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Antrim Energy: North Sea producer with plenty of blue sky

Antrim Energy offers something for everyone interested in the oil sector. It has steady, cash generative production, a well thought out plan to lift North Sea output, and blue-sky projects in two of the world’s hydrocarbon hotspots – Ireland’s Atlantic margin and Tanzania.
Antrim Energy: North Sea producer with plenty of blue sky

Antrim Energy (LON:AEY, LON:AEN) offers something for everyone interested in the oil sector. It has steady, cash generative production, a well thought out plan to lift North Sea output, and blue-sky projects in two of the world’s hydrocarbon hotspots – Ireland’s Atlantic margin and Tanzania.

And the way Antrim is planning to tackle its biggest challenge hints at how the North Sea might develop in coming years: with fleet-of-foot operators able to switch quickly between smaller, shorter-life projects.

This is made possible thanks to a particularly shrewd deal to lease the Hummingbird floating storage vessel (or FPSO) for up to seven-and-a-half years.

The Hummingbird is a smaller version of the giant vessels that ply their trade elsewhere around the offshore oil and gas fields of the world.

Like all juniors, Antrim has endured setbacks, such as last year’s East Fyne and Cyclone wells, along with the success stories. The production from the Causeway Field could be added to the list of disappointments, although there is still the potential to increase output as we will see later.

Last month marked a major milestone for Antrim, which received its first cheque for oil supplied from the Causeway project in the northern North Sea.

With a 35.5% stake, Antrim’s share is a net 1,700 barrels of oil a day (based on the first year’s average). This is anticipated to generate around US$55mln in revenues this year.

The addition of electric submersible pumps (ESPs) and water injection during 2013 will give a meaningful lift to the current production rate.

The total will be boosted by the addition of a net 900 barrels of oil per day from the nearby Fionn field later this year. The deal with the operator Valiant gives Antrim a first look at production and the economics before committing definitively to it.

Meanwhile, first oil is just starting to flow from the Contender field, renamed Cormorant East. And even with an 8.4% stake, the TAQA-operated well is still expected to add a meaningful number of barrels to Antrim’s running total.

However, the 11mln barrel Fyne project is where things really take off. If all goes to plan, production from two wells (plus one injector) in the Central North Sea should garner around 9,000 barrels a day generating U$250mln in revenues in the first year.

The second phase would help boost the declining output curve as well as extending the field’s life.

The Hummingbird, currently being used by Centrica on the Chestnut Field, will be available on Fyne in a window opening from September 2014, depending on contract release from the Chestnut Field.

While the Fyne Project is some way in the future, Antrim plans to submit the field development plan (FDP) this month with project sanction planned for early April, when funding will be needed.

UK managing director Murray Chancellor says the group has financing options: “We are not sitting with a signed term sheet, but we are reasonably confident.”

Those who have followed the Antrim story will know the group was formerly partnered with Premier Oil (LON:PMO) on Fyne. And on the face of it this wasn’t a particularly productive union. However, first impressions can be deceptive.

Early last year Premier drilled the 21/28a-11 appraisal well on the eastern flank of Fyne hoping to prove up a 25mln barrel field – one which would interest a mid-tier operator. The well failed to deliver the reserves upgrade, so Premier lost interest. However, previous seismic (shot in 2007) and two successful wells drilled a year later show Fyne contains oil, just not of the quantity demanded by Premier.

“It wasn't material enough for them,” Chancellor said.

“Premier changed in that time too – the Catcher Field came on and they secured 300mln barrels in the Falklands. So 12-15mln barrels in Central North Sea didn't really move the dial.”

Premier’s exit allowed Antrim to take back full ownership of Fyne.

“The company is ready to execute Fyne with 100%. However, after FDP approval we could be interested to find a partner to share the execution and financial risk,” said Chancellor.

The completion of the field development plan (due for approval in March) and the signing of the heads of terms for the Hummingbird FPSO make this a very real and attractive investment proposition.

Outside the North Sea the company has a licence option in the Porcupine Basin, next to the Exxon-operated Dunquin prospect. Dunquin will be drilled later this year and success could have a knock-on effect for companies in the vicinity.

“We are currently considering what is needed to convert the licence option into a full exploration licence and whether and when a partner is preferred” said Chancellor.

In Tanzania, meanwhile, Antrim’s 20% interest is carried through the pre-drilling exploration phase thanks to its partnership with RAK Gas.

“We have a right to acquire a further 10% when we have seen the well results,” said Antrim’s UK managing director.

However, there remains a difference of opinion between the regional and national government over the share of any potential oil and gas revenues.

This has made the task of exploring this huge (the licence covers more than 14,000 square kilometres) and highly prospective acreage a very slow process. However, in October the Tanzanian and Zanzibar governments announced that agreement has been reached on this issue.

In the meantime the company has plenty on its plate. And it’s fair to say the share price of 36 pence fails to reflect the progress made to date. Broker Westhouse reckons Antrim is worth closer to 70 pence based on fundamentals.

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