Deltic Energy (AIM: DELT) has given an update on its Pensacola farm-out process, saying it has struggled to find someone to put up cash amid UK fiscal uncertainty.
The firm, with a 30% stake in Pensacola, has said that be required to withdraw from the Pensacola licence and transfer its interest in Pensacola to the Joint Venture partners if a deal is not made by the end of May.
Drilling and assessment Pensacola recently confirmed it as the largest discovery in the southern North Sea in a decade as 72.6 million barrels of oil equivalent in a gas and oil case.
Deltic wrote: “The board believes that accessing traditional equity capital, as the company has successfully done in the past, is unlikely to be a viable option to allow Deltic to meet its 30% share of the Pensacola well.”
The firm values its share in Pensacola to be £15 million.
It comes after Deltic successfully farmed out two hot projects– the Pensacola discovery and Selene exploration prospect – to Shell in recent years, with both to be drilled by the Valaris 123 jack-up starting in July.
Alongside its ongoing farm-out process, Deltic said it will consider alternative sources of capital and non-traditional funding structures to mitigate costs and/or secure its equity position in the Pensacola well.
However, the firm said that there is no guarantee that the needed capital will be available on time.
Deltic continued: “It is particularly frustrating for the Company as a recently commissioned Competent Person’s Report by RPS Energy assessed Pensacola as having a 2C NPV10 of approximately USD$200 million net to Deltic, representing a multiple of the Company’s current market capitalisation.”
Windfall tax woes
The business blames the UK’s controversial energy profits levy, or windfall tax, for creating fiscal instability and creating difficulties for its farm-out process.
Since the introduction of the windfall tax 90% of UK operators have cut spending in UK waters.
This has led to firms such as the UK’s largest producer of oil and gas, Harbour Energy, looking overseas to diversify its portfolio.
Graham Swindells, chief executive of Deltic Energy, commented: “The struggle to find a way forward on a project like Pensacola, which is one of the largest discoveries in the North Sea in recent decades, is a real-world consequence of our political leadership using the nationally important oil and gas industry as a political football at a time when energy security is of paramount importance.
“Given the impact of fiscal and political uncertainty on investment decisions we have seen a shift away from investment in larger standalone projects, like Pensacola, towards more affordable, lower risk opportunities which defer decommissioning or increase infrastructure life such as Selene, and the Company’s Syros prospect in the Central North Sea, where we have seen an enhanced level of interest.
“We look forward to the start of drilling operations on the high impact Selene exploration well, in which Deltic is fully carried for the estimated cost of the success case well, which remains due to spud in July 2024. In the meantime, we will continue to pursue all avenues to progress Pensacola and will update the market in due course.”
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