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    IOG to sell UK North Sea gas to Gazprom

Summary

The deal will cover supplies from the Elgood and Southwark fields, and later from the Nailsworth and Elland fields.

by: Joseph Murphy

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IOG to sell UK North Sea gas to Gazprom

UK junior IOG reported on July 29 signing an deal to sell gas supplies from its fields in the south UK North Sea to the marketing and trading arm of Russia's Gazprom.

The gas sales agreement (GSA) covers supplies during the first two years of operation at Elgood and Southwark, which are on track to start flowing gas next year as part of the first phase of IOG's development plan in the south North Sea. It also provides for gas from the Nailsworth and Elland fields, due to be exploited under a second phase.

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The gas will be sold on a day-ahead basis at a price linked to the UK's NBP benchmark. The agreement incorporates the potential for physical gas hedging as part of IOG's risk management programme, the company said.

Gazprom Marketing & Trading was chosen as a buyer after a offtake contest that attracted some 10 bidders. While Gazprom does not directly supply any Russian gas to the UK market, it has a sizeable marketing and trading operation in the country.

"We were pleased at the strong interest in offtake rights for our gas, which helped to secure attractive terms for IOG," CEO Andrew Hockey said. "As we will be delivering all of our gas into the Bacton terminal complex, an important UK gas hub relatively close to major demand centres, we expect to benefit from favourable pricing."

IOG is developing its south North Sea gas fields in partnership with CalEnergy Resources, a unit of US investment group Berkshire Hathaway. Gas supply from the first field, Blythe, is expected in the current quarter. IOG signed an agreement on sales from that deposit with BP Gas Marketing in February 2014.

Development drilling at the project kicked off in mid-April, and later that month IOG announced the mechanical completion of the Blythe and Southwark platforms.