North Sea minnow IOG backed by Warren Buffett

NORTH Sea-focused IOG has won a fresh vote of confidence from a firm owned by US billionaire Warren Buffett in spite of suffering setbacks in recent weeks.

IOG saw its shares plunge last week after it revealed that it had hit fresh complications in its efforts to develop the vintage Southwark gas find with the CalEnergy Resources business owned by Mr Buffett.

CalEnergy Resources bought into the acreage concerned in 2019 in a deal that represented a coup for IOG, which is a relative minnow in the industry. The companies set out to develop a range of North Sea gas finds which other firms had decided were not worth the effort involved.

After facing problems with the first fields brought into production in the Saturn Banks area the difficulties IOG encountered on Southwark raised questions about the plan.

However, IOG revealed yesterday that it had teamed up with CalEnergy Resources to bid for more exploration territory in the latest North Sea licensing round, which closed earlier this month.

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Chief executive Rupert Newall said: “In the UK 33rd Licensing Round, we have been very active … applying with our partner CalEnergy for nine blocks in five licences across the Saturn Banks catchment area. All potential licences contain gas discoveries that, if awarded, would add value to each of our gas hubs.”

The 33rd Licensing Round was launched after the UK Government initiated a drive to maximise North Sea production to help reduce the country’s reliance on imports amid the fallout from Russia’s war on Ukraine. Gas prices surged after Russia launched its full-scale assault on Ukraine in February last year, putting producers such as IOG in line to generate big profits on their North Sea output.

Against that backdrop the outcome of the efforts of IOG and CalEnergy Resources will be followed closely.

IOG yesterday underlined the scale of the benefit enjoyed by firms following the increases in gas prices last year, during which it started production from the Blythe and Elgood fields.

The company said it generated £79.6 million sales revenues in 2022, at an average gas price of 203.5p per therm. Its production costs averaged just 13.9 per therm.

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IOG said it is working to improve productivity from three gas-bearing zones encountered by the Southwark A2 well. It said last week that gas rates from A2 had been lower than expected and work was required to isolate water-producing areas from gas zones.

Preparations for drilling on Southwark were delayed last year as the company dealt with challenges offshore.

IOG announced in October that Andrew Hockey had decided to retire as chief executive with immediate effect. Earlier that month IOG cut estimates of the amount of gas it would likely recover from Blythe and Elgood following setbacks that led to production interruptions.

IOG said yesterday that the performance of the Blythe facilities has been increasingly stable, with no unplanned downtime in the year to date.

The planned H2 well could boost production rates from the field.

Elgood remains shut in while pipeline dewatering operations are completed.

Shares in IOG closed up five per cent, 0.38p, at 7.46p, leaving it with a stock market capitalisation of around £37m.

The shares traded at 37.6p in January last year.