Transcript: Orcadian Energy (ORCA) - "Biggest CS Focused O&G IPO on AIM Ever"

By
Morgan Leighton
·
November 29, 2021

Interview with Stephen Brown, CEO of Orcadian Energy (AIM: ORCA)Orcadian Energy was established in early 2014. The company has four highly prospective production licenced sites in the Central Northern Sea. Out of the seventeen wells (and side-tracks) drilled on their blocks, sixteen contained oil. They have a combined 2P reserves of 250 million barrels of oil.

Orcadian is focused on development opportunities in the Central Northern Sea.They want to implement polymer flooding in their oil extraction operations. It is heavy oil at 12-17 API which lends itself to the process.

This process includes using polymer solutions to increase oil recovery by decreasing the water/oil mobility ratio. Polymer flooding enables easier and faster oil extraction, cutting operation lifetimes from 20 to 8-10 years. The profit margin of polymer flooding is also greater than that of steam flooding.

The primary areas Orcadian focuses on, have an average water depth of 80-90 metres. The oil reservoirs are at approximately 800 metres of depth. The low depths enable wells to be drilled on wellhead platforms from a typical North Sea jack-up rig. This minimises well cost, enabling tight development well spacings, which is key to a successful and profitable polymer flooding approach.

Orcadian was listed on AIM (Alternative Investment Market) during July 2021 with 79 million barrels of proven and probable reserves. This is the largest UK CS focused oil and gas IPO in the history of AIM. The company decided to go public in an effort to raise capital for the next phase of its developments and growth.

Orcadian is focused on its environmental impact. The company implements various technologies such as heat pumps and floating wind turbines at the operations. These technologies enable Orcadian to produce oil at 2.6 kg CO2 per barrel, an eighth of NorthernSea operation averages.

We Discuss:

00:00 – Company Overview

02:01 – Listing, Cost, Drilling Process, API, Assembling, Team & its Track Record

08:41 – Transition from Private to Public, Funds & Raising Capital, Carbon Emissions

15:55 – Incurring Costs, Money in Oil & Gas Sector, New Capital Pool, Liquidity Related Problems

22:32 – Data Collection, Analogue tests, Growth Strategy, Components, Retaining Control

33:41 – Paperwork, Protecting Own & Shareholders Interest, Bringing in Partners

38:47 – Cashflows, Licenses, Permits, Environmental Statements, FPSO

43:46 – Outro

Stephen Brown: Hi, my name is Steve Brown, and I’m the CEO and founder of Orcadian Energy. Orcadian Energy is probably a new name to you. We came to the market in July of this year, in the AIM market in London, and we came to the market actually with 79M barrels of proven and probable reserves certified by Sproule, which it turns out is actually the biggest UK CS-focused oil and gas IPO on the AIM ever if you measure it by 2P reserves, which is kind of special, I think. Our reserves are in a licenced 150km due east of Aberdeen in relatively shallow water for the North Sea, 80m of water, which is great because our rigs are half the cost of the rigs you’d need in the northern North Sea, and we have a discovery that was made back in the 1980s by Fina. When it was discovered, people thought this was a fantastic reservoir, but the oil was a bit viscous, so it sat undeveloped for years. We’ve come up with a plan to develop it using polymer flooding. What polymer flooding does for you is it transforms a long, slow production process into 8 to 10-years, and you get better recovery, much less time, and if you polymer flood viscous oil, you’ve got much fewer emissions. It turns out that almost the most important thing for getting a project off the ground in the North Sea at the minute is your emissions performance.

Matthew Gordon: Let’s talk about that, Steve. It’s lovely to meet you, a fellow countryman, ambassador for the country, like me. We’re going to talk about your project. It’s a big project out of the gate. You listed in July this year, but you’ve been at it since 2014, haven’t you?

Stephen Brown: Yes, absolutely. We set the company up in 2014. The whole idea we had was to lay our hands on big, discovered oil and gas fields for the lowest cost possible.

Matthew Gordon: How did you do it?

Stephen Brown: You make licence applications, and what you do is you sit and read every relinquishment report that was ever published in the North Sea. When I decided to set the company up, that was the first thing I did, and when my eyes lighted on the Pilot field, which is the name of the field we have, I said, ‘This is the same field as Harding, it’s just the oil is a bit more viscous. And why is Harding relevant? Harding is the field that I worked on in BP when I let the pre-project team. I put the development plan together for Harding. It was BP’s first viscous oil development in the North Sea. It was their first horizontal well development. It’s produced 300M barrels. It’s been a massive success for BP, and when I saw Pilot, it’s the same depositional environment, it’s a Tay sand; Harding is boulder, but they’re both sands, young sands, not very deep, and horizontal wells were the right answer. You need to add something to it to get the oil out of Pilot because it’s a bit more viscous, and that’s something - turns out to be polymer. We originally thought it was steam, and that wasn’t a bad idea, it just wasn’t the best idea.

Matthew Gordon: Just help me understand this in language people might understand. In terms of API, viscosity is what?

Stephen Brown: The API gravity ranges from about 12 API in the north of the field, to about 17 API in the south.

Matthew Gordon: Quite low, right.

Stephen Brown: Average. It’s 13 API or 14 API. It’s very similar to Kraken crude, which is a producing field that EnQuest is producing at the moment. It’s similar in terms of API gravity. We’re a little colder than Kraken because we’re just a bit shallower, so the viscosity is a bit higher. We’re 160 centipoise in the south, and maybe 1,200 centipoise in the north, and some of your audience are probably saying, ‘What’s this centipoise stuff?’ 1 is water, to the power of 2. 10 is blood. 100 is olive oil. 1,000 is engine oil. This stuff flows. It’s not tar or anything like that. It flows pretty well, and one of the great things is other people have invested a huge amount of money in these fields, so probably $150M were spent appraising the fields and in the north of the fields, there’s a short, horizontal well that did 1,800 barrels a day.

Matthew Gordon: Before you get stuck into the detail, I want building blocks here. The plan is you go and look at abandoned fields, right?

Stephen Brown: No, not abandoned fields.

Matthew Gordon: No, you don’t like that word. Sorry, what was the word you used?

Stephen Brown: Undeveloped.

Matthew Gordon: Undeveloped, okay.

Stephen Brown: Abandoned fields are a whole tricky game because you’re trying to be smarter than someone who spent 20-years producing it.

Matthew Gordon: Got it, that’s a meaningful difference. Thank you for the correction, and you have gone – obviously, you’ve got Pilot there, but how many of these have you assembled?

Stephen Brown: Our core field is Pilot. That’s got 79M barrels of 2P. We’ve got another discovery called Blakeney that’s got 25M, and then another pair of discoveries called Elke and Narwhal that have 53M. Those discoveries are 2C-contingent resources. We’ve also got some exploration prospects and so on. There’s potential to produce 250M barrels from this acreage.

Matthew Gordon: There is, and what I’m trying to get from you today is actually your strategy for doing so. You’re a $24M, $25M market cap company depending on the time of day. You’ve got to fund all of this, and these are separate fields so you’re not managing the same field. It’s going to be slightly more complicated, one suspects, but you’ve probably got a process to do that. Before you do though, you dropped in the fact that you are ex BP. Can you just talk through the team? I want to understand who we’re working with here. Who could we be investing with? What’s the track record?

Stephen Brown: I’ll start with my non-execs because they’re actually really impressive.

Matthew Gordon: Are they active non-execs though?

Stephen Brown: Yes. Joe Darby is our chairman. Joe used to be the chief executive of LASMO. He was an independent non-exec on Premier’s board for 10-years. He’s got a great track record, and he’s an engineer. He’s an engineer like me. Then we have another technically focused non-exec, Christian Wilms, and actuals he’s a bit younger than me. He did 20-years with Shell, and recently moved to become Senior Vice-President of Subsurfers and Reservoir Development for MOL, the Hungarian oil company. Then we have Tim Feather who previously was a qualified executive working at WH Ireland, so he brings the AIM background. My CFO is Alan Hume. He’s worked for - it’s an interesting mix. He’s worked for contractors like Halliburton, and Brown and Root and so on, and he’s worked for small oil companies listed on AIM. That’s a good background. The key technical person, who’s the other director, is Greg Harding. He’s a reservoir engineer, and he and I have worked together since 1996, I think, on a number of projects. We actually make a very good double act, so he’s very rigorous, I’m quite creative. The 2 of us together come up with solutions that work.

Matthew Gordon: Right, okay. There’s the team that you’ve assembled for this. You’ve decided to go from private to public recently after 7-years of assembling those packages. Why? Why put yourself through that, Steve?

Stephen Brown: Why put myself through that? That’s a very good question. There’s a limit to what you can do in the oil and gas business with limited resources. I set the company up in March 2014, we applied for the Pilot licence, we then applied for some other licences, and we were progressing the project through a number of hurdles that you have to get through. We took our core licence from the initial term into the second term, which is a big deal actually. Normally, the only way you can do that is by drilling a well. That’s the standard term, but we actually persuaded the oil and gas authority that we had a very interesting development plan and were able to take it into the second term without having to make that expenditure. We did have to spend money, of course, but not £10M to drill a well. For the next stage of our development, we need a serious amount of capital and we talked to private equity people, I understand private equity people pretty well; what they like to do in the oil and gas space is buy production and do financial engineering.

Matthew Gordon: I know, that used to be me, but it doesn’t help you.

Stephen Brown: engineering?

Matthew Gordon: I totally understand that; it’s literally the job I used to do. Talk to me a little bit, before we go into that, about the private phase. You guys, how much money did you have to put into this yourselves? How much did you have to raise? What was the total amount of capital deployed?

Stephen Brown: It’s only a few million pounds that went into the company. I spent a lot of time working for the company without taking any salary. We put what money we had, and all our effort into creating this company. What actually got us really off the ground was in the middle of 2019 when we secured a loan from the Shell Traders. The Shell Traders like our crude, it’s an interesting crude, it’s a low-sulphur heavy crude, and that occupies a nice niche that’s attractive to them. In return for us committing some of our marketing our barrels to them for them to market in the future, they loaned us $1M. Not a lot of money, but we could do a lot with it. What we did is we dove into the concept select process that the oil and gas authority has for approving developments, and actually, when we started that process, we were still thinking we might do a steam flood, but we realised right at the outset of it that we could make more money doing a polymer flood, and we invested in delivering a concept-select report to the OGA based on a polymer flood. We did that in September 2020, and it was just at the time that the oil and gas authority was beginning to adopt meeting a net-zero objective alongside maximising economic recovery.

Matthew Gordon: Just how important is this? We’re seeing it banded around, and there’s greenification going on everywhere. Your front page of your PowerPoint is ‘net-zero basin’. Are you just using that language because that’s what they need to hear, or with the polymer solution, does that genuinely deliver against that? And if so, in what ways?

Stephen Brown: Right, it’s just crystal clear to me that if you don’t have - if you haven’t minimised your emissions to the lowest level possible, you’re just not going to get through the door with the Oil and Gas Authority. This is just as important to them as maximising economic recovery.

Matthew Gordon: Even for small companies? I can understand for the big guys, but even for small companies?

Stephen Brown: They don’t want new developments that have high emissions per barrel. Compared to a typical viscous oil waterflood, polymer flooding roughly halves emissions. The reason for that is you shorten the field life, and you reduce the fluid handling. It’s the fluid handling that uses energy, and that’s what causes emissions. Adopting polymer flood did a lot of things - it helped our recovery factor significantly, it shortened the field life, it reduces fluid handling, you get the oil quicker, it’s a big win.

Matthew Gordon: Explain it. I guess the clue is in the name, polymer, but explain technically why it’s more efficient.

Stephen Brown: It’s all to do with mobility ratios. If you imagine the oil in the rock, it’s quite viscous, and if you put in a really thin fluid like water, it fingers through the oil and actually, it leaves most of it behind. To get a decent recovery with a viscous oil, you’ve got to cycle around, pour volume after pour volume after pour volume, through the reservoir, and then you can get most of the oil. If you do a polymer flood, that viscosifies the water so you add about 0.25% of polymer to the water, which takes it from 1 centipoise up to about 25 centipoise.

Matthew Gordon: And the cost of that?

Stephen Brown: It costs you, in terms of the water you inject, somewhere between €0.66 and €1.90.

Matthew Gordon: Okay, the only reason I ask is that sometimes, some of the solutions for some of the heavier or the low API products is that you - I’d rather be investing in the company that was supplying the polymer because the margins are huge, but in this case, it seems reasonable.

Stephen Brown: In terms of production, it’s round about $3 or $4 a barrel.

Matthew Gordon: Right, perfect.

Stephen Brown: It’s not a trivial cost, but it’s not massive, and if you shorten the field life and you get 25% more oil, or 33% more oil, that’s well worth doing.

Matthew Gordon: That’s not killing your netback, is where I was going with it. We’ve had so much innovation in this space, much of it not proven, which distorts the economics. Okay, understood.

Stephen Brown: In terms of costs, the NPV 10 break even for the Pilot project is $39 a barrel.

Matthew Gordon: Yes, I saw that.

Stephen Brown: At today’s price, I mean I don’t even bother calculating the NPV at today’s price. The way you make a project work is, you focus on the proven case, and you focus on a done-side price because that’s all a banker will look at.

Matthew Gordon: Yeah, but I tell you at the same time if you were coming and asking me - I know you’ve put an NPV 10 on it, we put an NPV 40 on it just to make sure it really stacks up, so, at $39, it’s not too shabby. It’s there.

Stephen Brown: Yeah, it’s a viable project, and Sproule wouldn’t have called it reserves if it didn’t meet all their criteria to call it reserves, and one of those is that it’s an economic project, another is that it’s likely to get financing. Read SPE PRMS 2018, that’s one of the criteria. Reserve auditors are on anchors, but they know the space, and they certainly think this is a project that’s likely to get financed. I was explaining how the-

Matthew Gordon: The viscous, yeah.

Stephen Brown: You viscosify the water and what ends up happening is you get a stable flood from it. You get a piston-like displacement of the oil out of the reservoir, and that’s why you shorten the field life, reduce the fluid handling, and that reduces emissions. But what happened to us in September 2020 was the OGA said, ‘We really like your plan, but we want you to do better on emissions.’ In parallel with running our listing process, we went back and redid our concept-select evaluation, and we did a couple of things - one was we put heat pumps into the process, and the other was that we selected much more efficient power generation systems. Those 2 things together halved emissions, and then we added a floating wind turbine, and that halved emissions again. We’re projecting 2.6kg of CO2 per barrel, which is North Sea average in 2018. We’ve halved emissions because of polymer, we halved because of process ingenuity, and we’ve halved because of using renewable energy.

Matthew Gordon: And you’re hoping that’s going to make the money that’s available to you cheaper.

Stephen Brown: I don’t think the money in the oil and gas space is cheap.

Matthew Gordon: Cheaper.

Stephen Brown: What I think is, it makes the project investable for the government to approve it in the first instance because if we haven’t done those things, they just keep saying, ‘Do better, do better.’ But it also opens the door to investors who recognise we’ve got to put some more money into oil and gas.

Matthew Gordon: That’s an interesting concept. I was talking to a miner the other day and they were talking about their own net-zero carbon initiatives, which are not insignificant. They were saying that there’s a new capital pool available to them who would not previously have thought about investing in mining because of this net-zero carbon component, and obviously, I think we’re both talking about the narrative at the moment, people moving away from fossil fuels, certainly the big funds wanting to move away from coal, from oil, etc. It means that the type of money is changing. The groups involved are changing. The structures are changing. If you start sharing with us what you think is happening in the oil and gas space in terms of the participants as far as funding is concerned.

Stephen Brown: We have a very interesting project, and we’ve got 2 ways that we can take this forward. 1 is we put together a consortium of contractors, and we look for some equity contribution from some of those, possibly, but they never do very much. You’ve got to have limits of ambition and what you’re expecting from them. We put together a debt package, and then we raise some equity in the market.

Matthew Gordon: But those guys are coming off a very tough few years as well. Their capital reserves have been drained somewhat. Their access to capital has drained somewhat, so they’re not necessarily there. This is what I’m getting at. Where do you start looking? Who do you turn to?

Stephen Brown: They can do some, but don’t expect too much. You can raise debt for development financing, that is absolutely possible. We’ve talked to a number of banks about that. We got a sense of you ought to be able to raise roughly 60% of your capital in-

Matthew Gordon: So, it hasn’t changed. Okay.

Stephen Brown: That tranche of money, and some of that might get allocated to the SPFO contractors, some of it will get allocated to parts of the project we would execute, and there are people who’ll do some mezzanine financing, that’s an option, and then the final option is equity. There are 2 places to get equity, 1 is the markets, which is why it’s important to be in the market and tell our story and get people interested, but there are also oil and gas companies. We’d be very interesting to see non-operating partners come in. If an operating partner wants to come in and take over from us, as long as they’re doing the right thing, I’m happy for them to do that but there are really 2 sources of equity. 1 is the market, 1 is the industry. We’ll keep talking to both, and one of the characteristics of our company that is very different from most of the companies you talk to is the management own an awful lot of the company.

Matthew Gordon: How much?

Stephen Brown: 66% is what- and then my children have some as well.

Matthew Gordon: Okay, hang on, so at some point, liquidity is going to become your problem unless you do start raising money. I want to move this from a theory through to deliverables because $25M market cap company, there’s the theory of, well, I don’t want to be disparaging - the polymer flooding solution where you’re talking about bringing timelines down, which I guess has lots of advantages and a few negative ones too, where’s that data from because you’ve not gone and done that? Have you been testing in your field or are you using generic data?

Stephen Brown: We haven’t done a pilot scheme on Pilot.

Matthew Gordon: You’ve got to change that name. It’s very confusing.

Stephen Brown: It’s named after the whale. I like the whale. Anyway, we haven’t done a pilot scheme on Pilot. If you’re onshore, that’s what you do because what’s the big deal? You’re drilling a well pair, you knock them down, you see how it goes. Doing that offshore is really difficult. You have to spend a lot of capital to put equipment out there, so we rely on 2 things. 1 is analogues, and the other is actually core flood tests. Let me talk about the analogues first. We have an excellent analogue right here in the North Sea called the Captain field, which was originally developed by Chevron as a waterflood. It was on that cycle of cycling lots of pour volumes of water around the reservoir to get the oil out. They implemented - they did a trial because it was easy for them to drill a pair of wells from the platforms. It worked really well. On the trial that they did, they had a well pair 125m apart, quite long horizontal wells. They started off with a bit of a waterflood, they got some recovery, and then they projected how the waterflood would go and Chevron knew how Captain would work, so they said, ‘You’ll recover this amount in 7-years or so.’ They did 12-months of polymer flood, and they recovered all that oil. Another 18-months, they’d recovered a 15% extra uplift on the recovery flank. That was the evidence that Chevron used to sanction the polymer flood project on Captain, and Ithaca, the new operator of Captain, have just sanctioned phase 2 of that. It turns out that Captain is a really good analogue to our field.

Matthew Gordon: It’s a good analogue in the sense that the viscosity component is the same.

Stephen Brown: No, they’re a bit lower viscosity than ours, but everything else is the same. It’s the same temperature, same porosity, same permeability, in-depth, environment, but the viscosity is a bit different. We would aim for slightly more viscous water, compensate for that. What we’ve also done is we’ve taken some core samples. The rock’s actually really unconsolidated, so they went more as a bag of core, who are based in Austin, Texas, do some core floods on that, and they’ve really confirmed to us that Pilot is a perfect reservoir to polymer flood.

Matthew Gordon: Okay. Brilliant, and then next is you’ve then got to go and work out the order of play, as it were, You’ve got to work - again, I come back to the value of the company today versus the money that you can raise, I don’t think that’s changed since when I was funding companies like you, is you can only raise a certain amount now, you can do some work and go through the phases as it were, using rugby terminology here. What is the plan? What is the strategy from going from where you are now using this analogous technology, and on which one of your fields are you going to focus? Just Pilot?

Stephen Brown: Pilot is the core field.

Matthew Gordon: Okay, number 1.

Stephen Brown: Why is it the core? It’s because it’s really well appraised. We don’t need to spend any more money appraising it. It’s got 7 reservoir penetrations. It’s got fantastic 3D seismic over it. We’ve just brought some new 3D seismic. In terms of defining the reservoir envelope and the oil in place, we’ve got fantastic data. We’ve put together a development plan, we’ve submitted that to the OGA, we’ve then enhanced that by reducing emissions, then further submission, and now what we’re doing is we’ve recently gone out to the market for an FPSO. An FPSO is a Floating Production Storage and Offloading vessel. If you look at the capital that’s needed to get the project into production, it’s roughly $1Bn. About 600 is at the FPSO. Here’s the thing, the best people to convert vessels and turn them into FPSOs are FPSO contractors, not oil companies. They’re much better at executing those projects, so we go out to the market, there are 4 companies that operate in the North Sea with FPSOs, and 3 of them have come back to us with really good proposals and expressions of interest in working on the project.

Matthew Gordon: What does that look like generically? I appreciate that might be sensitive information at this time during a bidding process, but what does that roughly look like? You’re talking about a big-ticket item there which clearly, you’re not going to fund all of. How does that work?

Stephen Brown: There is a range of ways things happen. The FPSO business, the standard way it happens is that the FPSO contractor agrees the scope of work that’s needed, agrees what the FPSO looks like, or is going to look like, with the operator, they get a commitment to lease that over a period of time, and then they look for a guarantee from the operator that they will pay that lease, and then they go to the debt markets and raise debt, and put some equity and build the FPSO. That doesn’t work with us because I would give a guarantee, but it wouldn’t mean anything. It wouldn’t guarantee - the only guarantee that would mean anything from us would be a cash collateralised guarantee, so actually, what’s possibly more likely to happen is that there is an equity contribution from the FPSO provider, certainly in the form of the base vessel they’d use, and maybe some equity they’d put in, and obviously, the more equity an FPSO provider puts in, the more I’m thinking they could be the one, you know? It’s more likely we’ll put a capital contribution into the conversion of the vessel. That’s exactly what Hurricane did on the Lancaster development with an FPSO provider. These are complex deals to put together. They don’t fall together in 10-minutes.

Matthew Gordon: No, well you’re talking about a lot of money, and there are going to be a lot of players involved, and a negotiation certainly around security as a major component of that because not everyone wants to just inherit an oil field because that’s also a liability as well as an asset in that sense. Who are the other players that you’d need to bring to the table once you’ve got the FPSO broadly in line?

Stephen Brown: The FPSO is a specialist piece of business and we’re working on that. We’re working on it with probably the best consultancy on that side of the business. There are 4 lumps of capital that we then need to find. 1 is the mooring installation and the in-field flowlines. 1 is a well-head platform. The third one is the first 5 wells. It’s a 32 well drilling program, but we’ll start production with just 5. Then the fourth item is a floating wind turbine. There are lots of opportunities to lease that, and there’s a lot of money keen to invest in that sector. I’m less worried about that. The wells are really interesting because we’ve got a 32 well drilling program.

Matthew Gordon: Sorry, what’s the depth again? How shallow are we?

Stephen Brown: 2,700 feet. It’s pretty shallow. They’re about $15M wells, roughly speaking. They’re not that expensive, but no one else has a 32 well drilling program looking for a rig and looking for a service provider. What we’re planning to do probably in the new year is go out to the rig contractors and the well service contractors, which essentially is Halliburton, Baker Hughes, and Schlumberger, and look for which one of those is most enamoured of our project to help us finance the first 5 wells because we can pay for all the other wells out of cash flow. That way, we bring in contractors that are partners as well as people doing work for us.

Matthew Gordon: How does a company of your size go about retaining control? What you are is a lead in a consortium of companies with their various balance sheets, which are unconnected, uncorrelated balance sheets as it were. You’ve had the idea, you’ve put the team together, and said here’s how we go about it. You’re public, obviously, and some of them may be and some of them won’t be. How do you retain control and not get edged out or have your margins attacked or abused during this whole process because your balance sheet is presumably going to be one of the smaller ones in that consortium?

Stephen Brown: Fundamentally, what protects us is that we have the licence, so nobody is doing this project unless we say so. What you do to protect your margins is have competitive processes to select the partners. With the SPFO, we’ve gone out to 4 or 5 companies that might have been interested in that, we’ve got 3 companies very interested, we’re going to run another bit of a competitive process to narrow down who we’re going to work with. Then you go into the detailed engineering phase, and then you need to structure your deal with the SPFO contractor so that if you find during the engineering phase that costs have gone up, there’s a mechanism to handle that, but you’re both trying to find ways to get costs down because you both know that makes it more Riley the project goes ahead. There’s a time for competitive tension, there’s a time for partnering, and picking those times is half the art.

Matthew Gordon: Well, the other secret is the paperwork, right? Because in a way, you’ve got to be careful you don’t end up with the least aware, i.e., the person who gives you as vanilla an agreement as possible, i.e., you’ve got opt -outs and reasons not to pay penalties yourself, versus the most competent, who probably will want those conditional components in a contract, right? You’ve got to get that balance right between getting the best versus maybe not penalising yourself in an eventuality that may or may not happen further down the line.

Stephen Brown: The thing is the companies we’re dealing with are grown-up companies. They understand that we’re a small company.

Matthew Gordon: But that’s my point, Steve. They understand it, and I’ve been all too aware, I’ve been in the oil and gas energy space for a long time, and I’ve seen all sorts of shenanigans here. You’ve got to protect yourself, and your shareholders because you’re a public company now.

Stephen Brown: Absolutely. One of the ways you do this is that you add capability by working with consultants and contractors who are really part of our team. The relationship we have with Crondall is a very interesting one really, as an example of that. Crondall has been in the SPFO market since I worked with Duncan Peace back in Halliburton in 1996. We worked together there. He went off to set up Crondall, and they’ve been the technical advisor to many banks on SPFO construction contracts. What they did for Hurricane on Lancaster was it was really them that negotiated the contract with Blue Water for the SPFO. It was actually them that put the SPFO delivery manager into the project team. By partnering with Crondall and them working as our client engineer, we’re not just getting engineering capability, we’re getting commercial capability. You need lawyers at a certain point, but a lot more is about structuring the commercial arrangements than it is just the legality.

Matthew Gordon: Understood.

Stephen Brown: For the well construction, we use Petrofac as our well operator.

Matthew Gordon: Got it, okay. Understood.

Stephen Brown: I make myself strong by standing on the shoulders of giants.

Matthew Gordon: Always good advice. Just moving forward in terms of trying to understand the timeline of all of these things that need to happen for you, obviously, we’re coming towards the end of the year, you’re not even 6-months into being a public company. Let me just ask, how are you enjoying that process? Reporting every which way about everything always.

Stephen Brown: I’ve done it before so it’s not fresh to me, and I knew what I was getting into, but it’s a pain in the backside.

Matthew Gordon: Of course it is, and it’s expensive. You get a double whammy. Let’s look to 2022 in terms of what you think you’re reasonably going to be able to deliver in that timeframe because negotiating with multiple partners to build this consortium can take time. How advanced are you with those conversations, or is that not something that you’re looking at doing in 2022?

Stephen Brown: What we’re always doing is looking to bring partners into the project because that could be a really good way forward. What I never do is tell people what the timing is because I’ve done this before and I know whatever deadline you set turns out to be wrong. Don’t set deadlines; this will take as long as it takes. It’s as long as a piece of string, and it’s highly likely we’ll bring a partner into the project before we sanction it. Hurricane did Lancaster 100% without bringing a partner in. I think the bankers like to see some industry validation that what you’re doing actually makes sense. At some point, we’ll do that, and it’ll happen when it happens. Our plan, we’re heading towards final field development plan approval probably at the end of next year, maybe early the year after. Who knows? We won’t have FDP approval until the project is financed. That’s just how it works. The government doesn’t let you do a project unless you’ve got the money lined up.

Matthew Gordon: Let’s talk about the money you’re going to need for next year if that’s how long it’s going to take - end of next year, maybe Q1 2023. How much money do you need to deliver all of the - I guess there’s a lot of paperwork that needs doing between now and then, there’ll be a few consultants that need to be paid between now and then. How much cash have you got, when are you looking to raise next, and how much?

Stephen Brown: Our results are due out fairly soon, and we’ll say exactly how much cash we have when we come-

Matthew Gordon: Got it. How much did you have last quarter?

Stephen Brown: We raised £3M at the IPO and we had fairly chunky costs at the IPO, so we’re not swimming in cash, but we don’t spend much. We’re very focused, and we’re very parsimonious about how we spend the cash. We give ourselves a runway and whenever we see an opportunity to secure cash - and there are multiple ways to get cash. You can go to the market and raise some money. We might potentially extend a loan arrangement we have with Shell, that’s a possibility. We might bring a non-operating partner in and have them carry us through a piece of a work program. The FPSO, when we get to the point of actually doing the feed, the front-end engineering design with that, that’s a fairly chunky bill, that’s maybe $5M or $6M or $4M - that sort of order of magnitude. But you can get a lot of things done for not massive expenditures, and we just take things carefully, we commit to things whenever we’re able to, and we’re always making progress.

Matthew Gordon: Okay, I guess that’s all you can do. You’ll get the quarterly out soon, people can understand the state of play as to where you are with cash. You will have to give some kind of guidance as to what your expectations of cash demand or cash burn will be for 2022, and you will, I guess, let us know whether you’re going to raise that on a quarterly basis, every 6-months, annual basis, however you’re going to go and raise that capital, it’ll be interesting to us because it starts - this is where the public stuff becomes a pain in the arse as you quite correctly described it - people are going to be worried about dilution. What’s that going to do for my share price? I bought in at whatever they bought in at, and you’re going to borrow money because it’s the nature of the beast, because you are ways away from generating revenue but you’ve got to deliver the growth stories. The growth story is going to be hampered slightly by, have I got my licence? Have I got all the permits I need to do what I need to do? That’s the journey.

Stephen Brown: We can see a very clear pathway to getting all those permits. The Oil and Gas Authority has actually got a quite structured process to go through. We’re just at the cusp of completing the first phase of that, and then the next thing that you have to focus on is actually putting together the environmental statement and getting another arm of government called the Offshore Petroleum Regulator for Environment and Decommissioning.

Matthew Gordon: Snappy.

Stephen Brown: Snappy, OPRED for short, to approve the environmental statement. Actually, your best doing that once you know which vessel you’re using. There’s a timeframe for all these things, so probably the most important thing for us to do in the first and second quarters is to settle which vessel we’re using, and then we’ll be putting together the environmental statement, and at a certain point in that process, we’ll want to kick off the feed for the FPSO and for the platforms and so on and so forth.

Matthew Gordon: Brilliant. Look, Steve, what I’m hearing from you is, been there, done it before, got the people around to help us deliver it, confident about what we’re got and the technology we’re going to use, and the process we’re going to utilise during the next X-period. I appreciate you don’t want to dive in and give dates - wise move - but come on a journey with us is what you’re saying.

Stephen Brown: Yeah, and today, if you took our market cap and divided it by the combined 2P and 2C resources we have, it’s something like $0.20 a barrel. That’s crazy. That’s a crazy number.

Matthew Gordon: It is. What can I say? Look, Steve, I appreciate you coming on the show and talking to us. I’ve spent a lot of your time, utilised a lot of your time. Stay in touch and keep us abreast of how things are moving forward. I’m intrigued by the way you’re going about it, and as a fellow countryman, I’m excited for you.

Stephen Brown: Thank you very much indeed. It’s been a pleasure talking with you, Matt.

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