Hurricane Energy and Spirit Energy have gone back to the drawing board for their Greater Warwick Area (GWA) joint venture, which will see Hurricane take on additional costs.
The pair signed a deal in September 2018 for Spirit to farm-in to 50% of the West of Shetland region, with the first “phase” of work being a three-well drilling campaign, which took place last year
As a result of the need for further data and regulatory approval for its Lincoln Crestal discovery, a sanction decision has not yet been made.
Therefore “Phase 2” of the project, a tie-back of a well to the Aoka Mizu production system at its nearby Lancaster field, has not happened which has brought amendments to the deal.
The original agreement was for Spirit to pay 75% of costs for Phase 2 up to $187.5 million (£144.5m), including tie-back of the well, modifications to the FPSO and tying the Aoka Mizu to the West of Shetland Pipeline System (WOSPS).
Hurricane said it has “no current plans” on that yet, but in the event it does proceed it will now pay 100% of the costs for the WOSPS tie-in, estimated to be £48m.
Hurricane would also reimburse Spirit for gas export past costs up to January 31, 2020 of around £14m.
However, should Phase 2 later be approved, Hurricane will benefit from the original terms of the 2018 agreement, including “retrospective application of the carry in the proportions originally agreed”.
The firm said Hurricane and Spirit are “continuing their planning and negotiations” for the GWA.
The amended deal will still see work carried out on a 50:50 basis to build the equipment and materials for a single-well tieback to the FPSO, with an additional £16m net cost to Hurricane.
These will be held in storage until a sanction decision is made. Meanwhile Hurricane can elect to build out long-lead items for tying the FPSO to the WOSP system on a sole basis at a cost of around £21.5m.
Chief executive Robert Trice said: “These amendments to our arrangements with Spirit give us greater optionality relating to gas export, whilst preserving the carry value of the Spirit farm-in in the event that the GWA joint venture partners proceed with a GWA tie-back in the future.
“In addition, the Lancaster EPS is currently producing at 20,000 barrels of oil per day and I look forward to providing an update at the Capital Markets Day on 25 March 2020.”
Last month the pair confirmed that the tie-back of the Lincoln Crestal would not go ahead this year as originally planned.