Proposed Farm-in to the Pilot Project

Farm-in Highlights

• Orcadian has entered into a non-binding Heads of Agreement (“HoA”) with a North Sea operator (the “Operator”), which details a potential farm-out of the Pilot development project.
• This is a provisional agreement and there can be no guarantee that any transaction will occur. Any deal is subject to, amongst other matters, completion of due diligence; negotiation of documentation; and various regulatory and shareholder consents as well as Board approvals of the Operator and Orcadian.
• Orcadian has granted the Operator a commercial exclusivity period until 30 November 2023. to complete definitive documentation for the overall deal.

If the deal completes as documented in the HoA:

• This will enable Orcadian and the Operator to progress the development of the Pilot field, one of the largest undeveloped discoveries in the Central North Sea (“CNS”), with significant upside potential in the surrounding area.
•  The Operator will become operator of the Pilot development and will acquire an 81.25% interest in Licence P2244 and will become operator of the Pilot development.
• Based upon the Competent Person’s Report (“CPR”) prepared by Sproule in 2021, the Operator will acquire net reserves or resources of 63.4 MMbbl on completion of the deal, with Orcadian retaining 14.6 MMbbl of 2P reserves, carried to first oil.
• The Operator and Orcadian will work to deliver a Field Development Plan (“FDP”) to the North Sea Transition Authority (“NSTA”) for a polymer flood development of the Pilot field with industry leading emissions performance.
• Orcadian management expect this updated development plan will now increase Pilot field reserves or resources by 5-10% relative to the 2021 CPR scenario audited by Sproule.
• Orcadian will retain an 18.75% carried interest in the Pilot development with the Operator paying 100% of the pre-first oil scope of work. After first oil, Orcadian will pay its working interest share of expenditure.
• Orcadian and the Operator have requested that NSTA extend the second term of licence P2244 and will also request an out-of-round application for the area of former Licence P2320 (which Orcadian had to relinquish earlier this year), in support of the Pilot development and the area plan.
• On completion of the transaction, extension of the P2244 licence, and a licence award over former P2320, Orcadian would receive a cash consideration of up to US$200,000 from the Operator, with a further US$3,000,000 being received on Pilot FDP Approval.

As previously noted, working capital remains very constrained. Cash at today’s date is c£90k, with a current monthly burn rate of less than £20k.

Steve Brown, Orcadian’s CEO, commented:

“We are delighted to have reached this agreement, which sets out a potential pathway to production for the Company’s Pilot field.

“The Pilot field has a substantial proven reserve base with material upside potential in the surrounding area. We are delighted this transaction could enable Orcadian to retain a significant interest in the project and to enjoy the long-term benefits of producing oil for the UK.

“Developing energy in our own backyard contributes to the UK’s Energy Security and balance of payments; delivers long-term high-quality jobs; and minimises emissions associated with satisfying the UK’s need for energy.

“We look forward to progressing the next stages of this proposed transaction and providing further updates.”

Background

The Pilot field is the Company’s core asset and securing a partner to farm-in to the project and finance the development of the Pilot discovery has been the Company’s key focus since its foundation. Pilot was discovered by Fina Petroleum in 1989 and is well appraised. The development plan under discussion with the Potential Operator is designed to accelerate first oil and to minimise the initial cost of the development.

The Pilot field has 2P Reserves of 78.8 MMbbl, as audited by Sproule in April 2021. The revised plan is expected by Orcadian management to result in an uplift to this reserve estimate; this will be dependent on the precise plan adopted by the partnership.  The Company intends to update the CPR once the FDP has been finalised.

Heads of Agreement

The Heads of Agreement (“HoA”) are not binding upon either Party except to the extent that Orcadian has granted the Operator an exclusivity period, which runs to 30 November 2023. During this period the Operator will finalise due diligence, seek to obtain appropriate consents, and negotiate a Sale and Purchase Agreement for P2244, a Joint Bidding Agreement for the area of former licence P2320 and, if the Operator elects, a conditional Sale and Purchase Agreement for P2482. Orcadian has requested an extension to the second term of licence P2244 to allow the Operator to submit a Field Development Plan and Environmental Statement. The licence over P2244 is currently due to determine on 30 November 2023.

As discussed above, the heads of terms are not binding and there can be no guarantee that any transaction will be entered into. However, the terms documented in the non-binding Heads of Agreement are as follows:

• It is proposed that the Operator will pay all of Orcadian’s share of costs incurred in relation to the pre-first oil development scope of work on the Pilot field, and any other costs relating to the Pilot development incurred prior to first oil. After first oil on the Pilot Field, Orcadian will pay its working interest share of all costs.
• The intention is that, if a deal was to complete, the Operator would become the operator of the Pilot development project, and that Orcadian would continue to provide sub-surface support to the Operator’s team, to build upon the work undertaken by Orcadian to prepare a development plan for Pilot.
• Orcadian and the Operator will request that NSTA permit an out-of-round licence application for the area of former licence P2320. This acreage contains extensions of the Pilot field, the likely location of a wellhead platform to be installed later in field life, and the Feugh oil and gas discovery.
• The intention is that, if a transaction completes, the Operator would be assigned an 81.25% interest in the Pilot licence and Orcadian would receive a payment of US$100,000 upon completion of the assignment alongside an agreed extension to the Second Term of the licence, Orcadian would receive a further US$100,000 on award of a licence over the area of former licence P2320. In addition, if FDP approval is obtained, the Operator would pay Orcadian US$3,000,000.
• It is proposed that the Operator will pay 100% of pre-first oil development costs. Orcadian will pay its working interest share of costs (18.75%) after first production from Pilot.
• The pre-first oil development scope of work would include all development and project planning and management activities; the purchase, modification, mobilisation and installation of a suitable FPSO and mooring; design, construction and installation of flowlines, subsea systems, and a wellhead platform (if that is adopted in the FDP), drilling and completion of five wells on Pilot, all as defined in the NSTA approved FDP.

The Heads of Agreement are subject to, amongst other items, due diligence, NSTA consent, the finalisation of binding legal documents, certain approvals from Shell and TGS, Orcadian and Operator board approvals and Orcadian shareholder approval. As such, there can be no guarantee that any final agreements will be entered into, or that this farm-out will complete.

AIM Rule 15

Pursuant to AIM Rule 15, the disposal outlined in this announcement, if it was to complete would be treated under the AIM Rules as a fundamental change of business. Accordingly, any disposal would be conditional on the consent of shareholders being given in a general meeting and accompanied by both a notification and the publication of a circular containing details of the disposal and convening the requisite meeting.

Financial Position

As set out in the announcements dated 15 May 2023, 2 August 2023, and 13 September 2023, the Company’s working capital is very constrained. The current cash balance is £90k and the Company’s current monthly burn rate is less than £20k; accordingly, the Company will need to raise additional funds in the very short term. It is continuing to explore all options.

Qualified Person’s Statement

Pursuant to the requirements of the AIM Rules and in particular, the AIM Note for Mining and Oil and Gas Companies, Maurice Bamford has reviewed and approved the technical information and resource reporting contained in this announcement. Maurice has more than 33 years’ experience in the oil & gas industry and 3 years in academia. He holds a BSc in Geology from Queens University Belfast and a PhD in Geology from the National University of Ireland. Maurice is a Fellow of the Geological Society, London, and a member of the Geoscience Energy Society of Great Britain. He is Exploration and Geoscience Manager at Orcadian Energy.

For further information on the Company please visit the Company’s website: https://orcadian.energy