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Spirit Energy will fund a $180 million (£139 million) campaign to drill three wells 100km West of Shetland, to further prove up the potential of an area which holds an estimated 2 billion barrels of oil equivalent (boe) in prospective and contingent resources.
The three wells will be drilled in licences operated by Hurricane Energy (“Hurricane”). They will target the Lincoln discovery and the Warwick exploration prospect, which are estimated to hold 604 million boe of 2C contingent resources and 935 million boe of prospective resources respectively.
The farm-in agreement builds on Spirit Energy’s strategy to create a sustainable exploration & production business in Europe. The transaction will be fully funded from Spirit Energy’s cashflow and gives the company access to one of the largest resource bases in Europe.
Should the well campaign and further tests in the area be successful, Spirit and Hurricane aim to progress Lincoln and Warwick towards full field development. At the development stage Spirit Energy would become licence operator, combining Hurricane’s expertise in the West of Shetland area with Spirit’s experience of operating assets on the UK Continental Shelf, including via floating production storage and offloading (FPSO) vessels which may be required for the development.
Chris Cox, Chief Executive of Spirit Energy, said: “Appraising the Lincoln discovery and exploring for new reserves in Warwick offers a tremendous opportunity for Spirit to participate in the early phases of resource maturation in one of the last known world-class oil development opportunities in the UK. We are looking forward to partnering with Hurricane Energy to progress these two West of Shetland licences.
“Since launching Spirit Energy less than a year ago we have set out to grow our reserves and resources and, following further exploration successes this year, farming into two exciting opportunities like Lincoln and Warwick helps cement our place as one of Europe’s leading independent oil and gas companies.”
As licence operator, Hurricane Energy has secured a rig to drill all three wells beginning in Q1 2019. A single horizontal appraisal well will be drilled in Lincoln, with two horizontal exploration wells to be drilled on the adjacent Warwick prospect.
As part of the farm-in agreement Spirit Energy will fund 100% of the initial drilling campaign. Assuming success in these first three wells, Spirit Energy and Hurricane will target a tie-in of one of the initial wells to the Aoka Mizu FPSO, and potentially a further three appraisal wells and full field development of the Greater Warwick Area. If these additional phases proceed, Spirit Energy will carry 50% of Hurricane’s costs of the tie in of the well to the FPSO and pay a bonus payment of between $150m-$250 million towards Hurricane’s costs of the full field development, contingent on a positive final investment decision.
The Greater Warwick Area, which neighbours Hurricane Energy’s Greater Lancaster Area, is made up of oil-bearing fractured basement reservoirs. Hurricane Energy previously drilled an exploration well in the Lincoln area in 2016, proving up resources in the area.