The information contained within this announcement is deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

12 August 2021

Deltic Energy Plc / Index: AIM / Epic: DELT / Sector: Natural Resources

Deltic Energy Plc ("Deltic" or 'the Company')

Farm out of five Southern North Sea Licences to Cairn Energy PLC

Deltic Energy Plc, the AIM quoted natural resources investing company with a high impact, natural gas focussed exploration and appraisal portfolio in the Southern North Sea, is pleased to announce that it has entered into a binding, conditional farm-out agreement ("the Farm Out Agreement") in relation to five of its gas licences in the Southern North Sea with Cairn Energy PLC ("Cairn") through Cairn's wholly owned subsidiary, Nautical Petroleum Limited.

Summary of Farm Out Agreement

·    Under the terms of the Farm out Agreement, Cairn will acquire a 60% interest in each of Licences P2428 (Cupertino Area) and P2567 (Cadence) and a 70% interest in each of Licences P2560, P2561 and P2562 which are located between the Breagh and Tolmount Gas Fields.

·    Deltic will retain a 40% interest in licences P2428 and P2567 and a 30% interest in licences P2560, P2561 and P2562.

·    Cairn will fund 100% of an agreed work programme for each of the five licences up to the point of making a drill or drop decision on each licence, which will include the shooting of new seismic data over Licence P2428.  

·    Following the Farm Out Agreement becoming unconditional, Cairn will pay Deltic an up-front consideration of USD$1 million by way of contribution towards historic back costs incurred by Deltic across the licence areas.

·    In the event that a drilling decision is made on either of P2428 and P2567, which contain the most advanced prospects, Cairn will fund 70% of the costs of whichever well is drilled first, subject to a gross well cost cap of USD$25 million. 

·    Completion of the farm out is conditional on the entering into of a Joint Operating Agreement and obtaining standard regulatory consents from the Oil & Gas Authority, subject to a three-month backstop.

·    Cairn will become Operator of all five licences following completion.

Graham Swindells, Chief Executive of Deltic Energy, commented:

"This agreement represents the commencement of a wide-ranging partnership with Cairn, whose successful history of opening up new basins is aligned with our exploration-focused strategy. The partnership will result in a significant investment across multiple licences within Deltic's strategic Southern North Sea gas exploration portfolio, as we jointly progress the next high impact drilling targets. It provides further endorsement of the quality of the portfolio that our team has developed and also our gas focussed exploration strategy, as we continue to supply our conveyor belt of opportunities and attract the best partners to facilitate potential drilling.

We are particularly excited at the prospect of building our partnership with Cairn, a well-funded and highly experienced North Sea operator.  Both parties share a commitment to pursuing high impact exploration opportunities in the Southern North Sea and successfully developing these gas prospects."

Further information

P2428 (Cupertino Area) and P2567 (Cadence Area)

·    The P2428 licence area was awarded in the 30^th Offshore Licensing Round and contains prospects and leads at multiple geological levels. The key prospect identified by Deltic is the Plymouth Prospect, a large Zechstein carbonate build-up, which is analogous to Deltic's Pensacola Prospect and the Crosgan discovery.  Other leads have been identified in the Leman Sandstone and the Carboniferous sections.  The area is currently imaged on legacy 2D seismic data dating back to the early 1990s and new 3D seismic will be acquired to support a well investment decision on this licence. 

·    The P2567 licence was awarded in the 32^nd Offshore Licensing Round and contains prospects in the Triassic Bunter Sandstone and the Carboniferous.  The Carboniferous is the primary focus and Deltic has identified the large intra-Carboniferous Cadence prospect and believes the Base Permian Unconformity (BPU) subcrop play is also prospective across the licence area.

·    Under the terms of the Farm Out Agreement, Cairn will acquire a 60% interest in each of Licences P2428 and P2567, and will be appointed as the licence Operator, in return for paying 100% of the costs of an agreed forward work programme up to the date on which a well investment decision is made.

·    It is expected that the work programme over these two licence areas will involve the acquisition and processing of new 3D seismic data across P2428 and P2567 and the associated interpretation and studies required to support a well investment decision.

·    Should a well investment decision be made on either of the two licences, Cairn will fund 70% of the costs of whichever well is drilled first, subject to a gross well cost cap of USD$25 million.

·    Deltic will retain a 40% non-operated interest in Licence P2428 and P2567. 

P2560, P2561 & P2562 (South Breagh Area)

·    The P2560, P2561 and P2562 licence areas were awarded in the 32^nd Offshore Licensing Round and are located between two significant gas fields in Breagh and Tolmount, located to the north and south respectively.  Exploration in the area has been constrained historically by a lack of high-quality 3D seismic data and Deltic believes there is significant potential in the Zechstein, Leman and Carboniferous sections across the acreage.  Having only been recently awarded, these assets are less mature in terms of geological work undertaken compared to the Cupertino and Cadence areas.

·    Under the terms of the Farm Out Agreement, Cairn will acquire a 70% interest in each of Licences P2560, P2561 and P2562, and will be appointed as the licence Operator, in return for paying 100% of the costs of an agreed forward work programme on each licence, up to the date on which a well investment decision is made on each licence.

·    The work programme over these licences is expected to involve the purchase and reprocessing of legacy datasets to improve image quality and/or the acquisition of new 3D seismic data across all or part of the licenced areas.  This will be supported by the various interpretation workflows and other studies required to make the various well investment decisions on each licence.

·    All costs incurred following a well investment decision will be satisfied by each party in proportion to their working interest.

·    Deltic will retain a 30% non-operated interest in Licences P2560, P2561 and P2562. 

·    Following the Farm Out Agreement becoming unconditional, Cairn will pay Deltic an up-front consideration of USD$1 million by way of contribution towards historic back costs incurred by Deltic across the licence areas.

A further announcement will be made in relation to the fulfilment of the Farm Out Agreement's conditions in due course.

**ENDS**

For further information please contact the following:

Notes to Editors

Deltic has created a strategically located portfolio of high-quality gas exploration licences in the Southern North Sea over a number of licensing rounds.  These licences are located in areas that have been underexplored despite significant discoveries such as Tolmount, Breagh, Pegasus and Cygnus, most of which have gone on to be developed and could provide ready access to export infrastructure for any future developments on Deltic's licence acreage.