As a standalone project with 25mln barrels the Verbier oil discovery evidently didn’t register highly on Equinor’s to do list, but, for AIM-quoted Jersey Oil & Gas Plc (LON:JOG) it continues to be a significant and valuable asset.
Jersey today revealed it is to pick up Equinor’s 70% interest in Verbier in a deal with no upfront costs.
Instead, Jersey agrees to a package of future contingent payments which will only kick in if it can make a success out of the project.
Significantly, for Jersey, the plan is now to fold Verbier into a wider development of proximate moderate scale reservoirs.
This project, referred to as the Greater Buchan Area development, will now comprise the Buchan field (host to an estimated 80mln barrels), Verbier (c25mln barrels), J2 (c20mln) and Glenn (14mln) discoveries.
Presently the plan is broadly defined, simply put the idea is to monetise these discovered resources via the development of shared infrastructure.
Jersey's chief executive Andrew Benitz said the company is now “well placed” to advance its development plans for the GBA.
"Acquiring further discovered oil volumes enhances JOG's project value considerably and at the same time strengthens our plan to bring Verbier into future production through the GBA development, which is a truly exciting opportunity to showcase what is possible with new developments in the UKCS,” Benitz added.
The next steps will be for Jersey to advance the GBA project to a ‘concept selection’ decision which is anticipated by the third quarter of this year.
Thereafter, it intends to take the project to potential industry partners via a farm-out process.
In the meantime, the oil and gas junior said it remains fully funded through to the second quarter of 2021.
WH Ireland this morning described the deal as “incrementally positive” for Jersey.
Analyst Brendan Long said that the transaction with Equinor the ownership and operatorship of the P2170 licence area, and, in doing so, it will facilitate the eventual broad farm-out effort.
He also notes that it will add some 17.5mln barrels of discovered resources to Jersey’s net resource base.
“We note that although the company’s centre of gravity is the Buchan field (with a net resource potential of 81.2 mmb – mid case estimate), the value of the company’s smaller satellite fields may exceed that of Buchan on a per barrel basis due to the ease with which they can be tied back to the forthcoming facilities at little incremental cost (via capital efficient subsea tie-backs),” Long said in a note.
“The news is incrementally positive and increased clarity of the key forthcoming catalysts, for which the company is well funded, should also be well received by the market in our opinion.”
Elsewhere, SP Angel analyst Sam Wahab in a note commented: “The company has been very active over the past 12 months in consolidating its North Sea position, culminating in a significant resource base relative to its market cap. in our view.
“Clearly, funding will be crucial (with the company reporting a FY/19 cash position of £12mln) as JOG progresses development plans through concept select, before launching a farm-out process to attract industry partners to the Greater Buchan Area.”
Verbier discovery, appraisal and acquisition
Verbier was discovered in October 2017 by an Equinor-led exploration well.
The initial well result was positive albeit the discovery’s potential scale was pitched in a wide range, of between 25mln and 130mln barrels.
A subsequent appraisal well result in April 2019, led to a lowering and narrowing of that range by ultimately reducing estimates down to the bottom of the original estimates.
Evidently, Verbier was no longer deemed by Equinor to be attractive as a standalone project, however, as one element in the wider GBA, the Verbier asset continues to be significant to AIM-quoted Jersey.
Transaction terms with Equinor
The explorer, which presently holds 18% of the project, has agreed to buy a 70% interest in Licence P2170 from Equinor in return for contingent future payments, tied to potential successes and milestones.
Jersey will pay US$3mln to Equinor should a filed development plan be sanctioned by the UK Oil & Gas Authority and a further US$5mln will be payable upon ‘first oil’ from Verbier.
Beyond that, Equinor also retains rights to royalty payments on the first 35mln barrels of oil produced from Verbier.
Back in October, Equinor allowed an option deal over the GBA project expire – it could’ve taken a 50% interestin the Buchan blocks.