Serica Energy (LON: SQZ) has announced it will acquire a 30% non-operated interest in the North Sea’s Greater Buchan Area development from Jersey Oil and Gas (JOG).
Serica said completion is subject to regulatory, partner and interested party approvals and is expected to occur in early 2024.
After completion, partners in the GBA will include Serica Energy UK (30%), NEO Energy (50% and operator) and JOG (20%).
JOG said the deal includes a full carry on the capital expenditure required to bring the Buchan field into production and several milestone cash payments.
“Upon completion of the Serica Farm-out, the combined cash payments received from the two farm-outs will be over $18 million, with a further $20 million due to be paid to JOG at Buchan Field Development Plan (“FDP”) approval,” JOG said.
Greater Buchan Area
The Greater Buchan Area (GBA) covers several oil and gas accumulations around 150km north east of Aberdeen in the outer Moray Firth.
The GBA is covered by the P2498 and P2170 licences.
Of the deposits in the GBA, the largest is the Buchan field which produced for over thirty years before it ceased production in 2017 due to the end of the useable life of the floating production facility.
Plans submitted to the North Sea Transition Authority regulator involve the re-development of Buchan based on a new production hub utilising a new floating production, storage and offloading vessel (FPSO).
The FPSO is currently operating on the UK Western Isles fields and is planned to come-off station in the second half of 2024.
NEO Energy acquired the FPSO on behalf of the Buchan joint venture firms last week on November 17.
NEO estimates total capital expenditure forecast for the Buchan redevelopment to be approximately £850-950 million.
Phased development for Buchan field
Serica said plans for a “phased development” involve the re-development of the Buchan field in the first phase and the possible development of the J2 and Verbier discoveries in the second phase.
The company estimates mid-case contingent resources from the Buchan field alone to be in the region of 70 million barrels of oil equivalent, with peak production rates of approximately 35,000 barrels of oil equivalent per day.
Reserves of that size make it the third largest pre-development field in the UK continental shelf.
Serica said other discoveries and prospects in close proximity could provide additional tie-back opportunities to the FPSO.
After submitting plans, the NSTA issued a no objection letter in support of the Buchan redevelopment programme.
Serica said it expects to submit a proposed ‘Field Development Plan’ (FDP) to the regulator shortly, with approval potentially coming in the second half of 2024 and first production forecast for late 2026.
‘Resilience’ added to Serica North Sea portfolio
Serica chief executive Mitch Flegg said the transaction gives the company a significant interest in the proposed Greater Buchan Area project, potentially adding a third production hub and further resilience to its North Sea portfolio.
“In common with our other hubs, the GBA plan involves utilising existing infrastructure – in this case an FPSO – with the possibility of exploiting multiple accumulations in the area,” Mr Flegg said.
“Moreover, the development has been designed to deliver an industry-leading low level of carbon emissions, consistent with Serica’s objective of reducing the overall carbon intensity of its activities.”
Mr Flegg said the transaction demonstrates the benefits of Serica’s “strong balance sheet”.
“Our financial strength enables us to take advantage of suitable opportunities to expand the portfolio and we will continue to take a very proactive approach to business development, while also investing in our existing portfolio and paying dividends to shareholders,” he said.
“The transaction is structured such that most of the consideration payable by Serica is contingent and linked to making progress in the project.
“Our participation will also be financially efficient with Serica benefiting from tax reliefs on its investment.”
JOG chief executive officer Andrew Benitz welcomed the farm-out deal.
“Not only does it bring a further high-quality partner into the joint venture, but it unlocks exceptional value for the Company and delivers upon our overall objectives for the GBA farm-out strategy,” Mr Benitz said.
“The transaction provides JOG with multiple cash payments, but most importantly, a fully funded 20% working interest in the Buchan redevelopment project, transforming the Company and providing us with the springboard from which to realise long term shareholder value.”