Following the farm-out process, CER will own 50% of all IOG’s SNS upstream assets, the Thames Pipeline and associated Thames Reception Facilities, except for the Harvey licenses (P2085 and P2441) which are not included in the transaction.
CER commits to pay an up-front cash payment of £40 million, up to £125 million of IOG’s development costs for phases 1 and phase 2 of its core project and up to a cap of £9.75 million on CER’s interest in Goddard production above 12.4 MMboe gross.
The core project refers to the development of 72.5 MMboe reserves across six discovered SNS gas fields: Southwark, Blythe and Elgood in Phase 1 and Goddard, Nailsworth and Elland in Phase 2.
IOG, as the operator of the project, will pay CER a royalty of 20.2% of Phase 1 revenues up to a cap of £91 million.
CER will also have the option, within three months of the Harvey appraisal well completion, to farm-in to 50% of the license for £20 million additional cash payment and royalty of £0.95/MCF on CER’s net Harvey gas production. The main reservoir is the Permian Leman Sandstone Formation. IOG’s pre-well estimates of the gross prospective resources at Harvey are low/mid/high 15/22.8/35.2 MMboe.
Completion of the farm-out is conditional on certain conditions being satisfied, including the receipt of OGA approval, the receipt of binding commitments from investors in respect of the Bond and various conditions relating to real estate leases at the Bacton terminal.
Andrew Hockey, CEO of IOG commented “This transaction with CER is a strong validation of our exciting portfolio of upstream and infrastructure assets, as well as our focused Southern North Sea gas strategy which can generate exceptional shareholder returns. Importantly, with the balance of funding to come from the bond market, we expect to deliver FID without equity issuance. These transactions will provide the funding to develop our portfolio to cash flow and therefore a clear path to delivering material shareholder value.”