Independent Oil and Gas (IOG) is targeting a major payday as it starts drilling its Harvey prospect in the North Sea.
The appraisal well aims to shore up best estimates that the prospect holds 129 billion cubic feet (BCF) of gas.
If successful, it could see designated partner CalEnergy Resources (CER) farm in 50% to the Southern North Sea prospect.
That would mean CER will pay IOG £20m, along with 95p per million cubic feet of gas, which is the equivalent of £61.3m if Harvey produces the best estimate case of 129 BCF.
It comes after IOG agreed a “landmark” farm-out deal with CER last month for all of its southern sector licences, bar Harvey.
The Maersk Resilient rig arrived at the prospect last night and is expected to take around two months to drill the well if it is successful.
IOG’s chief executive Andrew Hockey said: “Spudding the Harvey appraisal well is an exciting development for IOG and potentially a major catalyst for the business.
“Our objective is to prove up a substantial, high-quality reservoir in the heart of our core asset base which would create significant shareholder value over and above our recently announced farm-out.
“Success at Harvey could trigger a further significant near-term cash payment plus valuable life-of-field royalties should our designated partner exercise its right to farm in.
“We are pleased with our choice of rig and contractors and look forward to drilling the well safely and successfully.”