Energy company withdraws from largest North Sea discovery in a decade

DELTIC Energy has announced its withdrawal from the Pensacola Discovery.

In a statement on Tuesday morning, the firm said: “Ongoing fiscal volatility and negative political rhetoric in the run-up to the July election have resulted in Deltic being unable to secure a farm-out or an alternative funding solution which would allow the Company to commit to its future commitments with respect to the Pensacola appraisal well.”

The statement continued: “Therefore, the only appropriate course of action available to Deltic is to withdraw from the licence prior to further liabilities being crystallised following the Operator’s issuance of the Authorisation for Expenditure (‘AFE’) for the well cost, expected tomorrow.”

The energy company had been granted an extension to sell of its stake in what is the largest discovery in the southern North Sea in a decade at 72.6 million barrels.

Deltic said it had “examined a wide variety of funding solutions” during the process, including potential industry partners, existing joint venture partners (via traditional farm-out or asset sale), equity capital markets, strategic investors, debt providers and commodity trading houses which can pre-pay for future gas deliveries.

The firm may yet be required to honour certain expenditure which was approved by the joint venture prior to the issuing of the withdrawal notice.

Windfall woes

Deltic chief executive Graham Swindells has blamed the withdrawal on difficulties founded by “damaging political rhetoric” and “fiscal instability”.

Since the introduction of the windfall tax 90% of UK operators have cut spending in UK waters.

Mr Swindells said: “Recent history in relation to large scale discoveries such as Cambo and Rosebank has demonstrated the difficulties associated with progressing major offshore developments on the UKCS as damaging political rhetoric and fiscal instability continue to undermine the sector.

“Although we have been unable to secure Deltic’s future involvement in the Pensacola project, it does not detract from the achievements of the team in identifying the opportunity, attracting a partner like Shell and raising the necessary capital to drill the initial discovery well.

“Despite our disappointment at not remaining involved in Pensacola, the technical and commercial skills and experience demonstrated on the asset will be critical as we now focus on the Selene opportunity and similar infrastructure-led projects such as Syros and Blackadder.

“We believe these can be brought onstream more quickly, help maintain the viability of existing infrastructure and defer decommissioning of key production hubs which continue to generate interest despite the general malaise affecting the UK E&P industry.

“While the current situation is clearly disappointing, this is where the diversity and quality of the Deltic asset base demonstrates its value and we will be working tirelessly on behalf of our shareholders to ensure that we capitalise on those foundations starting with the imminent drilling operations on the Selene gas prospect.

“This, on its own, we estimate to be worth multiples of the Company’s current market value and can play an important role in the maintenance of the UK’s security of domestic energy supply when it has never been more important.”