UK-based Independent Oil and Gas (IOG) has completed its previously announced farm-out transaction with CalEnergy Resources (CER).
The company has also taken final investment decision (FID) on Phase 1 of its Core Project, which comprises 410 billion cubic feet (BCF) of 2P+2C reserves and resources across six discovered UK Southern North Sea (SNS) gas fields.
IOG CEO Andrew Hockey said: “I am delighted to announce that the farm-out agreement with our new partner CalEnergy Resources Limited, announced three months ago, has now closed. Alongside our successful €100m bond raise, this confirms us as fully funded for our Core Project, which is projected to deliver over £0.5bn in pre-tax cash flow net to IOG.
“IOG and CER, as joint venture partners, have consequently taken Phase 1 FID. I am immensely proud of our team for delivering this major milestone and would like to thank our shareholders for their support. This is the culmination of a transformative year for IOG which begins a new phase in our growth. Our focus, as ever, is on delivering shareholder value.”
IOG’s has farmed-out 50% of its SNS upstream assets
As part of the transaction, IOG has farmed out 50% of its SNS upstream assets, the Thames Pipeline and associated Thames Reception Facilities to CER, on the terms announced on 26 July 2019.
Under the terms of the farm-out, CER has paid the initial cash consideration of £40m ($51m) to IOG, and will also pay for up to £125m ($160m) of IOG’s development costs, and £60m ($76m) for Phase 1 and £65m ($83m) for Phase 2 respectively.
IOG will pay a royalty of 20.2% of its net revenues from the Phase 1 fields, up to a cap of £91m ($116m) over field life to CER.
Also, IOG will receive an effective royalty interest equating to £0.50/MCF on a 50% share of CER’s production from certain Goddard Field sections after producing a gross of 70BCF from the field up to a maximum royalty of £9.75m ($12m).
Hockey added: “We have established a solid platform from which to generate cash flow from our existing portfolio through effective project execution. Furthermore, we have created the opportunity to generate additional value upside by bringing incremental volumes through our infrastructure.
“Our Southern North Sea gas business development strategy has clear competitive advantages: we have a very strong and well-aligned partner, we have our key export pipeline in place, we are an approved licence Operator, and we are fully funded to install our hub infrastructure.”
