Orcadian Energy (LSE:ORCA) — Pilot farm-out and portfolio update

0:00 Good afternoon, and welcome to the ORCADIAN ENERGY PLC Investor Presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be dismissed at any time by the Q and A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. How the company will review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Steven Brown, CEO. Good afternoon, sir.

0:31 Good afternoon, everyone. I'm gonna start with a bit of an apology because I have a very husky voice, and the truth is I feel rotten. But I thought it was too important to speak to you today to give you the update on our form out deal with Ping Petroleum. So apologies that I'm not my usual abrulean self. I'm a little calmer than usual. I'll assume you've read that or will read it later. When we set the company up we actually set the company up in 2014, so it's almost ten years that the company has been going. The whole objective was to deliver a high return for investors.

1:22 And the way we sought to do that is by getting our polymer flood project for pilot financed. And the deal with Ping provides a pathway for field development plan approval and then implementation of the project and, ultimately, cash flow from the remaining share of the field that we will retain once the format deal is completed. We looked at a lot of different ways of getting the project going forward, but when we met with Ping and explored how we could modify the project to fit with their their thoughts about how how it should be developed.

2:08 We felt we'd found a really good partner for the project, and we're delighted to have signed the the Farm Out deal with them. The other part of our strategy, and we continue this part of the strategy, is to lay our hands on discovered resources at low cost, and that basically means in licensing rounds, and transform those resources into reserves and onto production. So that was our previous strategy. Let let me move on and talk a little bit about our core assets. So as I've said many times, our core asset is the P2244 license, which contains Pilot Main, Pilot South, and actually the harbor fields just just to the east of that block.

3:00 You can see a a blown up version of the map just here. Pilot is the core asset. The reason it's the core asset is it's the best appraised of our assets. So there were seven reservoir penetrations. There's some excellent three d seismic over it. And we can see a clear pathway to getting, production from the field based on a polymer flood with an FPSO and probably a mixture of subsea and platform wells. And in the North Sea today, it's really important to, for any new project that's going to get approved that it's electrified.

3:47 And, we we were looking at using a floating wind turbine. That's something that Ping have been looking at very, very closely as well, and they have some very good relationships with, one of the, winners of the Intog licensing rounds. But pilot isn't the only thing we have. The really important additional assets are Elk and Norville to the that lie to the south. We have 53,000,000 of contingent resources in Elk and Norville, and we can see the opportunity to double that with appraisal. We also saw great opportunities for exploration around pilot, and one of the things that we'll be planning to do with Ping is to apply for that acreage that we relinquished earlier this year, to get a new license over that and, use some of these assets here to support the pilot development.

4:52 But there's also, you know, existing discoveries. Blakeney has 25,000,000 barrels of recoverable and some great prospects that lie to the north.

5:07 Just focusing in on pilot again. Well, actually, let me start by explaining that map on the right hand side because it's a really important map, and it's it's something that we find actually really helpful to help us understand exactly where the oil is and and where the the thick sections of oil are. That map is actually, it's a it's a seismic attribute attribute, so it's called extended elastic impedance, and it it's in the Tay sands. So, first of all, we pick where the Tay sands are, and then we use this, seismic processing technique to come up with a map of this attribute. And what's really interesting about this attribute is, firstly, it's incredibly easy to see where the gas is. So anything that's red or orange is where there's a gas cap, and we have a gas cap in the east of the pilot field under little accumulations off to off to the east that have small gas caps.

6:22 Brine sands and shales end up the same color, which is irritating, but not really that important because you're not really that interested in the brine sands. It's the oil bearing sands you're interested in. So they those those come up as that dark blue, but the cyan, that mottled cyan color, is where you've got an oil sand with at least eight meters of thickness in it. And we were able to look at where wells have been drilled on this, and we realized that this map was doing a perfect job of telling us where the oil was. So the discovery well here encountered 60 feet of oil. That's the 21272 well. The discovery well on Pilot South only found 10 feet of oil. Just a it was just clipped the oil water contact.

7:17 And at the well location, this attribute saying there's there isn't there isn't a thick oil sand. But up dip, there is a thick oil sand. So we have confidence that we can drill wells up dip and get oil out of them. The three well, also fine, just 10 feet of oil. And the six well, that find which isn't labeled, that find 60 feet of oil. This one over here find gas over oil. This tool is works really well in this area, And that's given us a lot of confidence about the oil in place, which is you know, that's the most important thing to start with is the oil in place. So we have about 263,000,000 barrels of oil in place.

8:03 A polymer flood of that will deliver 79,000,000 barrels, and we're very confident that a polymer flood will work because I think has enjoyed consistent success applying polymer flood across the captain field. So this is this is an introduction to Pilot. It's a really well appraised field. It's got great rocks, and that's what was attractive to Ping, to form into the project. We've signed a binding sale and purchase agreement with conditions precedent with Ping Petroleum UK PLC. I've got a couple of slides are on on Ping to explain who the ORCAs are. They're not a a a household name like BP or Shell, but they're a very innovative company, and they've been operating in the North Sea since twenty twenty fifteen.

9:04 So the deal we've done with them is that we will be left with an 18.75% carried interest to First Oil. So we won't have to raise money for the project. We don't have to finance the project until we get to first oil, then we pay our share of costs. That leaves us with nearly 15,000,000 barrels of two p reserves in pilot, and we'll detail the terms of that carry in the joint operating agreement that we need to negotiate in the in the coming months. We got a two year license extension from NSTA subject to us completing the deal with Ping. And the NSTA have been very helpful with us in, supporting the project and actually in talking to potential partners about the project.

10:01 Part of that is that we've always been focused on trying to make the project consistent with NSTA's net zero agenda. We try to minimize emissions as much as possible. We've as I said previously, we've requested an out of round process to reapply for the former area of P 232 o. That's the license that surrounded the pilot license in a joint bidding arrangement with Ping, we're finalizing that joint bidding agreement with them. The CPs actually include the typical typical things, but we have arrangements with Shell and TGS that we need to assign to the incoming partner. So we need to make sure that that all works properly.

10:52 And then there's a shareholder approval required, and, Ping's parent company in Malaysia, D Nex, will also need to approve the transaction. So, let me tell you a little bit about Ping. They're 50% owner of the Anasuria Complex. So they they they operate in the North Sea in a fifty fifty JV with Hibiscus Petroleum, and they bought the Anasuria FPSO and the Cook Teal Teal South and Guillermo A fields from Shell Esso in 2015. They see actually quite a bit of upside in in those licenses, and they're projecting a fairly significant increase in production there.

11:48 They recently formed into the fine field, which is right next to our licenses, and the farm into, P 2 Q 4 will give them 81.75%, 81.25%, I put I got that wrong there, of the pilot field. We have, in the past, said that we would be looking to do a deal with them in LK and Norwell, and we we are looking to do that. I'll I'll just be honest with you. We we ran out of time to get that that deal talked through in advance of signing the SBA. We had a deadline to get the SBA signed, and we met that.

12:37 But we will be talking to them about LK and Norwell. In in 2024, we won't be doing that before the end of the year. It may it may even take until after we've completed the pilot deal. They're also operator of the Avalon development, which isn't shown on this map. It's actually sits right next to the the Bakken Field. And they for that field, they purchased the Savann Humminbird, which is now named Excalibur. Excuse me. Excuse me. That's one of these round FPSOs. Great advantage of one of these round FPSOs is you don't need a turret.

13:25 So the all those swivels and so on are are not necessary with that unit because it doesn't weather vain. And they also have stakes in three Malaysian PSCs. So they're a growing company. They were founded by some people that I've known a very long time, and they're currently a 90% subsidiary of a Malaysian listed conglomerate called DNx.

14:00 So that's a little introduction to Ping. Let's show how we think the the project might unfold. I we're very focused on getting to First Oil, and the scope to get to first oil is to have five subsea wells, so that's two injectors and three producers, and an FPSO on-site to process production from those those wells. We do a further five subsea wells after first oil and then 22 platform wells to complete the development. So that's that's how we're reshaping the overall development scheme to minimize the cost to get to first oil.

14:50 And one of the things that we discovered I apologize if you're listen. I'm gonna go a bit technical on this because that's sort of who I am. But one of the things we find when we were working with Ping is we were looking at opportunities to develop the field with less fluid handling capacity than we'd established we needed when we did our concept select work. And this chart on the right hand side is a very complicated chart, but it's showing how for different polymer concentration scenarios, recoveries change.

15:37 So there's a a peak around about three and a half thousand PPM and how total fluid injection rates change and total fluid handling rates change. And what we discovered was that, actually, there's a an opportunity to minimize the fluid handling capacity requirements for pilot by increasing the polymer concentration. So our original plan had been to go with a polymer concentration of about 3,000 parts per million. If we crank it up to four and a half thousand parts per million, we're reducing our fluid handling requirements down to about 50,000 barrels a day from a 120,000 barrels a day. And that's actually a pretty significant reduction and means we can, likely, start production with a smaller FPSO than we'd expected.

16:37 And, of course, you have to look at the cost of this as well, because the higher polymer concentrations will mean, you're injecting more polymer. Well, they do to begin with. This orange line is actually, the million barrels of polymer that were in million pounds of polymer we're injecting. And that actually peaks at three and a half thousand. But once once you really start to go go down that decline curve on the fluid injection volumes, you're starting to actually reduce your polymer costs. So we think there's a really good opportunity to reshape the development plan to fit with a smaller FPSO and actually to save some money on our polymer costs.

17:26 And this production profile here is actually one that we've optimized the polymer concentrations on. And the green all the green colors are oil production, the blue is water production, and the dark blue line is injected water. We started about 10,000 barrels a day, and that builds up to about 20,000 barrels a day. And, the total fluid injection is around about 50 or 60,000 barrels a day. So we we find, by working with Ping, actually, some really good optimizations on the development scheme, and we'll be looking to bring those into, the field development planning process so that we can come up with a scheme that is really profitable.

18:21 The other thing we have to do, I always talk about this, is we have to make sure that the emissions are as low as possible. And this chart here on the right hand side shows emissions, intensity up the, y axis production volumes per day along the x axis, and the

18:48 size of those bubbles is actually the total volume of c o two that's emitted. And these are from 2021. It's all the UKCS oil fields. And, actually, what you see is as production declines, emissions intensity goes up. But with a new fully electrified field, you can have a much, much lower emissions intensity. And this is a very strong argument for continuing new oil and gas development in the UKCS,

19:18 and that's an argument that we'll you know, it's a rational argument that you're better off having new fields down here than old fields up here, and that's our that's our contention. And we've seen NSTA pick up on this argument, and we've seen other politicians picking up on this and seeing the the value of getting some new oil and gas development. So let let me move on to Elkan Normal. We we're really actually quite excited by the Elkan Normal discoveries. There's only two wells on on these fields. One here, this encountered a 100 feet of oil over another 100 feet of brine sand, and then pretty much the same out here on the Norville discovery.

20:08 It's just outside of three d coverage.

20:12 And these resource figures here and riskings are what we've done previous, to getting the extended elastic impedance attribute from TGS. So what we previously looked at was the far offset amplitudes, and, you know, the this looks pretty promising as a as a guide to where the oil is, but it pales in comparison once you put the REI attribute. And what I'd suggest you look at is actually LK North, which just sits here and looks looks like a very good target on the far offset amplitudes.

20:58 But whenever you put the, RAEI attribute on, Elkie North disappears. So that prospect was not supported by the RAEI response. But you see a really strong response here. You see a strong response up this channel. You see a strong response throughout this four way depth closed area. Area two looks like a good response.

21:25 All these bits out here are probably too small to develop, and that is probably a gas cap on it. But when you just take the ones that are supported by the REI attribute, you're you're looking at a 106,000,000 barrels recoverable in this area. So we'll be delighted if we can, negotiate a carrier arrangement with with Ping. You know, we'd we'd want to be

21:54 appraising this field so that we can move forward for production through the pilot FPSO in due course. But we're not just a viscous oil company. We we've taken up an opportunity in the thirty third round to apply for, some additional acreage. And this sort of answers one of the questions that was presubmitted. So I've answered the, the question about that was presubmitted, wondering if that deal had been done. We just haven't got around to that yet. But there was a question about our partnership with Parkmeat.

22:45 Now we've said something public about what we're we're doing here. I'm not sure. Part might have. But the in the thirty third round, we applied for the Finbuhle discovery in partnership with another company. You can work that out. And we previously had a license just here. It only covered about 12% of the the Finbuhle discovery. So we're applying for a new license over the bulk of the discovery. It's very big. It's 900,000,000 barrels in place, maybe 250,000,000 recoverable.

23:32 It's it's discovered in the seventies, and it's quite a viscous oil. So it it's maybe two and a half thousand centipoise. So it'll take some innovation to find the right development scheme for it, but we're we're excited about that prospect. We've also applied for some licenses, down in the, in the Mid North Sea High, where there are gas shallow gas prospects. And there's about 370 BCF of leads and and less mature prospects on this acreage down here. Gas is so important for energy security, and The UK needs a lot of gas.

24:24 I saw today that for the first time, US imports actually overshadowed Norwegian imports. So if we care about emissions, we we really would want to be having domestic production as our prime way of providing gas to The UK. So we think this is this could be a very interesting and actually very low cost to appraise because, the reservoirs are only around about five or 600 meters. So they're they're we we think we'll be able to form this out to someone who wants who wants to get into these shallow gas opportunities. And we're hopeful that our application around Finbuhle and down here is going to get announced maybe before the end of the the year, but excuse me.

25:23 But maybe early in January. We've had third application, which we expect to take a bit longer to be processed, where we've applied for a a discovery that has a 114 BCF of sales gas in it. The difficulty with this this discovery and why it ends up in open acreage, you know, a fully appraised field in open acreage is that there's a lot of c o two with that, sales gas.

25:55 But we've come up with a development concept, which would be to put an offshore power station, send the electricity to the substation of a nearby wind farm, and to capture all of the c o two and reinject it into the reservoir. So we we can end up with a near zero emissions project delivering stable baseload electricity. So what's not to like about that? So we're pretty optimistic about that. And there's actually a very nice little prospect on this acreage, and we absolutely have our fingers crossed that we will get that. So that's the that's the end of the slides.

26:44 That's the end of the presentation. I'll hand over to Alessandro again. Perfect, Steven. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments for you to those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

27:13 As you can see, we've received a number of questions throughout today's presentation. If I could just hand back to you just to read out the questions where appropriate to do so, provide a response, and then I'll pick up from you at the end. Right. So there were were three presubmitted questions. So one was talking about, are we having any dialogue with Parkmeat? Yes. We're talking to Parkmeat all the time. There was another question which was asking why did we mention that we might be raising funds on the news release we made on the format, and I'll ask I'll let Alan answer that question.

27:59 Yeah. Okay. That was driven by our nomad. The nomad that we have, I think, sticks to the rules very strictly. And as always, you know, when funds have been getting low, it's always insisted that we announce what funds we have and our plans for fundraising. So that was the reason for that inclusion. Yeah. Some novads are less strict than others on that on that matter. Yeah. So I'm not getting any more questions up. There's, yep, there are a couple more. Oh, are there? I'm not seeing them on my version of the system. Hi, Steven. So just on on the right hand side, can you see chat, q and a, and polls? Oh, yeah. Right. Perfect. If you just click on the q and a panel, you should see them there.

28:51 I all I can see is one question which I've already answered, one of the pre submitted ones. Just to just to make sure, you're new, Steven. So at the top, you should see new under the q and a. Alan, if you can see them. I see. If you can maybe just read read. There's one from Andy m. He says, what is the NPV of the remaining 18.75%? Right. That's a good question. So, our brokers analyst, Brendan Long, has a very nice little chart that shows the variation of NPV, against oil price. And at $85 a barrel, and using his assumption on windfall taxes, which is basically that the windfall tax never goes away, the NPV is about a 100,000,000.

29:48 So, actually, having that retained interest in the project without having to raise the capital to get to first oil is hugely valuable for the company. And, you know, the disconnect between our share price and what the potential value of these assets are I mean, obviously, there'll there'll always be a difference, but it just seems huge to us. Steve, I'll need another one. Yes, please. What is it what is it again, from Andy. What is the projected cash flow profile after first oil? Do you expect additional CapEx to exceed first revenues?

30:35 I that's certainly possible, but there's a really big difference between financing a project, which has two or three years to run and all the ups and downs of implementing a project, and raising finance whenever you have actual production. So, you know, it it all depends on the timing of phases, you know, whether or not we might be going cash flow negative in a particular quarter or year or whatever. You know, obviously, we'll want to spread things out so that we can finance things from our own cash flow from First Oil.

31:21 But it is a very different matter to raise some debt against a producing field versus a discovery that needs development. Okay. Another question from David l. The RNS states a carry to first oil. What is included in the carry and how many wells? So the scope I showed on one of those slides If I why don't I go back to that slide? I I don't know if people can see the slides at the moment. But what's in the carry out of the first five subsea wells? So five wells in total, three producers, two injectors.

32:10 There'll be the subsea equipment to hook those back up to an FPSO. There'll be an FPSO and the mooring and so on and so forth. So it's it's a pretty substantial scope of work. But, you know, we're we're actually very aligned with Ping to minimize the scope of work because, that way, we're confident that the project will actually go ahead. So we're, we're supportive of any ideas they come up with to get us into production faster and cheaper. Okay. Patrick is asking when is first oil?

32:58 That's a really that's another good question. So all being well, we'll have this deal completed by the end of March. That's the that's the deadline we have on that. Then we need to firstly identify the FPSO. Now one one of the things I actually said in my quote in the press release was that we're really delighted to be working with Ping because they have experienced they they're operating an FPSO, the Anasura FPSO. They have recently bought an FPSO, Excalibur intended for the Avalon field, And they're very, very familiar with what vessels are available in the market for redeployment.

33:47 And we we think that gives them a great edge to identify early on what vessel will actually be deployed on pilot. And the key the key thing on on pilot well, the key thing for any FDP is actually settling on that vessel because there's a whole host of things you can't actually describe properly in your field development plan or your environmental impact statement without having identified a specific vessel. So that's that's something we'd be focused on very early in '24. And, you know, we'd we'd we'd be delighted if we were submitting the FTP by the end of the year.

34:35 And then, you know, projects take you know, the sort of project is two to three years. So you can add all that up and, you know, it's it's a reasonable distance on that cash flow, but it's it's not it's not that far away. Okay. There's one more question from David. The deal looks like it's been structured as an option for Ping. What rights do they have to walk away before progressing to an FDP? Would they be able to finance a 100% of the project, or would they need a farming partner to share the cost and risk? Well, one of the advantages of working with Ping is that they fish in a different capital pool than we do.

35:28 So or any London based oil company does. So they they're they're listed their parent company is listed in Kuala Lumpur. So they're they have access to Far Eastern capital. And, you know, I'm I'm not gonna second guess what their financing strategy will be. It's possible they bring another partner in. That that would make a lot of sense. But we we're confident that we've actually got a partner that wants to make the project happen. You you're probably correct in saying it looks like the deal is structured as an option for Ping.

36:15 But that's the nature of what we're doing here. If it wasn't an option for Ping, they would have had to commit it to the whole project, and they haven't they haven't done the work to commit to the whole project. We haven't settled on the FPSO. We haven't lined up all the contractors. We haven't got a fee completed, so on and so forth. So anytime you got a development farm in, you you can't make the farm in a commit to the whole project at the beginning of the process. It's something that comes later in the process. Okay. We've got one more question from Andy. What do you see as the future milestones to unlock valuation discount to NPV?

37:03 So the the first milestone is completion of the deal, and there's a series of CPs that we have to get resolved, but we have a, you know, three month period to do that in. The next milestone is probably selection of the FPSO is the next milestone. And then subsequent to that would be submission of the field development plan. And once that field development plan's approved, then you're into the project execution phase. I would expect that, you know, FDP approval turns out to be probably the biggest milestone in that in that process because you only get FDP approval for a fully financed project.

37:57 Okay. That's the that's all the questions we've had. A lot. Right. Perfect. Steve and Alan, thank you very much. As as you said, I think you've addressed all those questions from investors. And, of course, the company will review all the questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Steven, could I just ask you for a few closing comments? Right. Right. Okay. Well, I apologize for not being very lively today, but I'm I'm delighted I've been able to take a bit of time and talk to you about pilot again, talk about Ping, and talk about the pathway forward for both the project on pilot and the company, which which, really, we're looking to get some some fruits from our thirty third round applications fairly soon.

39:00 So thank you for taking the time to listen, and, we'll we'll be back again. Perfect. Thank you very much for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will then take a few moments to complete, but I'm sure you'll be greatly valued by the company. On behalf of the management team of ORCADIAN ENERGY PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.