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North Sea firm’s shares plunge again after it walks away from big oil find

Deltic Energy was unable to secure a new partner or funding for Pensacola project because of energy policy uncertainty.

Valaris 123, pictured during a visit to Dundee, is due to start drilling on Pensacola later this year.
Valaris 123, pictured during a visit to Dundee, is due to start drilling on Pensacola later this year. Gareth Jennings/DC Thomson

Shares in oil and gas firm Deltic Energy have slumped after it said it was pulling out of a major North Sea project.

It blamed “fiscal volatility and negative political rhetoric”.

Deltic’s Alternative Investment Market-listed stock was down by more than 37%% at one stage earlier today, wiping several million pounds off the company’s market value.

At market close the shares were worth 10p, down nearly 17% from Monday’s final price.

Deltic walking away from 326 million barrel southern North Sea discovery

The stock market battering came after the firm said it was pulling out of a project to develop Pensacola, one of the largest discoveries in the UK North Sea in decades.

Pensacola is believed to contain 326 million barrels of oil equivalent on a P50 basis, where there is a 50% chance recovery will match or exceed the estimate.

Deltic owns 30% of the Shell-operated oil and gas asset. Shell and One-Dyas have 65% and 5% respectively.

Shell set June 12 deadline for progress on Deltic’s farm-out bid

With Deltic out, it is possible the whole project may be aborted if the other partners in the southern North Sea find are unwilling or unable to pick up the extra tab for costs.

Deltic had previously warned policy uncertainties threatened its future involvement.

On April 30, shares in the firm nearly halved, plunging by 47.01% to 20.4p, after it revealed time was running out on its efforts to secure a new partner and/or funding.

Shell then gave Deltic until June 12 to “progress discussions” over a potential farm-out.

Out of time, with all potential routes to a solution for Pensacola exhausted

Today, Deltic said it had run out of options.

The firm explained: “Despite an exhaustive process, deteriorating sentiment towards the oil and gas industry as a result of 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.

“Therefore, the only appropriate course of action available to Deltic is to withdraw from the licence prior to further liabilities being crystallised.”

Oil platform
The North Sea oil and gas industry faces an uncertain future as politicians of all hues argue the ins and outs of continued production and new projects. Image: Jane Barlow/PA Wire

Deltic said it had “rigorously examined” a wide range of funding options without success.

It added: “Accordingly, Deltic has formally notified the JV (joint venture) partners… of the company’s intention to withdraw from the licence and begin the process of transferring its equity.”

The firm also said it may be required to honour certain expenditure in relation to an appraisal well that was approved by the JV prior to the withdrawal notice being issued.

These costs “may potentially be material to the company” at a later stage, Deltic added.

‘Damaging political rhetoric’

Chief executive Graham 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 (UK continental shelf) 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.”

Deltic Energy chief executive Graham Swindells.
Deltic Energy chief executive Graham Swindells. Image: Deltic Energy

Deltic’s other North Sea interests include stakes in Selene, Syros (100%) and Blackadder.

Mr Swindells added: “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 (exploration and production) industry.”

What are Deltic’s partners in Pensacola saying?

A spokeswoman for Shell said: “We continue to carefully appraise Pensacola to understand the commerciality of the prospect. We are disappointed Deltic is withdrawing from the licence, but remain confident that, along with OneDyas, the opportunity can be thoroughly assessed.”

One-Dyas has not responded to our request for comment.

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