Orcadian Energy PLC shares skyrocketed in value on Monday after it announced a non-binding agreement regarding the potential farm-out of its pilot project and ‘core asset’.
The stock was up 71% at 6.00 pence on Monday at around midday in London.
The North Sea-focused oil and gas development company said it entered a non-binding heads of agreement with an unnamed North Sea operator. Orcadian has granted the operator commercial exclusivity until November 30, to complete definitive documentation for the proposed transaction.
Orcadian said if the deal completes as specified in the HoA, the operator will acquire an 81.25% stake in the pilot project’s Licence P2244 and become the development’s operator. Orcadian will retain an 18.75% carried interest.
Upon completion, Orcadian will also receive up to $200,000 cash consideration from the operator. The latter will pay a further $3.0 million if the companies’ field development plan for the pilot is approved by the North Sea Transition Authority.
Orcadian expects the operator to acquire net reserves or resources of 63.4 million barrels of oil, with Orcadian retaining 14.6 million barrels of 2P reserves carried to first oil.
Orcadian said the pilot field, ‘its core asset,’ is ‘one of the largest undeveloped discoveries in the Central North Sea, with significant upside potential in the surrounding area’.
Chief Executive Officer Steve Brown said he was ‘delighted’ by the agreement, which ‘could enable Orcadian to retain a significant interest in the project and to enjoy the long-term benefits of producing oil for the UK’.
‘Developing energy in our own backyard contributes to the UK’s Energy Security and balance of payments; delivers long-term high-quality jobs; and minimises emissions associated with satisfying the UK’s need for energy,’ Brown added.
However, Orcadian warned that its working capital ‘remains very constrained’, with a £90,000 approximate cash balance as of Monday. It ‘will need to raise additional funds in the very short term,’ and is ‘continuing to explore all options’.
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