Shell PLC's (LSE:SHEL, NYSE:SHEL) successful discovery in the Pensacola well in the southern portion of the North Sea (the SNS) entirely vindicates Deltic Energy PLC's (AIM:DELT) long-term business strategy, according to the AIM-quoted firm's chief executive Graham Swindells.
Today’s final results statement covers what is a key period in the small-cap explorer’s history as the asset it ‘farmed-out’ to Shell proved successful through drilling.
Deltic retains a 30% stake in Shell’s Pensacola discovery, which has been described as one of the largest natural gas discoveries in the SNS in over a decade. It is estimated, so far, to contain some 302bn cubic feet of gas (that is 90bn net to Deltic) and it is seen as a “play opener” for the Zechstein play.
In the statement, Deltic highlighted that it is working closely with its joint venture partners to progress the significant new discovery into the appraisal phase.
At the same time, the small-cap explorer said it is now considering its options for its 30% stake, including a potential full or partial ‘monetisation’.
Shell, meanwhile, has committed to drill another exploration well in separate partnership with Deltic.
It intends to drill the Selene gas prospect, which is described as “the largest undrilled structure of its kind” in this part of the SNS, and similarly it is estimated at around 300bn cubic feet. Here, Deltic retains a higher interest, holding 50% of the project.
Selene is slated for drilling for "the middle of 2024".
"2022 saw a fundamental shift in the delivery of Deltic's business model as the Pensacola well started drilling in November, subsequently being announced as a highly material gas discovery in February this year,” Swindells said.
“Pensacola entirely vindicates our long-term business strategy of identifying high-value exploration assets at a very early stage and bringing them to fruition.
“We are now in the enviable position of deciding how best to appraise and develop this 300 BCF discovery alongside our partners, and delivering value for shareholders.”
He added: “Moreover, we continue to advance our second potentially high-value asset, the Selene gas prospect, also located in the Southern North Sea. Together with our partner Shell, we expect to drill this similar sized prospect to Pensacola in the summer of 2024.
“With this drilling activity coupled with additional prospectivity from the rest of our portfolio and potential new licence awards, I believe the future looks extremely positive for Deltic, especially at a time when the UK should rightly be focused on its longer-term energy security."
Deltic’s other significant exploration venture is a partnership with Capricorn Energy (formerly Cairn) in which the partners hold five other licences in the SNS. Across this portfolio, which remains untested, there are multiple identified prospects which are together estimated to total 2 trillion cubic feet.
A separate farm-out process is underway with the intention to bring in an additional partner to share risk and support the funding of a drill programme.
In terms of financials, Deltic raised £16mln though an oversubscribed equity placing in September.
It ended December with a £20.4mln cash position, with £4.7mln of net outflow reported for the year, including £2.1mln related to the Pensacola well.
By the end of March, it retained £15.1mln of cash – it also noted that total Pensacola well costs amounted to £12.mln, of which £5.6mln are to be billed subsequent to 31 March.
The pre-revenue explorer reported a £2.98mln loss for the year ended 31 December 2022.