Offshore staff
LONDON — Deltic Energy has run into difficulties with the farm-out process for its share in the Shell-operated Pensacola gas/oil discovery in the UK southern North Sea.
In an update, the company cited problems attracting investors due to the conservative government’s “continual tinkering” with its Energy Profits Levy on North Sea oil and gas companies, and the opposition Labour Party’s more punitive fiscal plans for the sector, with a general election set to be staged in the UK later this year.
The combination has had a severely negative effect on the ability of UK exploration and production (E&P) companies to commit to long-term investments in the North Sea, Deltic said, with many operators diverting capital away from the UKCS or delaying investment decisions, especially for potential large-scale development opportunities such as Pensacola.
It means that securing access to traditional equity capital, as the company has accomplished previously, will likely not be a viable option for it to pay its 30% share of costs for a fothrcoming appraisal well on Pensacola (currently estimated to be £15 million/$18.7 million net to Deltic).
While the company will consider alternative sources of capital and non-traditional funding structures to mitigate costs and/or secure its equity position in the well, there is no guarantee of a positive outcome.
Despite the fact that a recent competent person's report by RPS Energy assessed Pensacola ascribed a 2C NPV10 of about $200 million net to Deltic, this is far beyond the company's current market capitalization.
By the end of this month, the company will have to demonstrate its capacity to fund its share of costs for the well, and it may eventually be obliged to withdraw from the Pensacola license P2252, transferring its interest to the joint venture partners.
