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North Sea oil and gas minnow wins vote of confidence from Shell

North Sea oil and gas minnow wins vote of confidence from Shell

By Mark Williamson 

Group Business Correspondent

NORTH Sea oil and gas minnow Deltic Energy has seen its shares rise around eight per cent after the company won a fresh vote of confidence from the mighty Royal Dutch Shell.

Shell has decided to go ahead with a plan to drill a well with Deltic, on a prospect that has generated lots of excitement.

The companies have confirmed to the North Sea regulator that they have made a firm commitment to drill a well on the Pensacola prospect, which is set for next year.

The decision bucks the gloomy trend in the North Sea where firms have cut exploration activity to record lows in recent years.

With companies looking to save cash in response to the coronavirus crisis exploration budgets are coming under renewed pressure.

Campaigners have stepped up calls for exploration activity to be halted in the North Sea, to help tackle the threat of climate change.

Against that backdrop Shell might have been expected to scrap plans to drill on the Pensacola prospect. The plans have been under development since before the fallout from the pandemic engulfed the North Sea oil and gas industry.

Deltic chief executive Graham Swindells said confirmation of the well decision represented a key milestone in a campaign launched by the firms, the results of which could help to revitalise exploration in the North Sea.

Technical work completed by the two firms on Pensacola in recent months has underlined the potential of the prospect.

Mr Swindells said: “ The rigorous re-evaluation of the Pensacola Prospect has validated and reinforced the fantastic work of our technical team and their initial view that the Pensacola prospect, and the Zechstein play as a whole, represented a significant missed opportunity in the Southern North Sea.”

Shell has retrenched in the North Sea in recent years. However Deltic has been able to capitalise on Shell’s view that there is still lots to go for in favoured parts of the basin. This does not appear to have changed as a result of the fallout from the pandemic.

Pensacola lies on acreage that Shell bought into in 2019.

Deltic was known then as Cluff Natural Resources. It was led by Algy Cluff, who played a part in the discovery of the huge Buchan field in the North Sea in 1975 then went into mining in Africa.

Cluff Natural Resources worked on plans to produce gas by burning coal under the Forth, which ran into opposition. It refocused on the North Sea amid the last downturn in the belief that the potential of some geological zones may have been under-estimated by bigger fish.

Deltic said drilling of the well on Pensacola has the potential to be transformational for the company and is a vital step in evaluating the Zechstein reef play, which in turn has the potential to revitalise exploration in the Southern North Sea.

It said new interpretation of 3D seismic data has resulted in a much-improved view of the geological chance of success associated with the prospect, which has increased materially from 20 per cent to 55%.

Completion of seismic processing work on Pensacola was impacted by logistical restrictions associated with the coronavirus crisis. Deltic and Shell were granted an extension to the deadline for making a final decision about drilling on Pensacola to March 31 this year, from December 1 2020.

The Southern North Sea acreage that Shell bought into also contains the Selene prospect.

Deltic expects to drill a well on Selene with Shell in 2022, subject to the firms making a final investment decision to go ahead with drilling.

Last year Deltic spurned takeover approaches from Reabold Resources and Independent Oil and Gas, which directors said undervalued the business.

Shares in the company closed up 0.13p at 1.8p on the Aim market yesterday. That left it with a market capitalisation of around £25m.

Shell bosses have said they expect oil and gas to remain an important part of the energy mix for years. Chief executive Ben van Beurden has said gas will have an important role as a transition fuel that could be used to reduce reliance on coal while the required renewable energy generating capacity is developed.

SOURCE

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