The Directors of Egdon Resources plc are pleased to provide details of an agreement in relation to East Midlands licences PEDL139 and PEDL140. The agreement has various farm-in elements and will result in the preservation of the licences for a further five years and enable a full evaluation of both the Coal Bed Methane (“CBM”) and shale gas potential of the area at minimal cost to Egdon.
PEDL139 and PEDL140 were awarded in the 12th landward licensing round in 2004 and are located in the Gainsborough Trough sedimentary basin. Egdon and Star Energy Oil and Gas Limited (“Star”) are sole licensees in PEDL140 each holding a 50% interest. In PEDL139 Egdon and Star hold the hydrocarbon rights below 3000 feet on the same basis and Greenpark Energy Ltd (“Greenpark”) holds 100% of the rights above 3000 feet. Star is currently operator of both permits. The initial term work programme obligations require the drilling of a well on both licences during the initial period which ends on 30 September 2010.
The technical evaluation of these licences failed to identify any viable conventional oil or gas prospects. A recent evaluation by Egdon has recognised that the area may contain a potentially significant shale-gas resource within the pre-Westphalian (Lower Carboniferous) age sediments (designated as the “Lower Horizon”). In addition Greenpark’s evaluation of the CBM potential of the area has identified a number of prospective coal seams which are developed across the two blocks within the Westphalian (Upper Carboniferous) age sediments (designated as the “Upper Horizon”).
Egdon and Star have reached agreement with Greenpark and eCORP Oil and Gas UK Limited (“eCORP”) to undertake the following linked transactions:
- Greenpark will farm-in to the Lower Horizon in PEDL139 and to both the Upper and Lower Horizons in PEDL140.
- eCORP will farm-in to both the Upper Horizon and Lower Horizon in PEDL139 and PEDL140; and
- Egdon will farm-in to the Upper Horizon in PEDL139
It has also been agreed that Greenpark will become the operator of the Upper Horizon and eCORP will become the operator of the Lower Horizon in both of the licences.
In relation to the Upper Horizon, which contains the CBM potential, Greenpark will drill boreholes on both PEDL139 and PEDL140 prior the end of the first term in September 2010 which will extend these licences into their second five year licence period. These boreholes will enable the coring, sampling and analysis of the coal seams in both licences for evaluation of their thickness, gas content and permeability. The results will be used to evaluate the commerciality of a CBM development.
As part of the Upper Horizon farm-in to PEDL139 Egdon will pay 10% of the cost of drilling the two wells up to a total cap of £100,000.
On completion the interest holders in the Upper Horizon in PEDL139 and PEDL140 will be as follows:
Greenpark Energy Limited – 60.0%
eCORP Oil and Gas UK Limited – 30.0%
Egdon Resources U.K. Limited – 10.0%
Star Energy Oil and Gas Ltd – 0.0%
In relation to the Lower Horizon which contains the potential shale-gas resource, eCORP will farm-in on the following basis.
Prior to 30 September 2013, eCORP has undertaken to pay 100% of the cost for the drilling and testing of one vertical well to a depth of approximately 4,500 metres subsurface or sufficient to test the potential of the Dinantian shale formations, whichever is shallower, on either PEDL 139 or PEDL 140 (“Phase 1”). On completion of Phase 1 eCORP will either elect to pay 100% of the cost to drill and test one or more horizontal lateral wells drilled from the vertical well with the aggregate length (of all such lateral wells) being at least 1,000 metres, or offer to assign its interests in the Lower Horizon to the other Parties in equal shares (i.e. 20% to each).
In return for delivering the licences into the second term through the drilling of the two CBM wells Greenpark will earn rights to the Lower Horizon as detailed below.
On completion the interest holders in the Lower Horizon will be as follows:
eCORP Oil and Gas UK Limited – 60.0%
Greenpark Energy Limited – 16.5%
Egdon Resources U.K. Limited – 13.5%
Star Energy Oil and Gas Limited – 10.0%
The transaction is subject to the consent of the Department of Energy and Climate Change.
Commenting on today’s announcement, Mark Abbott, Managing Director of Egdon said:
“The conventional oil and gas potential of these licences failed to meet our technical and commercial hurdles and as such prior to this agreement we were looking at relinquishing our interests in both licences. This agreement enables the preservation of the permits for a further five years to enable the full evaluation of both the CBM and shale gas potential of the area. Our initial work indicates the presence of a potentially significant shale-gas play in the Gainsborough Trough and the presence of a highly prospective coal sequence for CBM.
The farm-out to eCORP will enable Egdon to participate in the evaluation of one of the major potential shale-gas basins in the UK with no financial exposure.
Successfully evaluating and developing both of these plays is highly specialised and we are fortunate to have Greenpark and eCORP as operators of the CBM and shale-gas respectively.”