Independent Oil & Gas : 08 Jan 2019 SNS Core Project Upgrade

SNS Core Project Upgrade

Independent Oil and Gas plc ('IOG' or the 'Company'), a development and production company focused on becoming a substantial UK gas producer, provides an upgrade on its core development project (the 'Core Project') in the UK Southern North Sea ('SNS').
Highlights

• The Company's two-phase Core Project has been expanded to include the 108 BCF of 2C Contingent Resources assigned to the Goddard discovery by ERC Equipoise, and now comprises a total of 410 BCF¹,² of 2P+2C reserves and resources across six discovered gas fields
• This significantly enhances management's Core Project³ economics, delivering 40% IRR, £358m post-tax NPV10 and peak annual production rate 146 MMCF/d (up from 114 MMCF/d) with no increase in funding requirement
• Goddard's 108 BCF² of 2C Contingent Resource is discovered gas which is development ready. Management believe these Resources can be reclassified to Reserves upon submission of the Field Development Plan (FDP) to the Oil & Gas Authority, which is planned for 1H 2019.
• As previously announced, the Core Project is now technically ready to enter the execution phase and Phase 1 pre-Final Investment Decision (FID) engineering is now complete. Thames Pipeline integrity has been proven and major contractor terms substantially agreed with LOIs in place for a number of key contracts.
• Geotechnical surveys for design and installation of the Southwark and Blythe production platforms were successfully completed in December 2018.
• Preparations continue for drilling the Harvey appraisal well, which management estimates has Prospective Resources in the Low/Best/High case of 85/129/199 BCF and 63% Geological Chance of Success. In the event of Harvey success, IOG's portfolio would deliver 77% IRR and £688m post-tax NPV10.
• Funding plans for the Core Project are advancing as detailed on 29 November 2018 with the objective of Final Investment Decision (FID) within Q1 2019. First Gas is planned to be delivered within 20 months of FID.
• IOG has today released a revised Investor Presentation to reflect the Core Project upgrade

Andrew Hockey, CEO of IOG commented:

The integration into our Core Project of 108 BCF 2C Contingent Resources at the newly awarded Goddard discovery makes what was already a very strong investment case even more compelling; our fully-owned and operated Southern North Sea gas development project now carries a base case IRR of 40% and post-tax NPV of over £350m. The award of Goddard to IOG in the highly competitive 30^th licensing round was a big win for us - we consider it one of the most valuable remaining undeveloped UK SNS fields and an ideal fit for our portfolio, lifting our Core Project's projected peak production rate as high as 146 MMCF/d (c.25 kBoe/d). We assess the main part of the Goddard structure to be technically ready for development and with 108 BCF 2C Contingent Resources it will be the largest field in our Core Project, which can now deliver a total of over 400 BCF of gas into the UK market.
At the outset of 2019, our focus is to deliver funding for Phase 1 of our Core Project thereby reaching FID at the earliest opportunity. We are technically and commercially prepared for project execution having made a head start on relevant offshore site surveys. In addition, the Core Project does not yet include the potential upside of Harvey, which subject to successful appraisal could add another 129 BCF Best Estimate Prospective Resources. We look forward to providing further updates on Harvey in due course.

Fiona MacAulay, IOG's Chair, commented:

I am delighted to be chairing IOG whose assets, team and strategy are poised to make it a substantial mid-tier UK gas producer delivering excellent returns to shareholders. The addition of the recently licensed Goddard field to the existing Core Project without increase to the overall funding requirement is a great example of the significant value our management team is creating for investors. We have identified a number of additional opportunities to further enhance our Southern North Sea asset base to add to our value and returns. I am looking forward to working ever closer with the team to help unlock this very valuable portfolio in 2019.

SNS project upgrade

The Company's revised Core Project plan comprises a two-phase development of its 302 BCF¹ of 2P gas reserves at the Blythe Hub and the Vulcan Satellites Hub and 108 BCF² 2C Contingent Resources at Goddard. This delivers a 40% IRR and has a £358m³ post-tax NPV10 with no additional funding required to develop Goddard. The Core Project now comprises a total of 410 BCF¹,² of 2P+2C reserves and resources across six discovered gas fields to be developed in two phases: Phase 1 consists of the Southwark, Blythe and Elgood fields (158 BCF¹ 2P Reserves) and Phase 2 consists of the Goddard, Nailsworth and Elland fields (144 BCF¹ 2P Reserves and 108 BCF² 2C Resources). Phase 1 of the Core Project is technically ready to enter the execution phase with all engineering work required for FID complete. Commercial terms are substantially agreed with all major contractors.

The Goddard licence, which was awarded in the recent 30^th round, commenced on 1^st October 2018. Goddard's 108 BCF of 2C Contingent Resources are discovered gas resources which are technically ready for development. Goddard also contains a further 73 BCF² Best Estimate Prospective Resources to be appraised at the optimal time. IOG's development team is preparing FDP submission for the Goddard 2C discovery to the Oil & Gas Authority during 1H 2019. IOG believes these 2C Resources can be reclassified to 2P Reserves upon FDP submission. ERC Equipoise's October 2018 Competent Persons Report (CPR) is available on the IOG website and describes the Goddard resource base.

The Company is in the final stages of signing documentation for purchase of the onshore Thames Reception Facility, where its fully-proven, 550 MMCF/d capacity Thames Pipeline lands at Bacton Gas Terminal on the North Norfolk coast. The pipeline will provide a low-cost, safe and efficient export route for IOG's assets straight to the UK market with future commercialisation opportunities for new asset additions to IOG's portfolio and for 3^rd party gas.

Funding and Harvey

The Company remains ready to progress its funding plans, with a view to achieving FID in Q1 2019, and technically ready to achieve First Gas within 20 months of FID. Further to the 29 November 2018 update regarding the repurposing of the September 2018 loan, the Company is continuing discussions regarding funding of the Harvey appraisal well alongside its wider FID funding process. Detailed commercial and technical preparatory work continues for the Harvey appraisal well. The Core Project with the addition of Harvey would potentially deliver a 77% IRR and a £688m³ post-tax NPV10 with a peak annual production rate of over 230 MMCF/d.

Enquiries:

Independent Oil and Gas plc Andrew Hockey (CEO) James Chance (CFO)	[phone]
finnCap Ltd Christopher Raggett, Anthony Adams (Corporate Finance) Camille Gochez (Corporate Broking)	[phone]
Peel Hunt LLP Richard Crichton, David McKeown	[phone]
Camarco Georgia Edmonds, Tom Huddart, Monique Perks	[phone]

Notes
About Independent Oil and Gas: IOG owns substantial low risk, high value gas reserves in the UK Southern North Sea. The Company is targeting a 2P peak production rate of 146 MMCF/d (c. 25,000 Boe/d) from its substantial Core Project (2P gas Reserves of 302 BCF¹ + 2C gas Contingent Resources of 108 BCF²) via an efficient hub strategy. In addition to the independently verified 2P reserves at Blythe, Elgood, Southwark, Nailsworth and Elland and 2C Contingent Resources at Goddard, IOG also has independently verified best estimate unrisked prospective gas resources of 202 BCF²,³ in Harvey and Goddard. Alongside this IOG continues to pursue value accretive acquisitions to generate significant shareholder returns. All IOG's licences and the Thames Pipeline are owned 100% and operated by IOG.
Competent Person's Statement In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Andrew Hockey, IOG's CEO, is the qualified person that has reviewed the technical information contained in this document. Andrew Hockey has an MSc in Petroleum Geology and has been a member of the Petroleum Exploration Society of Great Britain since 1983. He has over 35 years' operating experience in the upstream oil and gas industry. Andrew Hockey consents to the inclusion of the information in the form and context in which it appears. Certain information communicated in this announcement was, prior to its publication, inside information for the purposes of Article 7 of Regulation 596/2014. ¹ERC Equipoise Competent Persons Report: October 2017, adjusted by Management to account for updated project timing and compression ²ERC Equipoise Competent Persons Report: October 2018 ³New economics based on updated UK NBP forward gas pricing