Independent Oil & Gas (IOG LN)#
Independent Oil & Gas (IOG LN) has announced a significant operational update demonstrating initial positive results from the pigging programme undertaken to determine the integrity of the Thames Pipeline. The pipeline is a crucial part of the Southern North Sea gas hub strategy which enables IOG to save hundreds of millions in development capital and maximise the returns from extraction of gas. Therefore, initial confirmation indicating the pipeline is in “extremely good condition” is a major positive step towards the Final Investment Decision (FID) due in H2 2018 and further confirmation of the viability of IOG’s development strategy.
Three 12m sections of the pipeline were cut out 60km offshore and retrieved to surface which showed little signs of degradation or corrosion. This is slightly further out than where the Southwark field will be tied back in to the pipeline. Subsequent pressure testing by elevating water pressure in the pipeline for 24 hours yielded positive results further confirming the integrity of the pipeline and over a greater extent than the short sections cut-outs.
Due to a malfunction with the pigging device insufficient data was collected during the 60km run to clean and assess roundness and thickness in the pipeline. Although the other tests provide a clear indication of the pipeline’s integrity, IOG will run this latter stage of the pigging programme again as it is important to fully complete the surveys to provide contractors and investors with full confidence. We expect this to be completed within the coming weeks. This does potentially delay the remainder of the process ahead of FID which may now be delayed by a short period beyond the planned August 2018 target.
In addition to the intelligent pigging programme, IOG has also been conducting offshore survey programmes via its contractor Fugro MV Galaxy. The programmes, which included geophysical surveys, shallow seismic of the four platform and five drill sites as well as other environmental and geotechnical surveys, have provided important additional data required ahead of FID.
The announcement today provides strong confirmation of the progress IOG is making in its development programme. The Thames Pipeline is a fundamental part of the development and one of the major factors in determining the significant upside potential we believe exists. Confirmation of its integrity is therefore a major positive step for IOG.
We reiterate our Buy recommendation and 96p target price.