I wrote about Orcadian Energy (ORCA) when it first listed on the AIM market in the summer. It has substantial 2P reserves in the Pilot field and significant 2C in the surrounding acreage. It’s looking to farm out a secondary asset for others to input the time and cost to move it forward, leaving the company to focus on core projects. In my opinion this outline deal is a smart move. The deal, assuming it moves from non-binding heads of terms to fully inked, will see Carrick Resources Limited farm in for 50% of the Carra prospect. Carrick will pay the costs to purchase the 3D seismic and the costs of processing to work the data into a drill-ready proposition. It will then lead the process to seek a further farm-in partner to pay for the drill capex.
I note this prospect does not appear in the Sproule CPR Orcadian commissioned and released as part of the AIM admission document. This conveys to me it is very much second tier to the Reserves and Resources the company is primarily focused on. We are told that others have estimated the P50 recoverable volumes for Carra at 30 million barrels, which is significant but not in itself overly material compared to the 79 million barrels of 2P and the 78 million barrels of 2C the company is currently focusing on at Pilot and the associated assets. If Carrick works the data-up and achieves a farm-out to drill, one could perhaps expect the incoming drill partner to want say 50% of the asset, assuming the oil price is healthy at that time. That would leave Orcadian with 25% of an asset which may have value if the drill bit has a good day. If the 30 million recoverable barrels and my simplistic assessment of farm-in dilution was proven correct, 7.5 million 2C barrels would then represent a very nice outcome for what is currently an unvalued asset.
Orcadian remains with substantial exploration upside across a number of CPR described opportunities, the most significant of which appears to me to be the Bowhead prospect at a P50 oil in place of 123 million barrels (say 36 million recoverable at 30%) and a geological chance of success reported at 49%. That is a very attractive exploration opportunity in the fullness of time in my opinion.
What this deal says to me loud and clear, is that the company will seek to obtain a return on secondary assets but not deflect management time and focus or capital from the main core asset, which is getting Pilot to FID. I like that and it's a smart move, and I would welcome more deals of this type. I added to my holding on recent share price weakness and maintain my view. Buy.
Filed under: Orcadian Energy, KPMG Silentnight, Versarien, Quartix, Barratt Developments, Vertu Motors
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