Orcadian Energy (LSE:ORCA) — Investor Presentation

0:00 Good morning and welcome to the ORCADIAN ENERGY PLC Investor Presentation. Throughout today's recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. Before we begin, I'd like to submit the following poll. And I'd like to hand you over to Steven Brown, CEO. Good morning, sir. Good morning, and welcome everyone to our portfolio update. We thought it's time to refresh everyone's memory on the licenses we hold and what we intend to do with them. And, really, the operative word in that intro is portfolio. We have a portfolio of assets, all of whom could deliver a lot of value to our shareholders.

0:46 So let's start with what our strategy is. Firstly, we aim to license or maybe buy for low cost, certainly not for high cost, discovered reservoirs that need an innovative development plan. We we really prefer fields with great rocks, and we prefer to innovate around how we deal with the fluids. Fields with great rocks and easy fluids just don't come up very often in licensing rounds. And if they do, say Pegasus in the Southern North Sea, bigger companies can easily outcompete us by promising to drill wells. We also target what we call post transition hydrocarbons, say, to par with CCS or the oil and fin buly, which can be used to make synthetic graphite for EV anodes.

1:43 I always say that strategy is the combination of opportunity and capability. And for us, the opportunities have been in license rounds, and our capability our core capability is transforming resources into reserves. Those are two very important words. Resources mean barrels in the ground. Reserves are barrels that have a clear pathway to production. And to be honest, this business of moving projects from the left hand side of this chart all the way to the right hand side is the business of every single preproduction oil and gas company. And we think that this chart is a really helpful way for investors to understand the preproduction oil and gas business.

2:37 In any event, this is a slide for you to digest later. Suffice to say, discovered appraised fields are our favorite assets, and we think they should be your favorite too. So here's a summary of our assets. Our carried interest in Pilot is the core oil asset. Earlham is our foundation gas asset. Lowlander is a field we see real potential in, and Finbuhle is the monster asset in our portfolio, which can deliver a really significant volume of oil. We'll go through them one by one starting with pilot. So pilot is exactly what we mean by great rocks.

3:24 Pilot's got multi Darcy permeabilities and can deliver good commercial rates even with its quite viscous oil. The five x well in the north of the field has 1,200 centipoise oil produced at 1,800 barrels a day. Over the field, the viscosity varies. It actually ranges from somewhere between olive oil in the South, around about a 160 centipoise, and engine oil in the North, about 1,200 centipoise. And polymer flooding is the right way to develop pilot. Ithaca has had consistent success polymer flooding cap captain. They and Chevron before them have shown exactly how to do a polymer flood offshore.

4:12 Ping, who now operate pilot, have spent twenty twenty five rebuilding both static and dynamic models of the fields and are now working through the concept select process for the project. And here's what a dynamic model looks like. So this is slices out of our dynamic model of the pilot field, and it's an animation of how the horizontal producers drain the oil pushed towards them by the polymerized water injectors. The injectors are low in the reservoir. The producers, we would drill as close to the top of the reservoir as we can. And this approach sweeps as much of the oil as you can physically get out of the reservoir. And here's a summary of our deal with Ping.

4:59 We're still very much involved with the project, but we only start paying bills when the field is producing. But you're all asking, when will it produce? Actually, the most important development for pilot and for lots of other projects in the North Sea happened when Rachel Reeves delivered her autumn statement. Not that she said anything. Talk of oil and gas never passes her lips. But at the same time as she was speaking in parliament, Treasury published the critical papers defining The UK's future fiscal regime for oil and gas. Up until that moment, nobody knew what the future tax regime would be, so no one could be optimistic about the future.

5:50 Everyone in the industry hoped that the nightmare of energy profits levy would go away sooner. It didn't. But more important, we now know the tax system that will apply for most of our projects' productive lives. And, actually, it's fair, it looks durable, and there's sufficient scope for companies to profit by doing projects. So we believe project approvals will start to happen from this year onwards. That news should have rerated every company with a UK development project. And the reason for that is the possible profit share that investors could expect went from just 22%.

6:36 Remember, if the tax rate's 78%, your profit share is only 22% to 60%. That's a really big difference. And for us, pilot's just the beginning for an area we call is called the Western platform. So Elkia Normal can actually be bigger than pilot. We still have these fields a 100%. And this map shows the amplitude brights on the ultra far seismic volume, and these are thought to be direct hydrocarbon indicators. The story is backed up by the rock physics work we did in the greater pilot area and well results in the area. However, this next map shows the relative extended elastic impedance, which is an even better predictor of oil filled sand. This is work that TGS did for us.

7:33 It isn't calibrated to well results, but we've checked in the area, and it predicted the well outcome correctly 27 times out of 27. If all these relative extent of the elastic impedance support of prospects come in, Elk and Norwood could over a have over a 100,000,000 barrels of resources. But that's not the biggest field in our portfolio. The biggest is the massive Finbuhle field up on the outer Moray Firth. This field was found in the seventies by companies looking for oil in a deep structure lying between the iconic Piper and Claymore fields. Unfortunately, when they drilled these wells, the oil had breached the seal on the structure and had made its way up to the shallow Beaulieu Sands where the oil biodegraded to make another field with great rocks and a very tricky fluid.

8:35 So the most important thing about thin is the fluid properties. Based on our work, we estimate that the reservoir temperature, the oil is about 5,000 centipoise, so five times as thick as engine oil. And what that means is the oil comes into the well very slowly. The exploration well on this produced at 10 barrels a day. That was a vertical well. We think a horizontal well might start producing about a 100 barrels a day, but that's not a commercial rate. However, if you can warm the oil, viscosity will fall precipitously by two orders of magnitude, and rates could even reach 10,000 barrels a day. Heat is the key to fin.

9:25 And how you get that heat to the reservoir fluids is critically important. So this technology we're showing on this slide is from a Canadian company called Accelaware. And what they're doing is using radiofrequency antenna to effectively microwave the conate water that sits even within the oil zone and heat the oil. The scheme they have in mind emulates the steam assisted gravity drainage process called SAGD process, and that needs a very high temperature because you're trying to make steam in the on in the in the subsurface. You need to get to about 600 degrees Fahrenheit.

10:12 But we're hoping that an alternative configuration can warm the oil enough so that we can get to commercial production rates and recoveries. And by enough, we mean to about a 150 to 200 degrees Fahrenheit, less than the atmospheric boiling point. So we'll be working with Serica, who are our operator on this license, and NSTA to how best we progress this project, which really depends on technology developments, not drilling more wells, but technology developments to define the resource and potential reserve opportunity. Now on our licenses, we found another oil project and, actually, a well appraised oil project.

11:04 This last oil project is called Lowlander, and it was discovered by Texaco in 1987. It's been around the houses. Talisman, Faroe, and Parkmate have had this field under license since Texaco drilled it up and appraised it. There are four appraisal wells to follow the discovery well, but every single plan has foundered on how to deal with the hydrogen sulfide. And we've conceived a new approach, which we're working through with our engineering partners, Crondle, and we hope it's going to work.

11:51 We'll let you know if we can see a path to production for this field. It absolutely fits our strategic criteria. It doesn't need another appraisal well. It's got five penetrations in the reservoir already, thanks to Texaco. What it needs is innovative engineering. Not many millions to drill another inconclusive well. So now our gas assets. We started with oil. We started with our heavy oil field and pilot. We branched into the gas business, and the Erlum field is our flagship project here. It lies close to the Dutch border in the Southern North Sea. There's about a 114 BCF of methane in an excellent Le Mans sandstone reservoir.

12:44 It's had two wells drilled on it. Another well is not the answer. Talisman drilled the discovery well, and BP drilled what was planned to be a development cum appraisal well. What they discovered when they drilled that well was, firstly, the reservoir is incredibly productive. It doesn't need an expensive frac spread. Gas production is easy from this reservoir. They discovered what is tricky about this field, which is the inerts content of the gas. What do I mean by inerts? Inerts are nitrogen, carbon dioxide. This field is has a lot of carbon dioxide in it, 49%. And it would take a lot of processing to make this gas pure enough to put into the gas grid, and our planning is not to do that.

13:39 Rather, our plan is to sell on processed gas to the operator of an offshore power station with integrated carbon capture. And building that power station is the objective of the Marine Low Carbon Power Company Limited, and they are our partners on this project. It's a very serious project, and, actually, it's much bigger than our gas development project, especially when we include the HVAC high voltage alternating current line that we'd be using to export this down towards the m 25. So the key to moving early forward is actually the funding of this power station project.

14:24 And once this power station project gets off the ground, our gas development will not be far behind. And the gas project is our scope within this bigger project. The gas project is essential for the power station project, and the gas project that we have is a simple straightforward project that will set a new standard for scope three emissions because not just the c o two that comes with the methane, but the c o two created by burning the methane within the power station will be captured and reinjected into the Erlum Reservoir. And because of that, we wouldn't be at all surprised if this is our first project across the FDP hurdle.

15:13 Lastly, here's our solitary exploration only license. And this is actually low cost, low risk exploration, which as anyone will tell you, is the only kind I like. So why is it low cost? Well, it's because the wells are shallow, maybe five to 700 meters deep. And by shallow, I mean, that's the depth into the ground, not the water depth. That sort of water depth is Rosebank and Campbell territory. And these shallow gas fields have been successfully developed in The Netherlands by Petrogas. On top of that, we believe we can derisk these projects using relatively inexpensive electromagnetic surveys, and we'd like to do that then farm out a surefire exploration well.

16:10 So we don't ignore great prospects. To be honest, we think of every way to make money for our shareholders. And lastly, we own a 50% share of a company called Halo Offshore UK Limited with IPC. IPC also own 50% of MLCP. We're we're looking for potential acquisitions that we could do through this company, but, actually, we're always open to good offers. There's a lot of potential value creation if this company's investment history is combined with a producing and tax paying field. And we don't care how we make money for shareholders, but making money for shareholders is what we're all about.

16:56 So thanks very much for listening. And now we're gonna go through any questions that I've I see a list of questions coming up, and we'll go through and answer those. I always like to answer every question. Maybe I can. Maybe I can. We'll see how we get on. Steven, thank you for the update today. Ladies and gentlemen, please do for the update As you can see, we received a number of questions during today's presentation. I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Right. Okay. So the first question is a presubmitted question, and I'll just I'll just read out verbatim.

17:44 Has the NSTA approved the HALO acquisition yet? If not, why? Will ORCADIAN get the schooner gas fields? As for the carbon reinjected into the field, isn't the carbon storage license needed for such plans? All good questions. Let me just go through them one by one. NSTA did not approve the acquisition of Halo because they didn't need to. We were going through the process of requesting NSTA approval when we realized that the one license the company held, which was a license over the Schooner Gas Field, was due to expire, by the end of November, in 2024. It was actually quicker for us to wait for the license to expire, at which point we didn't need to get NSTA approval to buy the company.

18:37 So that's why we didn't have to wait for NSTA approval. Will we get the Schooner Field? Well, we didn't get the license over the Schooner Field. We didn't get a an extension to that license. Schooner is would be a redevelopment project. There's definitely some resource left in Scooner. Thought about it. But you need to be tacking that on on the back of something else in the area, and it's not immediately obvious where that is. So at the moment, we don't have plans to go and get Scooner again. But if it were up for relicensing, it's possible we could look at it. And we have all the information on it. So probably not is the answer to that. As for the carbon reinjected, isn't a carbon storage needed for such plans?

19:26 The truthful answer to this is maybe, but probably not. So our plan is actually to reinject c o two into ORCADIAN during the production phase of the Earlham license and to do it to provide pressure support to the, Earlham reservoir as it produces. And that's actually called an enhanced gas recovery scheme, which NSTA guidance says has to be done under a production license. Whether or not we then subsequently require a carbon storage license, NSTA have not been clear about, but they've been very clear that anytime we want one, we can go through the out of round process and get one. So it's not an issue that I'm concerned about at all.

20:14 And, actually, we believe the first phase of ORCALIM can all be done under a production license. So then the next question is from Salvatore. Can you provide a clear update on pilot? What is the current status of the project? And we've had no news for a while. I think I've explained why, to be honest. Last year, everyone's waiting for the tax situation to clarify, and nobody knows if it's worth investing money in projects until the tax situation clarifies. The profit share going from 22% up to 60% is the sort of clarification I like, and that change is opening the door for people to progress projects again.

21:01 So we went through a period of time. We couldn't say very much, but Ping are definitely they used the time to do the subsurface work, actually. They spent the time, going through the static model, rebuilding dynamic models, and there are a position now where they're looking at the concept select process, taking the project through that process. And in fact, we're we just arranged our next meeting with them yesterday. The next question is what are the remaining technical, regulatory, or financial hurdles? Really, there's not a big technical hurdle on pilot. We've already been through a concept select process with NSTA. They like the polymer flood approach. They think that's a great way to develop a field like this.

21:48 There's maybe some changes we can make that improve that. The key question is financial and having the capital to move the project forward. And lots of projects are in that position. I I wouldn't be surprised of Ping bringing a partner, but Pilot is one of the best projects in the Central North Sea, and I'm confident it will get developed. Next question is regarding the potential electricity generation strategy to power data centers. Is this concept exploratory or actively being advanced actively being advanced? Answer. What scale of generation capacity is in Vidgets? 288 megawatts.

22:35 Maybe two fifty megawatts by the time you get to the market with transmission losses. What capital expenditure would be required? That's someone else the the power station CapEx is someone else's business, but it's many hundreds of millions compared to maybe a 100,000,000 for the scope we have. Next question is from Fraser. Have there been discussions with Serica regarding the fin potential or potential infrastructure tiebacks? So we've definitely been talking to Serica about fin potential. In fact, we're talking to them every fortnight on that. Finn, I don't believe, would be a tieback to existing infrastructure.

23:24 The existing infrastructure all goes into the Flota Catchment area, which, is the oil terminal on the Orkney Islands, which are it's a lovely place. Everyone, go and have a visit at the Orkney Islands. And the fin oil is too heavy to go into that system, I believe. So there would be a new offtake for Fin. If not, why not? Well, there have been. Right? Lastly, is Fin currently being actively progressed, or is it on hold pending broader strategy? No. We're we're actively working going through our work program on Fin and talking with technology providers about what we think are the technologies that can unlock this monster.

24:14 So, absolutely, it's front of our minds. Right. I have another question from Roderick. It's quite a long question. Oh, a lot of questions here. Right. Fourteen months ago, you stated the intention to make ORCADIAN a production company as soon as possible and to begin paying dividends through the acquisition of producing assets. Is this still active company policy? So we have not succeeded in making a production acquisition through Halo. We're still looking at some opportunities on that. We're also looking at opportunities to sell Halo for cash to people. And to be honest, I can't quite answer which way it's gonna go.

25:02 But as soon as we know, we will let you know. So shareholders are supportive of the long term asset base, but clarity on capital allocation, time lines, and execution milestones is essential. We would greatly appreciate specific targets and time frames so progress can be measured objectively over the next twelve to twenty four months. Well, I hope I've given you some guideline as to how we're approaching each of our different assets and the progress that we make on this. But this question actually reminds me of my time back in BP where, we were looking at a portfolio of development projects, and I actually got given one of them to to bring forward. It was the Harding Field. And I was told, Steve, can you get this sanctioned after the Andrew development?

25:51 So I only heard the first bit of the question. Can you get this sanctioned? So we went hell for leather with Harding, and we it became the project that was the next project to go ahead. The thing about putting development plans together is you can't predict how the work is gonna guide you that easily. But the important thing is to have a portfolio and to have multiple ways to move forward because projects run into difficulty. Maybe a partner gets taken over and the new management don't like it so much. Maybe there's a technical hurdle. Maybe there's a regulatory hurdle. There's been a massive fiscal hurdle in front of The UK sector for the past two or three years. I'll I'll tell you a little fact.

26:37 The London Stock Exchange, on average, every three year period, would put £500,000,000 into UK oil and gas expenditure. In the last three years, they put £3,000,000 in, and half of it came to us. So that that story is changing. The ground's shifting. The future revenue that investors can get from The UK sector is 60%, not 22%. That's a massive difference. And that fiscal hurdle is gone, but each individual project will have its own hurdles. And the key will be to make sure that one of our projects gets across that line as soon as possible. So thanks thanks for that question. That allowed me to have have a good rant, Roderick.

27:26 Marcus, afternoon, Steve. Have formal bids been submitted? Is that bids for us? Are us bidding for someone? Honestly, Marcus, you should know I can't answer questions like that. Sasha, what are the next two to three concrete milestones you're targeting across the portfolio in 2026? And what would success look like at each one of them? So the next really concrete milestone on pilot is a concept select letter of no objection from NSTA. And, you're probably wondering, why why isn't it a concept select approval? That's not how NSTA allow us to talk about it.

28:15 You submit a con selected concept, and the NSTA respond in a letter to say they don't object to it. That's that's the pilot project. For Earlham, the next big hurdle is the financing of the power station. When the power station is financed, that opens the door for the financing of the gas field. And that that will all happen very quickly, I believe, once the power station's, financed. The third field is we finish looking at Lowlander and either decide everyone else was right in the past that the h two s made this undevelopable or the idea we have works and that this field could actually be an a near infrastructure tieback pretty quickly.

29:10 And then finally, with Fin, it's actually all about the technology and our discussions with Accelaware and how we would move the technology we want to use through the technology readiness level process. So it's currently at t r l eight, which means it's been tried in a pilot, but it's not being used commercially. And we want to we'd want to get it to t r l nine before we commit to using it on FIM. Right. So many questions. Right. What near term news flow are you expecting? This is from Daniel. One of those. Okay? Is the joint venture on near to becoming a binding agreement?

29:59 I think once the power station's financed, everything will happen quickly thereafter. That's the answer to that. But the power station has to get financed. Warren's asking about strategic intent and monetization. What's the defined strategic pathway for Halo? Is the intention to farm out, sell down, develop internally, or retain as optionality? I think that's referring to Halo. Has the board received any inbound interest or held serious commercial discussions? Is Halo realistically fundable without material shareholder dilution? What is the timeline to FID under current assumptions? I think that must mean FID on.

30:49 So we've had lots of conversations with lots of people. And if someone comes up with an offer we like, we'll take it. And if we see an opportunity to acquire something through the Halo vehicle, we'll take it. The picture you're looking at is actually a a Pegasus well that Halo participated in. It did 93,000,000 scuffs a day from a very nice reservoir, which is now under any of us stewardship. Right. Sasha h, you briefly mentioned looking at securing acquiring a production asset. Given the cash position, how much priority is this being given, and geographically, where is being looked at? Many operators in The UK are progressing decommissioning plans. Does this present an opportunity to acquire assets to extend COP?

31:43 Well, this has been the strategy of lots of companies within the UKCS, which is to secure assets that are the current operator is thinking about about decommissioning, but finding the opportunities that often the infill drilling opportunities, cost reduction opportunities that allow you to extend that period, and it's a really good strategy. But it's not the simplest strategy to implement. So we will look at opportunities. We'll take the ones we like. We're very technically driven. If we don't like them technically, we won't touch them. So next question from Marcus. What concrete steps have been taken in the past twelve months to acquire producing assets?

32:34 We've taken a number of concrete steps, and so far, none of those steps have led us to a destination we like. Next question. What size and type of assets are being targeted late life North Sea, private divestments, etcetera. We look at anything in the North Sea. We're very focused on the North Sea. It's it's the area we know and understand. We understand the relationship with the regulator. We understand the fiscal regime. That's what we're focused on. We wouldn't be looking anywhere else. And we'll look at private divestments, public divestments, whatever. Another question for Orlam Orwell, how do you see the data center power strategy translating into a commercial project?

33:20 What are the moving parts investors should watch? Partners' consents, timeline, offtake, etcetera. Very good question. It actually helps me describe why I believe that power station's going to get financed. And it's because the ultimate customer of the power is a very well known name that happens to have a couple of data centers that don't happen to have grid connections lined up, and they have a real need for for power. They really want clean power. So gas power that's from carbon capture gas is perfect. And we believe the credit rating of that company will easily enable the financing of the power project, and the financing of the power project will easily enable the financing of the Orland project.

34:19 And last question. Lots of questions. I'm I'm actually really pleased. I like lot answering questions. Maybe this one to wrap up. Oh, thank you. Stepping back, what do you think the market is missing about ORCADIAN today, and what evidence points to potential rereading as these catalysts land? I think the main thing the market's missing about ORCADIAN is that we actually have a portfolio. We have a number of projects we're working on. We see a number of opportunities to bring resources, be the prospective resources, mostly contingent resources, mostly contingent resources with all the appraisal done. So we're in the cheap phase of moving a project forward. So we've got projects that can deliver reserves, and reserves are what the market really values.

35:12 So today, you might look at that portfolio and say, great portfolio, lots of options, lots of opportunity. I think the market misunderstands how valuable it is to have a portfolio. You don't wanna be a single company, single asset company. You want to have multiple things you're working on. You want to have multiple opportunities to innovate, like the downhole heating and thin, like the h two s treatment on lowlander, like the polymer flood on pilot, use those multiple opportunities to innovate to deliver substantial resources into substantial reserves. Anyway, I think I've answered all the questions. Thank you very much. Thank you, sir, for answering questions from investors today. Before we ask investors to share their feedback, which I know is very important to you and the company, Steven, could I please just ask you for a few closing comments?

36:07 So thank you for coming along. I really appreciate your time. Feel free to get in touch with me directly if you've got any questions. I'm always open to having a chat with shareholders. I am one myself. Thank you, sir. Could I please ask investors not to close this session? It should now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team of ORCADIAN ENERGY PLC, we would like to thank you for attending today's presentation, and good morning to you all.