Northern to Sell Share of Dutch Storage Projects to Star
Northern Petroleum Plc has agreed to sell half of its recently acquired interests in underground gas storage projects within the Waalwijk gas field in The Netherlands to Star Energy Group Plc. The projects are located near the Zeebrugge Europe-UK gas inter-connector.
The Company will receive Euro970,000 on completion and Star will pay for Northern's share of all costs, including the Front End Engineering Design ('FEED') study, on each underground gas storage project up until Final Investment Decision ('FID'). Star will provide all operator services for the underground gas storage projects.
--Upon completion, Star will pay an initial consideration of Euro970,000 to Northern to acquire 50% of its interests in the underground gas storage projects; --It will also pay Northern's share of costs on any such projects within the field until the FID to develop a Waalwijk underground gas storage facility; --No front end cost to Northern, which would be a Euro2million benefit based upon the 2004 estimated Waalwijk North underground gas storage FEED study cost estimate alone; and --Star will pay Euro2.25million of the Euro4.5million contingent consideration ('Contingent Consideration') due to Wintershall Noordzee B.V. ('WINZ') on FID.
Subject to the normal Government consents, Northern has recently acquired from WINZ gas production interests (1.8mmscfd or 330 boepd) in the Waalwijk Field (215 Bcf estimated initial gas in place). After completion of the acquisition from WINZ, Northern, under The Agreement with Star, will sell its subsidiary, Overseas Gas Storage Limited ('OGS'). Star will pay an initial consideration of Euro970,000 for OGS, which acquired from WINZ half of the Northern's rights in the Waalwijk underground gas storage projects.
Northern, through its subsidiary Gas Storage Limited ('GSL'), and Star will consequently each hold a 16.67% in the Waalwijk North underground gas storage project and 25% in all other underground gas storage projects on the Waalwijk License. The remaining interests will be held by Essent Energy Gas Storage B.V. ('Essent').
The order of magnitude estimates of the storage working volumes of the three structures identified by Northern as suitable to examine for gas storage are 30Bcf for the North field (Northern 16.67%) and 10Bcf for the South field (Northern 25%). The central field is smaller and about 6Bcf in potential. The Waalwijk gas field is close to the Zeebrugge Pipeline, which can provide inter-connector services to the UK markets. Essent is one of the co-owners of the Zeebrugge Pipeline.
Star will also pay GSL's share of costs on any underground gas storage interests within The Field until the FID. Upon a FID being made within five years of completion, it will contribute Euro2.25million towards the Euro4.5million Contingent Consideration payable to WINZ.
Star, which is the second largest UK onshore oil and gas producer and the Operator of the Humbly Grove underground gas storage facility of about 10Bcf working volume, will provide all operator services for the underground gas storage projects.
Derek Musgrove, Managing Director of Northern, stated:
"We have extended our existing relationship with Star into new commercial territory. I believe that this three way interaction of skills: Essent's experience in gas marketing and salt cavern gas storage, Star's experiences of depleted reservoir gas storage at Humbly Grove in Hampshire and Northern's operational experiences are capable of being melded together to create an excellent team for a successful underground gas storage project, substantially larger than that at Humbly Grove and, importantly, close to a UK inter-connector.
"The strategy remains the same; to build an oil and gas production business in The Netherlands with additional access to downstream and alternative energy projects. The approach is one of deployment of excellence in professional skills.
"At Waalwijk, Northern has the skills and experience to work to increase the residual recoverable gas from 2Bcf to 22Bcf, which would increase Northern's share to 3.8Bcf and, if drainage in the south is improved, a further 7Bcf net to Northern. Northern also has the skills and experience to tackle the undeveloped oil discoveries in the shallower Delfland and deeper Bunter formations.
"Through the deal with Star, Northern can now bring to bear Star's experience and additional expertise gained from developing and operating the Humbly Grove underground gas storage facility. At the same time Northern has covered its front end costs during the riskier project design stage prior to the decision to develop.
"Overall our Waalwijk transactions have:
- placed us in gas production with immediate revenue from 1 January 2007 from 1.8mmscfd;
- provided oil production opportunities from discoveries in the Delfland (Upper Jurassic) and in the Bunter beneath the producing gas zones and not examined since a period of lower oil prices. These formations can be accessed from the existing production sites and even the existing wells post gas production;
- brought us a potential underground gas storage project in conjunction with the valuable experience of a major Netherlands energy utility and, in Star, a storage project operator, at no front end cost to Northern, which would be a Euro2million benefit just on the 2004 Waalwijk North underground gas storage FEED study cost estimate in addition to the Euro970,000 payment; and
- in the event that any Waalwijk underground gas storage project reaches FID, provided Northern in principle capable of being debt financed.
"I believe that this transaction is yet another example of trading to create and increase shareholder value within the strategic commitment."
Northern Petroleum Plc is an AIM-listed oil and gas production, development and
exploration company with core interests under its management in The
Netherlands, Italy and the United Kingdom. Before the Waalwijk acquisition from
Wintershall Noordzee B.V. for Euro500,000, which brought in further gas production,
the Company had proven and probable reserves of 56 and 4.5 million barrels of
oil equivalent in the Netherlands and UK respectively. The Company is currently
working toward putting its six Netherlands development assets into production
with the support of Standard Bank. The Shell/ExxonMobil subsidiary Nederlandse
Aardolie Maatschapppij B.V. participates in five of the six Netherlands fields by way of a net profits interest.
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