13th Jan 2016 08:47
LONDON (Alliance News) - Rockhopper Exploration PLC Wednesday laid out revised plans for the first phase of development at the Sea Lion project offshore the Falkland Islands which will lead to the project producing more oil over a longer time than originally expected.
The project is in partnership with Premier Oil PLC, which released a statement concerning a potential reverse takeover on Wednesday that did not mention the plans released by Rockhopper.
Rockhopper said the pre-front end engineering and design (FEED) work has been completed and said it has awarded the floating production, storage and offloading vessel FEED contract to SBM Offshore. The company also said it plans to award subsea FEED contracts covering the provision of subsea systems before the end of the first quarter of 2016.
SBM Offshore is expected to take 15 months to complete the FEED work.
More importantly, Rockhopper said significant cost improvements have been made as the project is set to produce more oil over a longer period of time than originally thought, but capital expenditure is set to remain flat.
Phase 1a of the Sea Lion development will now commercialise 220.0 million barrels of oil compared to the original target of 160.0 million barrels, allowing the project to produce more oil. Sea Lion is now expected to reach peak production of 85,000 barrels of oil per day compared to the original target of only 65,000 barrels.
Rockhopper's share of gross revenue, with a 40% interest in the project, would come in at USD200.0, USD230.0 and USD260.0 million based on oil prices of USD65, USD75 and USD85 respectively, it said, based on that 85,000 barrel a day estimate.
That rise in production will be facilitated by an increase in the amount of wells to be drilled, now set to total 18 wells instead of 14 wells, of which 13 wells will have been drilled before first oil is achieved. The life of the field has also been extended to 20 years from 15 years.
Despite the significant increase in scope, the project is still expected to cost around USD1.80 billion in capital expenditure. However, due to the expectation production will now be higher, that capital expenditure only averages out at USD8.0 per barrel, which is 30% less than previous estimates.
Rockhopper said further cost reductions are expected given the current environment.
"Today's announcement provides the Sea Lion project with significant additional technical momentum whilst fully aligning the partners economically. The huge improvements to the project, combined with the award of the FPSO FEED and finalisation of the commercial terms with Premier allows us to keep moving the Sea Lion project towards a sanction point in mid 2017 despite the low oil price environment," said Rockhopper Chief Executive Sam Moody.
The proposed changes have been included in a draft field development plan which has been submitted to authorities, and Rockhopper said it expects to make a final investment decision in the middle of 2017, leading to first oil sometime in 2020.
As a result of the changes, Rockhopper said it has revised the commercial agreements with Premier Oil. Rockhopper said it will be carried for the full USD48.0 million of exploration costs expected to be incurred at the project in 2016, and said it will contribute 40% of the pre-sanction costs during the year, estimated to total around USD20.0 million of the overall USD50.0 million anticipated.
Rockhopper will also retain USD337.0 million of development expenditure carry for phase 1a, and Rockhopper will receive another USD337.0 million of development carry in the next phase of development, it said.
Rockhopper also said the existing standby finance arrangements have been simplified to a "more traditional" loan structure of USD750.0 million from Premier Oil.
"We are delighted with the efficiencies the joint venture teams have identified and this, combined with the new commercial arrangements, mean that both Rockhopper and Premier now enjoy good project economics at oil prices significantly lower than before," said Rockhopper's Moody.
Significantly, Rockhopper and Premier Oil have another partner on the nearby Isobel/Elaine complex offshore the Islands, Falkland Oil and Gas PLC. Rockhopper is currently merging with Falkland Oil and will hold a 64% stake in that complex once it is completed next week.
Earlier this week, the trio reported multiple oil discoveries at the complex with a net oil pay of 27.0 metres recorded within three of the five fan packages in the Isobel Deep, Isobel and Emily reservoirs. Significantly, Premier Oil did not provide the net pay figure provided by its two partners.
"The recent discoveries in the Isobel Elaine complex could open a third area of development in the basin and this on top of the already proven resources of Phase 2 should have a very significant impact on the life of field opex costs for Phase 1a," said Moody.
"With the merger with Falkland Oil & Gas due to complete shortly, this news adds further momentum to activity in the basin as a whole," he added.
Rockhopper shares were up 5.2% to 28.40 pence per share on Wednesday morning whilst Falkland Oil and Gas shares were up 3.2% to 8.0p. Premier Oil shares are suspended pending that announcement concerning a potential reverse takeover.
By Joshua Warner; [email protected]; @JoshAlliance
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