Deltic Energy PLC (AIM:DELT) has withdrawn from the Pensacola project due to its inability to secure a farm-out or alternative funding solution.
The company cited ongoing fiscal volatility and negative political rhetoric as significant challenges leading up to the July election, which damaged the proposition for potential new investors.
Despite a thorough process exploring various funding solutions, including potential industry partners, equity capital markets, and strategic investors, Deltic determined that the only appropriate course of action was to withdraw from the licence before further liabilities crystallized.
"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,” chief executive Graham Swindells said in a statement.
“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.”
Deltic now intends to focus on the other high-potential projects remaining in its portfolio, with the Selene project taking precedence.
Selene is a joint venture project with Shell and Dana Petroleum, in which a substantial portion of Deltic’s costs have been carried.
Operations for the Selene exploration well are on track to begin in July, Deltic noted.
The project, located in the UK North Sea, has an estimated cost of US$49 million, which is fully covered through farm-out arrangements.
Selene is expected to proceed quickly to production, if the well is successful, due to its proximity to existing infrastructure.
Swindells highlighted that Selene is estimated to be worth ‘multiples’ of Deltic’s current market value, and, noted that as a gas project near infrastructure, it promises to ‘play an important role in the maintenance of the UK's security of domestic energy supply when it has never been more important’.
Deltic noted that it is meanwhile advancing the farm-out process for its Syros prospect – talks are ongoing though there is no guarantee of a successful transaction, it noted with customary caution.
“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,” Swindells said.
“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.”
“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.”