North Sea Energy Inc.
TSX VENTURE : NUK

North Sea Energy Inc.

September 05, 2012 08:00 ET

North Sea Energy Inc.: Independent Economic Evaluation Complete on 3 Prospects

TORONTO, ONTARIO--(Marketwire - Sept. 5, 2012) - North Sea Energy Inc. ("NSE" or the "Company") (TSX VENTURE:NUK) announced today the results of an Independent Economic Evaluation ("IEE") for three of its UK North Sea blocks. These include its 50% owned Badger prospect (block 12/30), its 50% owned Bobcat prospect (block 13/28b) and its 20% owned Norfolk prospect (blocks 12/16b and 12/17b), all located in the UK North Sea. The IEE has been completed by Acquidis Limited ("Acquidis"), a UK based consulting firm utilizing the resource and geologic information developed by Sproule International Limited ("Sproule") and Senergy (GB) Ltd. ("Senergy"). The IEE reports the projects' potential economics as follows:

Prospect Economic Analyses Summary
Prospect Name UK North Sea Block(s) WI % Gross Economics $mm Gross Prospective Resources MMboe(1) IRR % Net NSE Economics $mm Net NSE Prospective Resources MMboe
P50 P10 P50 P10 P50 P10 P50 P10 P50 P10
Badger 12/30. 50% 638 1091 35 99 149% 84% 319 546 18 49
Bobcat 13/28b 50% 243 664 12 36 96% 101% 122 332 6 18
Norfolk 12/16b 20% 756 2007 50 141 82% 73% 151 401 10 28
Norfolk East 12/17b 20% 310 1109 13 49 770% 565% 62 222 3 10
Norfolk & Norfolk East (combined) Light Oil 12/16b & 12/17b 20% 1028 2991 63 190 97% 91% 206 598 13 38

The following assumptions were used by Acquidis to compile these results:

General

All information is presented in US dollars not adjusted for inflation. An assumed exchange rate of 1.60 US dollars for £1.00 (British Pound Sterling) for 2012 and all years onward was used. All resultant values are rounded and this may cause minor discrepancies.

Oil Price

In all scenarios, the UK Brent crude forecast oil price in US dollars not adjusted for inflation as estimated by Sproule International Limited as at June 30, 2012 was used.

Development Scenario and Production Profiles

Development scenarios, capital expenditure and field operating expense estimates were supplied by North Sea Energy. The effective start dates of development and production is based on a best efforts scenario. Undiscovered oil in place prospective resource volumes and resultant production profiles used were independently assessed in accordance with NI 51-101(2).

Tax Regime

The UK fiscal regime, which includes the 'Small Field Allowance' for prospect resource volumes less than 50 MMboe, is applied in these analyses and is subject to change and clarification by the UK government.

In the UK fiscal regime the only applicable tax which is applied to this economic analyses is the corporation tax which is a 30% basic rate plus a supplemental rate of 20% plus a fair fuel stabiliser rate of 10% (applied when oil price is over US$75) for a total corporation tax rate of 62% which is set against the taxable income which is calculated as revenue - operating expense - capital allowance -small field allowance.

Capital allowances in the UK are 100% offset in the year of expenditure.

The 'Small Field Allowance' is an allowance of £UK150 million split over a five year period and is offset against the supplemental 32% tax rate applied to volumes less than 45 MMboe. A sliding scale allowance is applied from 45 MMboe to 50 MMboe on a prorated basis. Volumes greater than 50 MMboe do not qualify for this allowance.

In this economic model the use of a UK tax pool is assumed for initial years of tax calculations whereby tax allowances for capital investment that cannot be offset in the first few years of development prior to production and revenue generation can be offset against production revenue from other UKCS fields.

Tax calculations assume tax assessment the year following cost and income occurrence.

Discounting

  • A discount rate for NPV calculation of ten per cent (10%) is used
  • Mid-year discounting is applied to the discount factor (n)
  • Discount factor: [1/1-dr] ^n. where "dr" is the discount rate and "n" is the mid-year of discount.

Key Economic Indicators

Four key indicators were calculated in this analysis, Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI) and Capital Efficiency (CE).

  • NPV is the sum of the discounted cash flow through the forecasted life of the project. It does not represent a fair market value.

The after-tax net present value of North Sea Energy Inc.'s oil and gas properties here reflects the tax burden on the properties on a stand-alone basis. It does not consider the business-entity-level tax situation, or tax planning. It does not provide an estimate of the value at the level of the business entity, which may be significantly different. The financial statements and the management's discussion & analysis (MD&A) of North Sea Energy Inc. should be consulted for information at the level of the business entity.

  • IRR is the discount rate which makes the NPV equal to zero.
  • PI is a ratio of the NPV/NPVCapex
  • CE is NPV/NPVce (maximum negative cumulative cash flow exposure)

These economic indicators should not be interpreted as, or do not represent, the fair market value of the prospects.

Metrics

The following cost and value metrics are presented in these economic analyses:

  • Capex/bbl is a gross measure of the total capital expenditure over the field life divided by the prospective resource value;
  • Opex/bbl is the total operating expenditure divided by the prospective resource value.
  • NPV/bbl is a value metric that is a gross measure the net present value divided by the prospective resource value.

Estimates of future prospect cash flows from future capital expenditures, operating expense, estimates of future production and oil price scenarios as well as other statements about future events or anticipated results are forward looking statements. The forward-looking statements contained herein are based on assumptions and are subject to known and unknown risks, uncertainties and other factors. Should the underlying assumptions prove incorrect or should one or more of these risks, uncertainties or factors materialize, actual results may vary significantly from those expected.

About North Sea Energy Inc.

NSE (TSX VENTURE:NUK) is a UK-focused oil and gas exploration and production ("E&P") company listed on the TSX Venture Exchange. NSE is producing light oil from the Jacky field, located in the Inner Moray Firth off the Scottish coast and has acquired an interest in nine blocks in the North Sea.

As per CSA Staff Notice 51-327 initial production test results should be considered preliminary data and such data is not necessarily indicative of long-term performance or of ultimate recovery.

Although the Company believes that the expectations reflected in such independent economic analysis and information are reasonable, it can give no assurance that such expectations will prove to be correct. Since the report and information addresses future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation.

Certain information included in this material constitutes "forward-looking statements". The words "expect", "will", "intend", "estimate" and similar expressions or statements that certain events or conditions "may" or "will" occur identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at the date the statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies. North Sea Energy Inc. ("NSE" or the "Company") cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements and the forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to, risks associated with the oil and gas industry such as government regulation, environmental and reclamation risks, title disputes or claims, success of oil and gas activities, future commodity prices, costs of production, possible variation in oil and gas reserves, oil and gas resources, grade or recovery rates, failure of plant, equipment or processes to operate as anticipated, accidents, labour disputes, the timing of estimated future production, capital expenditures, financial market fluctuations, requirements for additional capital, conclusions of economic evaluations, limitations on insurance coverage, risks associated with using third party contractors and inflation. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

A prospect is an untested exploration target that is defined sufficiently to be considered drill-ready.

Prospective resources are those quantities of oil and gas estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Resource categories are as defined in the Canadian Oil and Gas Evaluation Handbook (COGEH).

There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

"Bobcat" is a promote licence that expires on January 9, 2013 when a drill or drop commitment has to be made to the Department of Energy and Climate Change ("DECC"). "Badger" is a promote license that expires on January 31, 2014 when a drill or drop commitment has to be made to DECC. "Norfolk" is a traditional license with a drill or drop commitment due at the end of initial license term (4 years, February, 2016).

All Blocks are subject to conditions imposed by DECC and may be relinquished if conditions are not met.

Net present value calculations do not represent the fair market value of the prospects.

(1) Sproule International Limited, NI 51-101 reports for Bobcat and Norfolk and Norfolk East Prospects as at July 31, 2011; Senergy (GB) Ltd, NI 51-101 report for Badger prospect as at April 30, 2012. Refer to NSE press releases on December 7, 2011, January 4, 2012 and May 15, 2012 for further disclosure.

(2) Sproule International Limited, NI 51-101 reports for Bobcat and Norfolk and Norfolk East Prospects as at July 31, 2011; Senergy (GB) Ltd, NI 51-101 report for Badger prospect as at April 30, 2012. Refer to NSE press releases on December 7, 2011, January 4, 2012 and May 15, 2012 for further disclosure.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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