i3 Energy has announced the company has entered into a drilling contract with Dolphin Drilling to utilize either the Borgland Dolphin or Blackford Dolphin semisubmersible drilling rig for a minimum 82-day program, which is due to commence no later than 1 September 2020 or as otherwise agreed between the parties (the 2020 Campaign), and also has the ability to be extended for a period of 78 days (the Option Program). The contract is conditional on i3 Energy confirming availability of funds to satisfy its obligations under the contract, 90 days prior to drilling commencement.
i3’s current minimum program for the appraisal drilling consists of two appraisal wells on Serenity plus a sidetrack on each well, contingent on drilling outcomes, at a total expected gross cost of approximately $33 million. The Option Program would include wells on the Minos High structure and the Liberator West area in Block 13/23c.
In concert with the abovementioned drilling contract, i3 Energy has agreed that Dolphin will earn up to a 10% economic interest in Block 13/23c via a Net Revenue Sharing Agreement (NRSA) in exchange for Dolphin forgoing its profit margin above its OPEX, up to a maximum amount of $14.4 million (the Dolphin Commitment). Accordingly, the Dolphin Commitment will cover approximately 22% of the total expected gross costs of each of the 2020 Campaign and Option Program
The “net revenue” is revenue from the sale of hydrocarbons from Block 13/23c less all costs for developing and producing those hydrocarbons. Once production from Block 13/23c has been achieved, and after such time as i3 Energy has been repaid 200% of all Block 13/23c development CAPEX costs from associated petroleum revenues, Dolphin Drilling will receive a share of field income equal to the company’s interest multiplied by the net revenue. Any Dolphin Drilling profit margin paid by i3 Energy during the 2020 Campaign at its election will decrease Dolphin Drilling’s interest on a proportional basis. At any time prior to the approval by the UK Oil and Gas Authority (OGA) of a field development plan (FDP), which includes production wells in the 13/23c Block, i3 Energy has the right to purchase the Dolphin interest by paying Dolphin 125% of the Dolphin Commitment. Following the approval of a Block 13/23c FDP by the OGA to develop more than 25 million bbls of reserves from production wells on that block, Dolphin Drilling has the right to sell the interest to i3 Energy for the Dolphin Commitment plus interest accrued at a rate of 8% per annum, and i3 Energy has the obligation to purchase the Dolphin interest upon Dolphin Drilling exercising such right.
i3 Energy’s management carries 197 million bbls P50 stock tank oil initially in place (STOIIP) for Serenity which, conservatively modeled as a stand-alone development, demonstrates an after-tax NPV10 break-even at $20 per barrel Brent pricing.
The site survey over Serenity and the Minos High area of Liberator West has been completed on time and budget without any health and safety incidents. After all final survey reports are received, i3 Energy will commence the technical and environmental work necessary to plan for and permit its Summer 2020 drilling program.
In light of recent world events and their effect on oil and capital markets, the company has been and continues to decrease its corporate operating costs in order to maximize its current resources. The company is closely monitoring and applying official government and health guidance in regard to the COVID-19 outbreak. At this stage, i3 Energy is not experiencing any direct impact to its business and does not yet foresee any disruption to its 2020 drilling program from COVID-19.
“We are delighted to have executed a drilling contract with Dolphin Drilling for our Summer 2020 appraisal program,” Majid Shafiq, CEO of i3 Energy, said. “Dolphin Drilling performed exceptionally well in our 2019 campaign, drilling our wells on time and on budget and without any significant health, safety or environmental issues. Their support announced today not only contributes a significant component to the funding structure for our upcoming drilling campaign but also demonstrates the quality of our licenses.”