Hartshead has completed a transformational farm-out agreement with North Sea oil and gas producer RockRose Energy that clearly highlights the value of its UK Southern Gas Basin project.

The company will receive a gross consideration of about $196.3m – consisting of reimbursement of past costs, a partial carry on its share of development costs, bonus milestone payments and $48.4m of UK Government Investment & Capital Allowance – for the Phase 1 development in return for divesting 60% of the project to RockRose.

While the initial cash payment of $12m will take the company’s cash balance to over $35m, the $135.7m consideration from RockRose will meet its equity requirement for Phase 1 project development costs.

Importantly for Hartshead Resources (ASX:HHR), the farm-out materially de-risks the project as it heads towards a final investment decision in the third quarter of 2023 by providing $536m of gross project expenditure and a clear pathway to full financing and subsequent project development of the previously producing gas fields.

The Anning and Somerville fields, which make up Phase 1 of the UK Southern Gas Basin project, have Proved and Probable (2P) reserves of 301.5 billion cubic feet of gas which will be tapped through the use of six wells connected to two wireline-capable Normally Unmanned Installation platforms. These platforms will transport the gas to Shell’s infrastructure.

Peak production is estimated to be about 140 million standard cubic feet per day, or 56MMcfd net to Hartshead, with first production expected in 2025.

A ‘significant’ milestone

Chief Executive Officer Chris Lewis said the farm-out represents a significant milestone for the company by de-risking the project and meeting the company’s share of non-debt project development costs.

“Retaining the EPL tax benefit to Hartshead takes the gross consideration for the divestment of Phase 1 to $196m, which is an outstanding achievement for our shareholders,” he added.

Critical Front-End Engineering and Design work is nearing completion, and the Field Development Plan is due to be submitted to the North Sea Transition Authority this quarter.

Additionally, discussions with parties for the funding of the company’s remaining expenditure via a bond issue or gas pre-sales are well advanced and expected to be concluded alongside the FID.

Getting the first phase off the ground will also set the stage for future growth.

Phase 2 of the UK Southern Gas Basin project will involve the development of the Hodgkin and Lovelace fields, which host further 2C Contingent Resources totalling 139Bcf, while the third phase contains new exploration prospects in its inventory that currently hosts Prospective Resources of 344Bcf.

This is likely to find ready buyers as the UK continues to be vulnerable to gas shortages – not helped by its failure to reach agreement with Centrica on expanding the country’s largest gas storage site.

 

 

 

This article was developed in collaboration with Hartshead Resources, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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