Orcadian strikes farm-out deal for Earlham and Orwell
By Josh White
Date: Thursday 12 Dec 2024
(Sharecast News) - Orcadian Energy announced a farm-out agreement for a 50% stake in its Earlham and Orwell gas projects to the Marine Low Carbon Power Company (MLCP) on Thursday.
The AIM-traded firm said the deal marked a "significant step forward" in developing the resources to support MLCP's Mobile Offshore Generating Units (MOGUs), which provide carbon-free energy to customers and battery projects.
Under the agreement, MLCP would acquire a 50% interest in a sub-area of licence P2680, encompassing the Earlham discovery and Orwell field redevelopment.
Orcadian said it would retain a 50% carried interest in the projects, with MLCP funding Orcadian's share of expenditures through first gas.
The carry would be repaid through an enhanced revenue interest of 80% for MLCP until repayment was complete.
Orcadian said the purchase price for the 50% stake was set at $2.2m, with $1.4m payable on completion and two additional $0.4m tranches contingent on achieving specified production milestones.
The company's debts, including a $1.5m loan originally provided by Shell, would be fully offset as part of the transaction.
Development would leverage high-quality gas reservoirs at Earlham and Orwell.
The Earlham discovery, with methane resources of 114 billion cubic feet, features high-quality Leman sandstone with excellent reservoir characteristics, the board said.
Orcadian believed the Orwell redevelopment could add an additional 31 billion cubic feet.
Earlham gas would be processed using an integrated pre-combustion carbon dioxide removal system, enabling reduced emissions.
The captured carbon would be stored within Earlham, Orwell, or a nearby licensed carbon dioxide reservoir, supporting MLCP's low-carbon energy initiatives.
As part of the agreement, MLCP would lead the projects through the authorisation, development, and operational phases, subject to approval from the North Sea Transition Authority (NSTA).
Orcadian would act as licence administrator during the assessment phase.
Completion of the farm-out remained subject to due diligence, regulatory consents, and the finalising of detailed agreements, with the parties aiming to conclude the transaction by the first quarter of next year.
"The development of Earlham is intended to be the first of a number of MLCP led zero carbon energy projects which will integrate gas-to-wire and carbon capture and storage technologies to provide zero carbon balancing power which is desperately needed if the United Kingdom is to meet its net zero obligations," said chief executive officer Steve Brown.
"These projects are designed to proceed without requiring any government subsidy since MLCP will sell power directly to customers who value reliable, carbon free electricity which is available when renewable energy is not available or in short supply.
"There is no need to create a business model for carbon dioxide storage nor to rely on the government to sanction financial support for the project. This should enable an early commitment to the Earlham development."
Brown said Earlham would be the first gas field on the UK Continental Shelf to be dedicated to a facility that would capture "practically all" of the emitted carbon dioxide for storage underground.
"Scope 3 emissions will be less than 5% of a conventional gas development which supplies an unabated power station.
"This project is one which we believe supports the government's vision of a clean UK power system in 2030 whilst crucially also delivering on the government's energy security goals."
At 1444 GMT, shares in Orcadian Energy were up 30.63% at 11.43p.
Reporting by Josh White for Sharecast.com.
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