Independent Oil & Gas (LON:IOG)# has announced that the Skipper appraisal well has now been rescheduled to drill in early July 2016. IOG is 100% owner and operator of the Skipper field and the previous contract with Transocean for the drilling of the well has been renewed with advance payment of US$1.73m to be part settled by the issue of 2.7m shares at 18.375p with the balance paid from IOG’s loan facilities or settled via share issuance.
The funding for the well has been agreed via IOG’s loans with London Oil & Gas and GE Oil & Gas UK and the relevant service contracts previously agreed by IOG remain in place or are being renewed with a repayment date of 20 December 2017. The cost of the well has been reduced to c£6.8m with c£5.7m still to be paid.
The vertical well is to be drilled to 5,600ft to retrieve oil samples in order to develop a reservoir model and optimise the FDP. Once the FDP is approved IOG believe the Skipper’s independently verified 2C contingent resources of 26.2mmboe should be converted into 2P reserves, however IOG’s management believe this to be conservative and considers 34.1mmboe as its own mid case estimate. The well will also target two exploration prospects directly beneath which may contain 46mmboe providing potential for further upside on the well.
The well should spud in early July and should take 22 days to complete, but is still contingent upon the relevant technical and environmental approvals which are progressing with DECC and the OGA. Following its initial delay we anticipated the well to be spud during FY 2016 but we are particularly pleased to see it come so soon in the year with the Skipper field making up 59p/sh of our valuation. We reiterate our BUY recommendation and 76p TP.