Europa Oil & Gas (Holdings) PLC USD7 billion NPV for Offshore Ireland Prospects

 
TIDMEOG 
 
Europa Oil & Gas (Holdings) plc / Index: AIM / Epic: EOG / Sector: Oil & Gas 
 
26 October 2015 
 
          Europa Oil & Gas (Holdings) plc ('Europa' or 'the Company') 
 
     USD 7 billion Net Mean Un-risked NPV10 for Offshore Ireland Prospects 
 
Europa Oil & Gas (Holdings) plc, the AIM quoted oil and gas company with both 
producing and exploration assets in Europe, is pleased to announce that an 
independent assessment undertaken by ERC Equipoise ('ERCE') estimates a mean 
Un-risked Net Present Value ('NPV') of approximately US$7 billion to a 100% 
working interest (subject to government approval) in three prospects on 
Frontier Exploration Licence ('FEL') 3/13 in the Porcupine Basin, offshore 
Ireland.  On a Risked NPV basis the study estimates a 100% working interest 
(subject to government approval) at US$1.1 billion.  As announced on 12 May 
2015, a Competent Persons Report ('CPR') prepared by ERCE detailed total Gross 
mean Un-risked Prospective Resources of 1.5 billion barrels of oil equivalent 
('bboe') across the three prospects in FEL 3/13. 
 
On 16 June 2015, Europa advised the market of an independent assessment by ERCE 
of the NPV of its then 15% carried interest in FEL 3/13.  Following the 
announcement of 22 September 2015 that Kosmos Energy Ireland ('Kosmos') intends 
to withdraw from Ireland, Europa instructed ERCE to revise the NPV to reflect a 
100% working interest in the permit and without the benefit of a carried work 
programme.  The estimate of NPV provided today also incorporates an updated oil 
price assumption and cost deck. 
 
CEO Hugh Mackay said "The CPR summary issued on 12 May 2015 identified 
significant potential volumes of hydrocarbons: Gross mean Un-risked Prospective 
Resources of approximately 1.5 billion barrels of oil equivalent across three 
prospects in FEL 3/13. With the imminent departure of Kosmos from the licence 
our net interest will revert to 100%, subject to government approval, with a 
potential Net mean Un-risked NPV10 of approximately US$7 billion and a Net mean 
Risked NPV10 of US$1.1 billion estimated by ERCE. We believe this is a very 
strong indication of the commercial potential in our licences in offshore 
Ireland. 
 
"To realise this potential we need to drill exploration wells and find oil. 
 Our mission is to land a farm-in partner to share the costs of drilling and 
the target audience is major and mid-cap oil companies.  As a consequence of 
the drop in oil prices day rates for state of the art harsh-environment 
deepwater drilling rigs have halved. The next few years offer an opportunity to 
drill offshore Ireland at the lowest rig costs in over a decade.  We are 
encouraged by the high levels of participation in the 2015 Atlantic Margin 
Licensing Round, particularly given the low oil price. It would appear that 
many other companies share our belief in the technical and commercial case for 
exploration offshore Ireland.  I look forward to updating the market in due 
course as we focus on securing a farm-in partner with whom we can work to 
unlock the potential value of these prospects." 
 
Further Information 
 
ERCE's independent assessment of NPV follows their CPR on the Prospective 
Resources associated with the Wilde, Beckett and Shaw prospects on FEL 3/13 
based on 3-D seismic data acquired in 2013 by the operator, Kosmos.  These 
prospects are at the pre-drill stage and realisation of this potential value 
will require the drilling of exploration wells. ERCE estimates Un-risked and 
Risked NPV at a 10% discount rate (NPV10) for an uncarried 100% working 
interest as at 1 January 2015 for the Low, Best and High estimates of 
Prospective Resources as tabulated below: 
 
Prospect    Gross Oil & Gas         Net Un-risked NPV10       Chance  Net Risked 
         Un-Risked Prospective         (US$ Million)            of    NPV10 (US$ 
            Resources MMboe                                  Success   Million) 
                                                               (%) 
           Low    Best   High   Low    Best   High    Mean               Mean 
 
Wilde      61     239    952    -170   122    5,595   1,676     19       318 
 
Beckett    109    424   1,661   -170  1,692  11,628   4,114     15       617 
 
Shaw       57     198    681    -170   110    4,631   1,302     13       169 
 
Total                                                 7,092             1,105 
 
Notes: 
 
1. The discounted cash flow analysis has been carried out assuming exploration 
drilling results in discovery of oil. However, due to the significant 
uncertainties in the available geological information, there is a possibility 
that exploration drilling, if successful, will result in the discovery of gas. 
 
2. MMboe means millions of barrels of oil plus gas converted to oil using a 
conversion rate of six thousand cubic feet of gas for each barrel of oil. 
 
3. "Gross Oil and Gas Un-risked Prospective Resources" are 100% of the volumes 
estimated to be recoverable from an undrilled prospect before applying the 
geological chance of success (COS) 
 
4. The COS is an estimate of the probability that drilling the prospect would 
result in a discovery 
 
5. Prospective Resources are "Un-risked" in that the volumes have not been 
multiplied by the COS 
 
6. Net Un-risked NPV10 means the NPV10 at 10% discount rate as at 1 January 
2015 attributable to Europa's 100% working interest in the Prospect before 
multiplying by the COS 
 
7. Net Risked NPV10 means the NPV10 at 10% discount rate as at 1 January 2015 
attributable to Europa's 100% working interest in the Prospect after 
multiplying by the COS. 
 
8. The analysis for the Best and High cases assumes the successful drilling of 
an exploration well on each prospect in 2017 followed in each case by appraisal 
drilling and then development. 
 
9. The Low estimates of NPV10 for each prospect comprise the Net cost to Europa 
of an exploration and appraisal well, this is because discounted cash flow 
modelling of each of the Low cases resulted in a more negative NPV10. 
 
10. The Mean estimate of the NPV10 for each prospect has been calculated by 
adding the Low, Best and High estimates of NPV10 weighted by 0.3, 0.4 and 0.3 
respectively (the Swanson's Mean) 
 
11. The NPV10 calculations presented in this report simply represent discounted 
future cash flow values. Though NPV estimates form an integral part of fair 
market value estimations; without consideration for the exploration risk factor 
(COS) and other economic criteria, including market perception of risk, they 
are not to be construed as opinions of fair market value. 
 
12. The cash flows and NPV10 estimates have been calculated assuming a nominal 
oil price of US$57 bbl in 2015 rising to US$87 bbl by 2019 and inflated at 2% 
thereafter. 
 
Europa notes that the drilling costs used in the NPV calculation are those 
associated with the US$100/bbl oil price prevailing over much of the last five 
years (i.e. rig rates of US$600,000 / day).  The Company believes that a 
continued period of lower oil prices will result in lower drilling costs. 
Sensitivity analysis suggests that a 20% decrease in capital expenditure might 
increase the Un-risked and Risked Mean NPV10 by approximately 20%. 
 
The process for transfer of Kosmos' interest and operatorship of FEL 2/13 and 3 
/13 to Europa is ongoing and is subject to obtaining relevant approval from the 
Irish Authorities. On completion of this process and assuming a successful 
outcome, Europa will seek to farm-out some of its interests in both licences. 
Europa will be participating in the Atlantic Ireland conference in Dublin on 27 
October. The Company encourages interested parties to visit its booth at the 
conference or attend its presentation. 
 
The process for marketing the farm-out has begun and the dataroom will open in 
Q1 2016. Although the 2015 Atlantic Margin Licensing Round closed on 16 
September awards have not been made yet and the award process remains live. For 
reasons of confidentiality the full CPR and valuation reports will not be 
issued into the public domain, they will be part of the farm-out dataroom. 
Europa has previously confirmed that it participated in the Round and made 
multiple applications. 
 
Following the RNS issued on 12 May 2015 summarising the CPR on Prospective 
Resources in FEL 3/13, Europa commissioned ERCE to prepare an independent 
report on NPV for the FEL 3/13 prospects.  Although it is comparatively unusual 
for junior oil companies to commission such third party valuation work at this 
early stage in the exploration cycle, the Company feels it is important that 
investors and potential farm-in partners are provided with an independent and 
credible valuation.  As with the Prospective Resources CPR, the valuation has 
been subjected to rigorous technical challenge and scrutiny by ERCE. 
 
The Beckett, Wilde and Shaw prospects are located SW of Ireland, approximately 
125 km from shore.  ERCE has previously calculated a Low, Best and High 
resource volume for these prospects.  Due to water depths in excess of 1,000m 
each prospect would be developed by a Floating, Production, Storage and 
Offloading unit ('FPSO') in the event of successful exploration drilling.  The 
prospects are located in challenging environmental conditions, where high wave 
heights must be accounted for in FPSO design.  This in turn limits throughput 
rates.  Discovery size will also alter facility design, particularly with 
respect to produced gas handling.  ERCE has accounted for these aspects in its 
forecasting work.  ERCE conducted an independent review of the production, 
operating expenditure, capital and abandonment expenditure and associated 
discounted cash flow analysis of two Prospects; Beckett and Wilde and used that 
analysis to derive value for the Shaw Prospect. 
 
                                 * * ENDS * * 
 
For further information please visit http://www.europaoil.com/ or contact: 
 
Hugh Mackay       Europa                        + 44 (0) 20 7224 
                                                3770
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