Cluff Natural Resources soars on North Sea farm-out to Shell (CLNR)

Shares in Cluff Natural Resources (LSE:CLNR) jumped over 60pc in early trading on Friday after the company announced it had entered a farm out agreement with Shell UK.

Under the terms of the agreement, Shell will become operator and acquire a 70pc interest in License P2252. The license, located in the North Sea, contains the Pensacola prospect which is estimated to contain 566 billion cubic feet (bcf) of gas. In return, the major will fund an agreed work programme, progressing the Pensacola project to a well investment decision by the end of 2020. The programme will include the shooting of 3D seismic of the Pensacola prospect over the summer, and subsequent data anaylsis.

Additionally, Shell has also picked up a three-month exclusive option to acquire 50pc of another North Sea license. The P2437 license includes the Selene prospect which is estimated to contain around 566 bcf. In the event the option is exercised, Cluff would retain operatorship and receive an initial payment of $600k. in the event a drill proceeds, Shell will pay 75% of the costs up to a maximum of $18.75m. Shell has until 30 April 2019 to exercise its option on the P2437 license which is conveniently located adjacent to existing infrastructure operated by the oil giant.

Investors showed excitement back in November when Cluff announced it had signed an exclusivity agreement with a major international oil and gas company. However, the news was very much sold in to, as is often the case on AIM. Subsequently, the shares dropped back to 2p, an absolute steal in hindsight with the stock hitting 5.2p on Friday morning.

Cluff has also confirmed it is no longer in non-exclusive negotiations with its preferred bidder for the P2248 licence. The firm has until 28 February to find a partner or it will be forced to release the licence.

Cluff’s Chief Executive Graham Swindells said:

“We are delighted to be able to announce the farm-out of Licence P2252 and the terms of an option to farm out Licence P2437 with a partner of this standing. This partnership is a clear endorsement of the quality of the licences in our portfolio and demonstrates the Cluff technical team’s ability to identify and transform overlooked or less understood opportunities. 

We are particularly excited at the prospect of embarking on our partnership with Shell with both parties sharing a commitment to further development in the Southern North Sea.

Most importantly, we now have direct visibility over the route to future drilling activity, and the potential to create further significant value for shareholders.

We look forward to building our partnership with Shell and successfully developing these prospects.”

Author: Stuart Langelaan

Disclaimer: The author does not own shares in the company mentioned in this article

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