water
contact.
Ceres (formerly known as Barbarossa): Located in the UK Southern North Sea block
47/9c, Ceres is expected to begin first production in Q4 of this year. EnCore
has a 10 per cent. interest in Ceres subject to a 5 per cent. buy back right by
a previous owner. The well is being developed as a subsea tieback jointly with
the nearby Eris discovery.
Catcher (EnCore 15 per cent.): In May, the Company assumed operatorship of
blocks 28/9 and 28/10c following licence operator Oilexco being placed into
administration. The Company is now working with partners, Premier Oil, Nautical
Petroleum and Wintershall, to finalise a plan for a well on the Catcher prospect
which is likely to be drilled in 2010.
Cobra (EnCore 25 per cent. Operator): Following the drilling of the Cobra
appraisal well (48/2c-5) in 2008 the Group has undertaken a number of subsurface
geotechnical studies and is currently carrying out a fracture stimulation study
with a view to redrilling the 48/2c-5 well as a horizontal well and completing
it with fracture stimulation.
Bennett (EnCore 70 per cent.): In 2008, 525 km of 2D seismic data was acquired
and 150 square km of 3D data was reprocessed to better image the Bennett
prospect, located in block 43/15a. The new data has now been interpreted and the
Company is seeking an additional farm-in partner with a view to drilling a well
on the Bennett prospect possibly in 2010.
Ireland: Following the acquisition and interpretation of new seismic data in
2008, Island Oil and Gas (operator) has commenced a scoping reservoir
engineering study to evaluate injection and withdrawal rates for conversion of
the Old Head gas field (EnCore 15 per cent.) to a gas storage facility early in
the future production life of the field. Subject to the results of the
engineering and facilities study, Island will also investigate the potential
conversion of the Schull gas field (EnCore 12.5 per cent.) to a gas storage
facility.
25th Offshore Licencing Round: EnCore, together with a number of
co-venturers, was awarded four licences in the UK 25th Round. Consistent with
our capital management strategy, we did not commit to significant work
programmes on any of the licences awarded. Additionally the Company holds an
option (but not an obligation) to participate at up to 30 per cent. equity on a
ground floor basis in a firm well programme on a licence awarded to a another
party.
ONSHORE ACTIVITIES
EnCore welcomes the recent decision by the Court of Appeal in the Bocardo vs
Star case, relating to claims for sub surface trespass. Subject to any future
appeal decision in favour of Bocardo, the result is regarded as a positive
clarification for our onshore licence portfolio.
Markwells Wood and Havant: The Operator, Northern Petroleum has advised that the
access track and site build for the well at Markwells Wood (PEDL126, EnCore 10
per cent) began in March 2009 and it is expected that the well will be drilled
in Q4 2009 or Q1 2010 depending upon rig availability, and possibly in
conjunction with a well on the Havant Prospect.
Kirkleatham (EnCore 20 per cent.): Progress has been made at the Kirkleatham gas
discovery in licence PEDL068 operated by Egdon Resources, with the outline
agreement in January 2009 of terms for gas sales for power generation on the
Wilton site. A planning application has been submitted and Egdon is targeting
first gas sales by the end of 2009.
Biscathorpe: 3D Seismic reprocessing work has now been completed on our recently
awarded Biscathorpe licence (PEDL 253, EnCore 60 per cent. and Operator) and the
partnership will be seeking farm-in partners with a view to drilling a well to
appraise the Biscathorpe structure in 2010 or 2011. The structure, located updip
of the Keddington and Saltfleetby fields, was originally drilled by BP in 1987
and is interpreted to have encountered thin hydrocarbon bearing sands.
Biscathorpe represents one of the larger remaining unappraised onshore
structures, with significant stratigraphic upside potential.
PEDL 089 and 1153: EnCore and Northern Petroleum (Operator) have both agreed to
reassign all their respective interests in onshore licences PEDL 089 (EnCore 20
per cent.) and P1153 (EnCore 20 per cent.) to Wessex Exploration, in return for
Wessex settling their outstanding cash calls. Following additional seismic
studies which were performed on the licences, and under the relevant terms of
the farm-in agreements with Wessex, both EnCore and Northern concluded that we
did not wish to progress any further activity on this licence.
GAS STORAGE
Gas Storage (EnCore 100 per cent.): On 28 January 2009, EnCore announced that
Star Energy (a wholly owned subsidiary of Petronas) no longer wished to proceed
with the Front End Engineering and Design phase of the Esmond gas storage
project, a requirement of Star Energy's farm in agreement with EnCore. As a
result, Star's 50 per cent. ownership of the Esmond and Gordon licences has now
reverted back to EnCore. Esmond and Gordon are located on UK Southern North Sea
blocks 43/13a, 43/15a & 43/20a.
The Company is continuing with work on gas storage development options and will
be seeking potential new partners or new owners to help move the project
forward.
Commenting on recent activity and the current market, Alan Booth, EnCore's Chief
Executive Officer, said:
"I thought it might be useful to reflect not only our current status and our
future plans, but also to consider whether our original strategy as a company
was the right one or whether we could, or should, have done things differently.
The last nine months of market and credit turbulence have demonstrated the
market's strong desire to re-price risk. Oil and gas exploration and appraisal
is by its very nature a risky and capital intensive business, and the market has
now decided that these risks are higher than it either was led to, or wanted to,
believe and share prices have moved accordingly. As a company we took a
conscious decision not to over-leverage or over-commit ourselves by taking
readily available debt and/or quasi debt in an overheated market. Whilst we
received some criticism at the time, we believe that this was the right
decision. Bidding on work programmes on new licences (which are, of
course, financial commitments) has also been heavily tempered by both lack of
further equity capital and a very tight market for attracting farm-in partners.
As the oil price fell from $140 to $40 the demand, both from potential farminees
and equity investors, for "near term drilling opportunities" with a rig contract
in place vanished almost overnight. Indeed the main question became "do you have
an ability to defer your activity and reduce capital spend?". As can be seen
from the lack of drilling activity in 2009, we feel we were reasonably well
placed to do that. We are pleased that we were not tied into long term contracts
for rigs, or trying to develop modest fields in $100+ cost environments whilst
facing $40 per barrel revenue streams. Our relatively conservative strategy has,
I believe, helped us weather the storm better than some. However if oil was
still currently trading at $140, I'm sure we would have received some criticism
for being 'risk averse'.
Our strategy is to find and appraise oil and gas fields to the natural point in
their life cycle that give us the best return for the amount of capital
invested. Many of our projects are now at that point in their life cycle,
although some have arrived at that point sooner than we might have hoped because
of the equity and credit crunch. We are now looking to sell some of these
assets. The principal asset of course is Breagh, which is at an advanced stage
in the sale process. We are also seeking to create tangible value from our Irish
discoveries, now that the ownership of Kinsale has been settled. Our onshore
portfolio has never attracted the market's attention, mainly due to perceived
relative immateriality, and we are currently considering how we might best
achieve recognition of this value for our shareholders. It contains a relatively
balanced portfolio of pending production from Kirkleatham and near term low risk
appraisal drilling as well as a high potential exploration target.
Of course gas storage has featured heavily in our minds over the past year. Now
we own these assets 100%, we feel that we are better placed to seek to achieve
value for them, although the market for such assets is still flat. This is
mainly because of the level of capital investment required and a relatively
depressed gas market. We are currently completing the revised development plan
and associated economic model to account for the partially repressurised lower
reservoir. Whilst recent events would strongly suggest that current UK storage
appears to be as much dedicated to fulfilling European gas shortages as the
UK's, it would seem there should be a political imperative to encourage the
development of more gas storage with a more strategic element, although it
appears that the market is being left to sort this out. Whilst there is a
widespread recognition of these facts, the market interest for our asset is
still uncertain. However we will keep our shareholders updated on any
significant developments.
As significant shareholders, the Directors are aligned on creating value, and
not just creating continued employment for ourselves. We will therefore continue
to strive to create the maximum value for our shareholders".
For further information, please contact:
+--------------------------------------------------+--------------------------+
| EnCore Oil plc | www.encoreoil.co.uk |
+--------------------------------------------------+--------------------------+
| Alan Booth, Chief Executive Officer | +44 (0)20 7224 4546 |
+--------------------------------------------------+--------------------------+
| Eugene Whyms, Chief Financial Officer | |
+--------------------------------------------------+--------------------------+
| Yvonne Fraser, Investor Relations Manager | +44 (0)7957 241 408 |
+--------------------------------------------------+--------------------------+
| | |
+--------------------------------------------------+--------------------------+
| Aquila Financial Limited | www.aquila-financial.com |
+--------------------------------------------------+--------------------------+
| Peter Reilly | +44 (0) 118 979 4100 |
+--------------------------------------------------+--------------------------+
| | |
+--------------------------------------------------+--------------------------+
| Hanson Westhouse Limited | |
+--------------------------------------------------+--------------------------+
| Tim Feather | +44 (0)113 246 2610 |
+--------------------------------------------------+--------------------------+
| Matthew Johnson | |
+--------------------------------------------------+--------------------------+
Notes to Editors:
EnCore Oil plc (LSE:EO.) is an oil and gas exploration and production (E&P)
company quoted on AIM.
It is not the Company's aim to build a full cycle E&P company. The principal
strategy is to create shareholder value through the successful exploration and
appraisal of prospects and discoveries. The Company will seek to monetise or
exchange the asset at the appropriate point in its life cycle and return value
directly to shareholders wherever possible.
EnCore has an experienced and proven management team, a number of whom were
responsible for the discovery of the Buzzard field in the UK North Sea, which
currently produces over 10 per cent. of the UK's total oil production.
All EnCore's commercial and material technical evaluations are undertaken
in-house by the EnCore team. This brings both continuity to the management and
development of the assets and an ownership that is vital to unearth the best and
most creative new ideas and opportunities.
EnCore currently holds a balanced portfolio of interests in licences both on and
offshore, primarily focused on the UKCS.
www.encoreoil.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
END
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