Arthur Millholland, the Canadian who created Oilexco – which crashed into administration last winter with liabilities of some $1.8billion (£1.1billion) – is back in the North Sea.
Apparently barely noticed here in the UK, Millholland’s return is in the guise of president and CEO of Toronto stock exchange-listed Velo Energy. The firm has struck a deal with Premier Oil – the company that bought Oilexco’s assets from administrators Ernst & Young for $500million earlier this year – which enables it to buy back some of those assets, subject to regulatory approvals.
In fact, Velo put out a statement in October announcing the deal, followed by Premier Oil mentioning the arrangement in its latest trading statement, published mid-November. The package comprises the following UK Central North Sea interests:
A 100% equity interest in block 16/26p, known as Caledonia.
A 65% equity interest in block 21/23a, known as Sheryl.
A 50% equity interest in blocks 28/9 and 28/10c, known as Catcher.
A separate agreement has been reached with BG for a 65.17% equity interest in block 22/15, which includes the Banks discovery of 2006.
Velo said its entrance into the North Sea was made possible by the acquisition of North Sea Oil, a Canadian-based private company, and North Sea Oil Exploration Ltd, a UK-based private company. Negotiations for the Premier package and Banks were conducted using “arm’s-length” third-party vendors.
In its Toronto exchange statement, Velo says: “Management of the company has direct experience with the Sheryl and Catcher properties as these were assets of Oilexco Incorporated’s wholly-owned subsidiary prior to its bankruptcy. A number of Velo’s current senior management had previously been employed as senior management at Oilexco.”
Millholland said: “These acquisitions give Velo a core group of near and mid-term development properties upon which we can build a growing North Sea oil company.”
Under the terms of the deal struck with Premier, Velo will make an initial payment of $12million, an additional payment of $8million after gross production of 1million barrels at Caledonia, and a final payment of $5million after gross production of 3million barrels from that field.
According to Velo, Caledonia previously produced 6.02million barrels of oil from a single well until production was shut-in.
The company said: “In a report dated September 15, 2009, with an effective date of July 31, 2009, Sproule International Limited, independent reserves evaluators, estimated proved and probable reserves in the Caledonia field at 3.68million barrels of oil and probable reserves of 2.1million barrels of oil in the Sheryl oil pool (adjusted for a 65% equity interest). Both Caledonia and Sheryl are in the vicinity of third party-operated production facilities. Catcher is an exploration property.”
The Banks discovery well (22/15-3) encountered porous deepwater turbidite sandstones in the Paleocene Forties formation that were hydrocarbon-bearing in a four-way closed structure, and encountered a gross hydrocarbon height of 25.9m (85ft) in the Forties. The hydrocarbon column had a gas cap of about six metres (20ft) overlying a 15.24m (50ft) oil column of light oil.
Under the terms of its takeover of North Sea Oil and NSOEL, Velo committed to issuing one million common shares to their owners.
Following its collapse, administrators at Ernst & Young sold Oilexco’s North Sea business to Premier Oil, which is now actively working that portfolio and thinning out what it does not require.
Oilexco shares peaked at 964p in July last year, at the height of the oil-price spike, but had plummeted to just a few pennies prior to calling in the administrators to take control of Oilexco North Sea Ltd.
The view is that Premier got a decent deal despite Oilexco having perhaps overdone the talking-up of discoveries such as Huntingdon. But it has left a sour taste in the mouths of supply-chain companies involved in supporting Oilexco’s North Sea enterprise. Some $125million (£75million) was returned to creditors. The company was heavily dependent on debt to finance its activities and the credit crunch, combined with the oil-price slide, resulted in the company becoming hostage to its lending syndicate of 11 banks, prominent among which was the Royal Bank of Scotland.
