i3 Energy PLC (LON:I3E) has secured a drilling rig from Dolphin Drilling for a minimum 82-day drilling programme that is due to commence no later than 1 September this year.
The contract could yet be amended if both parties agree and could also be extended for a period of 78 days, furthermore, the contract is conditional on i3 confirming availability of funds to satisfy its obligations under the contract, 90 days prior to drilling commencement, i3 said in a statement.
The company also revealed that, in light of recent world events and their effect on oil and capital markets, it has continued to reduce its corporate operating costs.
At this stage, i3 said it is not experiencing any direct impact on its business and does not yet foresee any disruption to its 2020 drilling programme from the coronavirus outbreak.
As announced last month, i3 is making good progress on the farm-out process to fund its 2020 drilling programme.
The UK-focused independent oil and gas company said its current minimum programme for the appraisal drilling consists of two appraisal wells on Serenity plus a sidetrack on each well, contingent on drilling outcomes, at a total expected gross cost of about US$33mln. The option programme would include wells on the Minos High structure and the Liberator West area in Block 13/23c.
The drilling rig contract is part of an agreement i3 has that will see Dolphin earn up to a 10% economic interest in Block 13/23c via a net revenue sharing agreement (NRSA), in exchange for Dolphin forgoing its profit margin above its operating expenditure, up to a maximum amount of US$14.4mln; this commitment from Dolphin will, therefore, cover roughly 22% of the total expected gross costs of each of the 2020 campaign and option programme.
i3 explained that net revenue is defined as revenue from the sale of Block 13/23c minus all the costs for developing and producing the hydrocarbon that has been sold to raise that revenue.
Once production from Block 13/23c has been achieved, and after such time as i3 has been repaid 200% of all Block 13/23c development capital expenditure costs from associated petroleum revenues, Dolphin will receive a share of field income equal to Dolphin's interest multiplied by net revenue.
Any Dolphin profit margin paid by i3 during the 2020 campaign at its election will decrease the Dolphin interest on a proportional basis.
At any time prior to the regulator’s approval of a field development plan, i3 has the right to purchase the Dolphin interest by paying Dolphin 125% of the value of Dolphin’s profit margin sacrifice commitment.
Once the field development plan for Block 13/23c has been approved, Dolphin has the right to sell its interest to i3 for the Dolphin commitment plus interest accrued at a rate of 8% per annum.
"Dolphin performed exceptionally well in our 2019 campaign, drilling our wells on time and on budget and without any significant health, safety or environmental issues. Their support announced today not only contributes a significant component to the funding structure for our upcoming drilling campaign but also demonstrates the quality of our licences,” said Majid Shafiq, the chief executive officer of i3 Energy.