Deltic Energy pulls out of potential North Sea well

Deltic Energy has blamed "deteriorating sentiment towards the oil and gas industry as a result of ongoing fiscal volatility and negative political rhetoric in the run-up to the July election" on it being unable to secure a farm-out or an alternative funding solution for its Pensacola appraisal well.

The AIM-quoted natural resources investing company's latest update explained that the only appropriate course of action is to withdraw from the licence prior to further liabilities being crystallised following the operator's issuance of the Authorisation for Expenditure for the well cost, which is expected tomorrow.

Deltic stated that it "rigorously examined" a variety of funding solutions, including potential industry partners, existing joint ventures, the equity capital markets, strategic investors, debt providers and commodity trading houses.

It is still expected that Deltic may be required to honour certain expenditure in relation to the appraisal well which was approved prior to the withdrawal notice being issued. The value of the committed expenditure, which may potentially be material to the company, will be established following the formal withdrawal process, and it is expected that these costs may not become fully payable until the first half of 2025.

Deltic noted that it is not quitting the North Sea altogether – with drilling set to start at the Selene exploration well in the southern North Sea in July, alongside Shell and Dana Petroleum.

"Following a farm-out to Dana Petroleum earlier this year, Deltic retains a 25% working interest in the licence and has no cost exposure to the imminent well up to a gross success case well cost of $49m," the statement laid out.

'The successful farm-out of the Selene project demonstrates that significant appetite remains for certain types of exploration assets within the southern North Sea.

Elsewhere, Deltic is in the process of bringing the farm-out in relation to its 100% working interest in the Syros prospect to a close. "While discussions are ongoing, there is no guarantee that these will be concluded successfully or result in a transaction," it added.

The Syros prospect is a modestly sized, low risk exploration target located in the central North Sea, close to established production infrastructure on the Montrose-Arbroath high.

As previously announced, Deltic was provisionally offered two licences in the third tranche of the 33rd Licensing Round.

The company has decided to focus its efforts on the licence award which contains the Pharos-Blackadder discovery, located adjacent to production infrastructure associated with the West Sole field.

"Our approach to acceptance of 33rd Licensing Round awards is part of a conscious transition by the company away from large scale, greenfield exploration projects like Pensacola and towards those infrastructure-led opportunities which are lower risk and have an accelerated cycle time from identification to first gas," read the statement.

Graham Swindells, chief executive of Deltic Energy, commented: "Recent history in relation to large scale discoveries such as Cambo and Rosebank has demonstrated the difficulties associated with progressing major offshore developments on the UKCS as damaging political rhetoric and fiscal instability continue to undermine the sector.

"Although we have been unable to secure Deltic's future involvement in the Pensacola project, it does not detract from the achievements of the team in identifying the opportunity, attracting a partner like Shell and raising the necessary capital to drill the initial discovery well.

"Despite our disappointment at not remaining involved in Pensacola, the technical and commercial skills and experience demonstrated on the asset will be critical as we now focus on the Selene opportunity and similar infrastructure-led projects such as Syros and Blackadder.

'We believe these can be brought onstream more quickly, help maintain the viability of existing infrastructure and defer decommissioning of key production hubs which continue to generate interest despite the general malaise affecting the UK E&P industry."

Swindells added: "While the current situation is clearly disappointing, this is where the diversity and quality of the Deltic asset base demonstrates its value and we will be working tirelessly on behalf of our shareholders to ensure that we capitalise on those foundations starting with the imminent drilling operations on the Selene gas prospect."

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