How is it doing
In the latest North Sea licensing round by the Oil and Gas Authority, Jersey was awarded significant acreage.
Jersey landed 100% of three blocks hosting the Buchan oil field and the J2 oil discovery, acreage adjoining JOG's existing interest in Licence P2170, which contains the Verbier discovery.
A CPR by contractor Rockflow estimated the recoverable resources in The Greater Buchan Area at 94.7mln barrels, including the parts within P2170.
The estimates are £791mln for Jersey’s ‘mid-case’ contingent resources – including the new GBA estimates along with the explorer’s share of the Verbier discovery.
Jersey will now advance a consolidated Greater Buchan venture, comprising Buchan field (host to an estimated 80mln barrels), Verbier (c25mln barrels), J2 (c20mln) and Glenn (14mln) discoveries.
This follows the acquisition of Equinor’s 70% interest in Verbier.
The next steps will be for Jersey to advance the GBA project to a ‘concept selection’ decision which is anticipated by the third quarter of this year.
Thereafter, it intends to take the project to potential industry partners via a farm-out process.
On 27 January 2020, Jersey announced it is to Equinor’s 70% interest in Verbier in a deal with no upfront costs.
Instead, Jersey agrees to a package of future contingent payments which will only kick in if it can make a success out of the project.
Significantly, for Jersey, the plan is now to fold Verbier into an expanded version of the Greater Buchan Area development.
Drilling in 2019, at Verbier did not hit the quantities of oil expected but still found a potentially commercial 25mln barrels and chief executive Andrew Benitz told investors that there is “still plenty to play for” at the project.
The well failed to upgrade Verbier’s resource base, with the discovery now believed to host closer to 25mln barrels than 130mln.
Equinor, as Verbier's operator, will carry out a full re-evaluation of the licence area, including an assessment of additional deeper targets and the other previously identified exploration opportunities, including Cortina.
A large part of the mapped area located to the north remains untested and additional resource upside potential was identified in a deeper horizon beneath the Verbier discovery.
Verbier was discovered in October 2017 by an Equinor-led exploration well.
The initial well result was positive albeit the discovery’s potential scale was pitched in a wide range, of between 25mln and 130mln barrels.
A subsequent appraisal well result in April 2019, led to a lowering and narrowing of that range by ultimately reducing estimates down to the bottom of the original estimates.
Evidently, Verbier was no longer deemed by Equinor to be attractive as a standalone project, however, as one element in the wider GBA, the Verbier asset continues to be significant to AIM-quoted Jersey.
Jersey agreed to buy Equinor’s 70% interest in Verbier in return for contingent future payments, tied to potential successes and milestones.
Jersey will pay US$3mln to Equinor should a field development plan be sanctioned by the UK Oil & Gas Authority and a further US$5mln will be payable upon ‘first oil’ from Verbier.
Beyond that, Equinor also retains rights to royalty payments on the first 35mln barrels of oil produced from Verbier.
What the CEO says
"Acquiring further discovered oil volumes enhances JOG's project value considerably and at the same time strengthens our plan to bring Verbier into future production through the GBA development, which is a truly exciting opportunity to showcase what is possible with new developments in the UKCS,” Benitz added.
“We are working closely with the OGA and leading contractors to introduce technologies to enable the GBA development to be at the forefront of the energy transition as well as being a new area hub that encourages regional industry collaboration to maximise the economic recovery of resources in this prolific part of the Central North Sea."
- Concept selection for Greater Buchan, expected in Q3 2020
- Farm-out process for GBA
What the broker says; WH Ireland
Stockbroker WH Ireland this morning described the deal as “incrementally positive” for Jersey.
Analyst Brendan Long said that the transaction with Equinor the ownership and operatorship of the P2170 licence area, and, in doing so, it will facilitate the eventual broad farm-out effort.
He also notes that it will add some 17.5mln barrels of discovered resources to Jersey’s net resource base.
“We note that although the company’s centre of gravity is the Buchan field (with a net resource potential of 81.2 mmb – mid case estimate), the value of the company’s smaller satellite fields may exceed that of Buchan on a per barrel basis due to the ease with which they can be tied back to the forthcoming facilities at little incremental cost (via capital efficient subsea tie-backs),” Long said in a note.
“The news is incrementally positive and increased clarity of the key forthcoming catalysts, for which the company is well funded, should also be well received by the market in our opinion.”
Elsewhere, SP Angel analyst Sam Wahab in a note commented: “The company has been very active over the past 12 months in consolidating its North Sea position, culminating in a significant resource base relative to its market cap. in our view.
“Clearly, funding will be crucial (with the company reporting a FY/19 cash position of £12mln) as JOG progresses development plans through concept select, before launching a farm-out process to attract industry partners to the Greater Buchan Area.”