Independent Oil and Gas plc (IOG), the development and production company focused on becoming a substantial UK gas producer, is pleased to announce that it has entered into a comprehensive farm-out transaction with CalEnergy Resources Limited (CER).

Highlights

- IOG has signed binding definitive agreements with CER to farm out 50 per cent of its Southern North Sea assets, comprising all of the Company’s upstream assets (except for the Harvey licences), as well as the Thames Pipeline and associated Thames Reception Facilities (the “Farm-out”).

- The consideration payable by CER comprises:
. £40 million initial cash payment
. up to £125 million by way of a development carry representing 80 per cent of the costs associated with IOG's retained 50 per cent interest, comprising:
up to £60 million of development costs for Phase 1
up to £65 million of development costs for Phase 2
. £0.50/MCF royalty on CER’s interest in Goddard production above 70 BCF gross up to a cap of £9.75 million.

- CER will receive a royalty of 20.2 percent of IOG’s Phase 1 revenues up to a cap of £91 million.

- CER will have the option, within three months of the Harvey appraisal well completion, to farm in to 50 per cent of the Harvey licences in consideration for:
. £20 million additional cash payment
. an uncapped royalty of £0.95/MCF on CER’s net Harvey gas production (equivalent to £61.3 million if Harvey produces IOG’s 129 BCF Best Estimate Prospective Resources).

- IOG and CER have also signed an Area of Mutual Interest (“AMI”) agreement to pursue further business development opportunities in the scope of the Thames Pipeline on a 50:50 basis.

- IOG is planning to issue a Euro-denominated Senior Secured Bond (“Bond”) of approximately £70 million to fund its share of Phase 1 costs. There is no additional external funding requirement expected for Phase 2.

- Upon Farm-out and Bond completion, IOG and CER will submit notice of Core Project Phase 1 Final Investment Decision (“FID”) to the Oil and Gas Authority (“OGA”).

- IOG has also entered into agreements to repay and restructure its existing financing arrangements with London Oil and Gas (“LOG”)

- IOG will retain Operatorship of the Core Project.

Farm-out Transaction

IOG is pleased to announce that it has entered into binding agreements to farm out 50 per cent of its SNS Assets (excluding Harvey) to CER. IOG will be paid initial cash consideration of £40 million on completion of the Farm-out. CER will also pay for up to £125 million of IOG's development costs, representing 80 per cent of IOG's 50 per cent share of Core Project costs, up to caps of £60 million for Phase 1 and £65 million for Phase 2 respectively.

The Core Project comprises 410 BCF¹,² of 2P+2C reserves and resources across six discovered Southern North Sea (SNS) gas fields. IOG will pay CER a royalty of 20.2% of its net revenues from the Phase 1 fields only (i.e. 10.1 per cent of gross Phase 1 revenues, net of National Transmission System entry charges and applicable marketing fees), up to a cap of £91 million over field life.

In addition, IOG will receive an effective royalty interest equating to £0.50/MCF on CER’s 50 per cent share of production from certain sections of the Goddard Field after 70 BCF gross has been produced from the field up to a maximum royalty of £9.75 million.

Given its experienced SNS development team, IOG will retain Operatorship of the Core Project.
Completion of the Farm-out is conditional on certain conditions being satisfied, including the receipt of OGA approval, the receipt of binding commitments from investors in respect of the Bond and various conditions relating to real estate leases at the Bacton terminal. Upon completion of the Farm-out of the SNS Assets (excluding Harvey) and the Bond, IOG and CER intend to proceed to immediate approval of Phase 1 FID.

Harvey Option

As part of the Farm-out, CER has also been granted an option to acquire 50 per cent of the Harvey licences within three months of completion of the Harvey appraisal well. Exercise of this option would maintain full alignment between IOG and CER across IOG’s entire SNS Assets in the event of a successful Harvey appraisal. On completion of the farm-in to Harvey CER will pay a further £20 million cash payment to IOG and a £0.95/MCF royalty on all of CER’s life-of-field net gas production from Harvey (equivalent to £61.3 million if Harvey produces IOG’s 129 BCF Best Estimate Prospective Resources). IOG’s pre-well estimates of the gross Prospective Resources at Harvey are low/mid/high 85/129/199 BCF³.

Area of Mutual Interest Agreement (AMI)

In addition to the Farm-out, IOG and CER have signed an AMI to allow for future co-operation in further SNS business development activities on a 50:50 basis. The specific focus is a defined area of the UK SNS which contains the wider tie-back radius of the Thames Pipeline. IOG has already identified and is working up several opportunities in this region for potentially value accretive incremental licensing applications and asset acquisitions, with a view to leveraging the competitive advantage provided by the Core Project’s infrastructure. With the Farm-out and AMI in place, the two partners are well placed to develop future projects.

CalEnergy Resources Limited (CER)

CER is focused on upstream oil and gas projects and has interests in the UK, Australia and Poland, and is an active operator in the latter two jurisdictions. CER or its predecessors has been active in the oil and gas industry since the 1970s as a full-cycle exploration and production (E&P) company.

IOG believes that CER is a very strong and naturally well-aligned partner for IOG both in co-developing the SNS assets and in jointly acquiring and developing further upside opportunities in the Thames Pipeline Catchment Area. CER’s high calibre management team, previous experience in this area and strong technical capabilities further cement the alignment.

Berkshire Hathaway Energy Company owns CER through its UK subsidiary Northern Powergrid Holdings Company whose primary business are its electricity distribution companies in the NorthEast of England.

About IOG

Subject to Farm-out completion, IOG will own and operates a 50% stake in substantial low risk, high value gas reserves in the UK Southern North Sea. The Company’s Core Project targets a gross 2P peak production rate of 146 MMCF/d (c. 25,000 Boe/d) from gross 2P gas Reserves of 302 BCF¹ + 2C gas Contingent Resources of 108 BCF², via an efficient hub strategy. In addition to the independently verified 2P reserves at Blythe, Elgood, Southwark, Nailsworth and Elland and 2C Contingent Resources at Goddard, IOG also has independently verified best estimate gross unrisked prospective gas resources of 73 BCF² at Goddard and management estimated best estimate gross unrisked prospective gas resources of 129 BCF³ at Harvey. Alongside this IOG continues to pursue value accretive acquisitions to generate significant shareholder returns.

About CalEnergy

CalEnergy Resources Limited is a subsidiary of Berkshire Hathaway Energy Company, which is headquartered in Des Moines, Iowa, U.S.
The group of operating companies headed by CalEnergy Resources Limited ("CalEnergy") currently participates in upstream oil and gas projects in Australia, Poland and the U.K.