Orcadian Energy (LSE:ORCA) — Investor Update

0:00 Good afternoon, and welcome to the ORCADIAN ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Please just simply type in your questions and press send. Before we begin, I'd like to submit the following poll. I'd like to hand you over to Steven Brown, CEO. Good afternoon, sir. Good afternoon, and welcome to everyone who's managed to get on this live. We released an an RNS this morning that talks about the Earlham GigaGrid project. It's something we're really excited to talk to you about, which is why we scheduled this, meeting for straight straight away, basically.

0:41 So I'm gonna present this. Hopefully, you tell your friends about it and they come and listen to it again and so on and so forth. Hopefully, get to lots of people with this story because we think it's a great story. The strapline we have on this is that the Earlham GigaGrid, and I confess I made up that word, the Earlham GigaGrid is a pathway to delivering low carbon gigascale compute. And, you know, a little while ago, I didn't even realize compute was annoying. But when you get into the data center business, start to understand how that's working, you realize compute is annoying, and that's the key product of the data center business. And the philosophy we have is to deliver that, in an offshore setting with low carbon power, and at least a pathway to gigascale power delivery.

1:38 Our initial project is based around, the Erlum and Orwell fields, which we've talked to you about before. But, let me, before I go into that, just remind you of what else we have in our portfolio. So when you add it all up, we have just under 200,000,000 barrels of two c contingent resources in viscous oil developments across the North Sea. We have our share in the, pilot project where Ping is the operator, and we have a fully carried to first oil 13,600,000 barrels of two c net to ORCADIAN. Fantastic project. Ping is doing some great work in the background on this. And at at a certain point, once once the new secretary of state for energy approves the Jack Tawn Rosebank projects and that unblocks the plethora of projects that are waiting to get approved, we'll see some progress on this project.

2:35 We also have the LK normal fields for the South. That's another 54,000,000 barrels of contingent resource. And we're busy working on the fin discovery, in the Outer Moray Firth with our partner, Serica. We see some real opportunity in that. So we've got lots of viscous oil, but today, I'm gonna talk about the Erlum and Orwell fields. So Erlum is in the Southern North Sea. It sits just just off Norwich, about a 100 kilometers, due east of Norwich, of Bacton. And you can see the Erlum discovery here on the Orwell Field, which has previously been produced. That produced around about 300 BCF. There's another 30 odd BCF to get out of it.

3:22 So our total resource here is about a hundred and forty hundred and forty five BCF of gas. And I'm gonna give you a quick intro to the Erlum Giga Gate Grid project. So we very much see the Erlum and Orwell developments as the first step in building a bigger project here. And our philosophy our philosophy has always been that with this particular gas field, with its fluid makeup and so on and so forth, that the very best way to develop it was to put up a mobile offshore generating unit next to it. And this has been designed by our partners, Richmond, and they've been working in this concept for a long time. It's a very good concept. We really like it. And it includes, a carbon capture system using, hot potassium carbonate as the capture medium, and we take the c o two from that and reinject it back into the Erlum reservoir.

4:19 And what that does is it actually supports the pressure in Erlum, and it allows that scheme to be treated as an enhanced gas recovery screen scheme. But putting the c o two back into the reservoir means we absolutely minimize the scope three emissions. So even in the most zealous world to eliminate emissions, the scheme should get developed because it's very low carbon emissions. And what we want to do is we want to bring the power demand right next to the power generating station. So we're adding this third platform with, data center levels on it.

5:06 And, you're probably wondering, how can you take a data center? Aren't they huge? Don't they cover acres and acres of space? There's been a really significant change in the, power that goes through each rack. If you go back, in time, it used to be around about 10 or 20 kilowatts in each rack. What NVIDIA wants and they have something to say about this industry. What NVIDIA want is to increase that rack power to a megawatt. No. I don't think the industry is quite there at that point. They're definitely looking at, you know, 150 kilowatts, 200 kilowatts and higher. But if you go from racks that had 10 kilowatts to racks that had a megawatt, you need a 100 fold fewer racks.

5:59 So that's a fundamental reason why you can take data centers offshore. And we believe that there's an opportunity once we have the Earlham and Orwell development up and running to add further, power stations and, data centers kind of 200 megawatts at a time, and actually build an offshore island grid that supplies part of all these data centers. We think it's a really, really clear pathway to delivering offshore low carbon compute at gigawatt scale. So is anyone else doing this? Well, actually, it turns out there's nothing new under the sun.

6:48 So back in 2018, Microsoft actually took a subsea pod, filled it with data racks, and sunk it in the ocean or the sea just off just off the Orkneys. There's there's a reminds me of our name. Right? And that's actually called project natic, and you can go and learn what what they learned in that. One of the things that Microsoft learned in this was that there was real value in filling that pod with nitrogen because in an environment with no oxygen, the failure rate for the components was much lower. Funny enough, this was something the offshore industry discovered back in 1980 before I even worked in the industry when the subsea control pods were all filled with nitrogen.

7:36 So the offshore industry has a lot to bring to the people who put data centers together in terms of how you take, products subsea or offshore. There's a couple of other, instances of taking data centers offshore. The Chinese have a wind powered underwater data center. There's a company called Aikido Technologies based in San Francisco who have a concept for putting, data centers into the foundations of floating wind platforms. And, Peter Thales invested in a company, which aims to gather power from waves in the ocean, and use that power to supply data centers. So there's lots of people that have the right idea.

8:30 We think we got the best idea. Of course, we do. The best idea is to link that offshore data center to a dispatchable power supply, and it's the gas supply that enables that. So, we think we're onto the best idea. And these are the trends that actually enable us to take data centers offshore. So if you go back to the two thousands, 20 tens, typically, you just had general purpose servers in the rack, and our standard rack was 10 kilowatts per rack. If you go to the 20 tens, so we're getting up to 10 to 40. Today's latest AI systems could draw up to five or 600, and NVIDIA wants to reach this megawatt target. That that enables and here's a word that I thought was annoying, but it's actually an adjective a a verb that enables the densification of the data center so that we can put the IT load onto a couple of decks on a nearby platform.

9:33 NVIDIA also want to change the power distribution so that it's 800 volts DC. And there's an opportunity to completely reinvent the whole power distribution and generation system. And with this with this setup, we don't need any HV transformers. I mean, if you're going if you go to a grid connection, you may if you're if you're lucky, you got a line coming in at 400 kV, You're waiting years to get the HV transformers to be able to put that electricity to use. On the on these, in in the mobile offshore generating unit, we'll generate around about 11 kV, so there's medium volt voltage transformers needed. Much simpler. Much simpler. And finally, one of the big problems for data centers onshore is it's kind of a two stage problem. There's a a problem taking the heat from the rack outdoors to the rest of the facility.

10:30 And to be honest, we'll still save face that same issue, but there are lots of companies working on it. And cold plates mounted with, direct to chip liquid cooling seem to be absolutely the right way forward there. But the problem that the onshore data center has is what to do with that heat once you've got it out the door. Because if you if you use evaporative cooling, you're using up lots of water, and that's not popular. And or you have lots of fans, and that creates a noise, which irritates people who live nearby. Whereas in the Central North or the Southern North Sea, we're sitting top of a great big heat sink, and disposing of the heat is a trivial problem.

11:17 So let me jump on to a little bit more on Earl and Orville themselves because we're still an oil and gas company. We have this license out here just on the border with The Netherlands. We it's a six year Innovate license that started in June 24. We have three main accumulations on it. One is the Erlum discovery. That's 49% c o two, but it has a 114 BCF of methane resource. There's another 30 odd 31 BCF of gas to get out of the Orwell field. That's fairly simple development. We'd prop we'd probably put a down downhole compressor from up wing into that well, and then that would allow us to get some nice 100% methane to blend with the Earlham gas.

12:09 There's a very nice prospect up in Clover. We'll drill that up once we've got clarity on how we're realizing value from these existing discoveries. And there's actually some opportunities to access discoveries over the border in Holland. It also overlaps the Norfolk Boreas wind farm operated by RWE, and there could be potential synergies there. And we keep talking to RWE about that, so we're always on the lookout for synergies. Focusing in on the discovery itself, it was actually found, by talisman who drilled the 5026 B 6 well, and they found a gas column. They never took a fluid sample. A few years later well, a year later in 1996, BP drilled this long horizontal appraisal slash development well because they expected there's a very nice rock leading the sand.

13:09 Let's just put a well in it and tie it back to some nearby infrastructure. When they put it on test, they discovered it was 49% c o two. This can produce a really high rate. So it's a it's a great reservoir. We think at least we do 80,000,000 scuffs a day if we need. To power one of these power stations, you only need about 40. So that's not a big stress. And

13:36 this here tells you a little bit more about the sands and the geological setting and the seismic over the field. The the trap size is tilted horse block. The the reservoir are Lemand sandstones, and these are great sandstones. They they've never been deeply buried, which happens elsewhere in the Southern North Sea quite a lot. That's why a lot of the Southern North Sea fields that are being developed now need to be fracked. This one doesn't need to be fracked. It's 250 millidarcy permeability. It's 350 feet thick. We've had some core. We've got good fluid samples. There's a a range of uncertainty on the overall gross rock volume, and that's part of the work that we'll be doing in the next few months.

14:24 But it's a it's a great reservoir. The fluid is the complexity. But we believe that we can produce the gas from this and by blending the Orwell and Earlham gas together, we can deliver a gas that's roughly 50% c h 50% methane, and there are turbines that are very well suited to this. So the Siemens SGT 800 is capable of burning biogas, which is about 50% c o two. So we're not gonna process this gas. What's the point in processing it? Let's just get it into these turbines. We will produce a little bit more c o two into the exhaust gas, but we're gonna capture as much of that as we can, and the plan is to reinject all that c o two.

15:15 So why do we want to put this data center next to this power station? Well, it turns out when you think this through, the gas development and the power station and the use of the power are all part of the field development plan we will propose to NSTA. It will be all be part of the selected concept, and we believe we can get an approval that allows the construction of all these facilities. And what that does is it puts us effectively in the position of a landowner compared to an onshore site. And we call it liquid land. Right? So we have the rights to put facilities here because of the by virtue of the license we have in the Petroleum Act, and we think this can be the pathway to supporting and approving this project.

16:12 We won't connect this to the grid, so there's no need for a cable all the way to shore. It's over a 100 kilometers to bring power back to Bacton. And if anything, there's too much power in Bacton, and, the grid is having to spend a fortune to strengthen the links between Norwich and the East Anglia wind farms and London. So there's no stress on the national grid. We think there's a potential for the wind local wind farms to actually act as gas savers. So when the wind's blowing, maybe we can take some of the power from the wind farms, all subject to discussion. And in doing that, we can extend the field life of our gas field and the and the data center.

17:04 The location also enables a rapid approval cycle. So the the whole cooling system is enabled by having an abundance of seawater. And being able to cool the system is very important to get that high power density per rack per rack. The environmental impact is going to be really quite small, because we're capturing the c o two. We're reinjecting it into the Erlum Reservoir that has stored c o two for millions of years, so we know it's a proven store for c o two. And there's nobody in our backyard. Our nearest neighbors are the production technicians sitting in the Sean and Davey platforms, and they're, like, 20 kilometers away. So taking the AI data center offshore makes

17:59 a huge lot of sense, and we think, an FDP approval for EARL would effectively provide a permissioned location for this overall project. So let me tell you a little bit about this post combustion carbon capture system. If you've looked to any other carbon capture systems, you've probably seen amine systems. We've selected a different approach, which is to use the safe solvent hot potassium carbonate, and that that's the absorbent of the c o two. And it's actually a really simple chemical reaction. You take one molecule of potassium carbonate, k two c o three, plus a molecule of h two o, plus a molecule of c o two, and that makes two molecules of potassium bicarbonate, so which is two k h c o three.

18:54 So it's actually a really simple chemical reaction, and this is a pretty benign chemical if you have a spill or an accident or whatever. This is actually a pretty benign chemical. The process is pretty simple. On this diagram here, there's a heat recovery section, and then the cooled exhaust gas goes through the absorber. The absorbent goes into the desorber target, depressure it, the c o two comes out, you get a pure c o two screen stream that you can you can reinject into the reservoir. You use the gas coming off the absorber to heat it up, and then you capture some more power. So this is like magic.

19:44 Normally, when you do these aiming based systems, there's a parasitic load for capturing the c o two. With this system, you actually there's there's electricity used in the c o two process capture process, but you generate more power than that. So you actually have a net contribution to your power. So we really like the system. It's from a company called Capsule in Norway, and, they have worked to integrate these systems with both Siemens and GE Vernova GTs. It's designed to be a GT carbon capture system. So we're really excited about using that. And before I kind of wrap up, I want to give you a bit of an idea of, the potential there is for there to be a business in putting together a data center project. Not that we're we're suddenly gonna become a hyperscaler and buy lots of GPUs, But there is already a business in The States where, developers buy land, put in place the electricity supply group agreements, put in some roads, lay transmission and distribution lines, put in a substation. All these are electrical costs, really.

21:11 And the analyst Rob West at ThunderSet Energy, who you should all really follow. ThunderSet's a really good follow. Has examined 20 land deals in The US on average to create a 500 megawatt data center. They've spent around $25,000,000. They've then been able to sell that to the hyperscalers or the, neoscalers who are new companies coming into this business for about $250,000,000. So only a 10 times uplift on their investment. You can't there isn't a metric that applies to what we're doing. We're doing something offshore in the Southern North Sea. What's happening in Texas onshore is a completely different metric, but, it's it's the closest thing to a metric I've got.

22:03 So how do we take this concept, and how do we get to gigascale? Well, the first thing we gotta do is we gotta get this project up and running. And what we've done as part of, and we mentioned this in the r and s, is we're planning to move the license ownership from our our CADEN subsidiary into a new company. We're gonna call our ORCADIAN ENERGY So it will own, the license. We want to bring new investment into that company focused on delivering this overall GigaGrid project, because we're very keen that this project goes forward, and we're also very keen to minimize dilution to ORCADIAN shareholders.

22:52 So we're super excited about this. We think you should be too, but that's the story, and I'm I'm ready for the questions, which I can see lining up in my on my screen in front of me. So shall I move straight onto the questions, Charles? Is that Yeah. Perfect, Steven. Thank you for updating investors today. Could I please remind investors to submit your questions just by using the Q and A tab situated on the right hand corner of your screen? And for your reference, a recording of today's presentation will be available on the Investor Meet company platform shortly after the meeting has ended. Steven, as you said, we received a number of questions during today's presentation. If I could just hand back to you to read out the questions and give response to appropriate to do so, I'll pick up from you at the end. Jolly good. Jolly good. So, we've got a few questions here.

23:44 Obviously, we did this last minute. So maybe maybe there aren't that many questions gonna come through. But if anyone's got any questions, just send me an email, sleep.braun@ORCADIANENERGY, and I'll answer the question as best I can. So the first one is, what is the current funding strategy for ORCADIAN Does management envisage funding through project finance, strategic industry partners, infrastructure funds, hyperscale customers, joint ventures, or another structure, at what stage would a final investment decision become realistic? So that's actually three questions. So I kind of answered the first question. What's the funding strategy for ORCALIM GigaGrid?

24:31 We are in conversation with people who are showing an interest in investing at that level. That's my preferred way to move the project forward to bring in investors at that level because we have something of real value to contribute to that, which is the license, and discoveries. And we would hope to retain a significant percentage of this after the first tranche of investment. Ultimately, it will be someone from the ranks of the hyperscalers or the neoscalers or that kind of company. So who are the hyperscalers? That's Meta, Amazon, Google, Microsoft, maybe Oracle, maybe SpaceX.

25:17 There's a range of companies that will come in and are thought of as hyperscalers. The neo scalers, it's a whole different set of companies. One that I recommend you have a look at is Crusoe, as in Robinson Crusoe. It's very interesting. They started as a company building skids in West Texas to capture otherwise flared gas and use it to mine bitcoins, they've now become the owner of multiple gigawatts of compute, in Texas where they're building these these hyperscale ventures. The CEO there, a fellow called Chase Lochmiller, gave a presentation to his alma mater at Stanford University when he went through the economics of the AI super cycle. I really recommend you Google that, find it, and listen to that if you're interested in understanding the economics of these data centers.

26:26 And there's a host of companies like that. They would be the ones buying buying the chips, buying, building the infrastructure, so on and so forth. But we're the ones who are gonna put these plans together. So in in in relation to the second question was how we'd get that funding, the answer is all of the above. Right? So the current plan we have, we're looking at roughly a six month process to get through the concept select process with NSTA, and then at least another six to twelve months process to get an FDP approved and agreed, to get the environmental statement published.

27:15 And then we would have a final investment decision. And in para once we have the CSR approval, in parallel with that, we will be approaching the companies that we would like to bring in as the big investment partners. So I'll move on to the next question. Given the significant capital investment required by hyperscale data center operators, it is very big. You know, what Chase says is a data center typically costs nearly $60 per megawatt. So you can do the sums on that, for a 200 megawatt, project. What duration of electricity supply agreements is envisaged? Does management expect ten, fifteen, or 20 or longer term contracts and have protect prospective customers indicate the minimum contract period they'd require before committing to such an investment? Well, that's quite a detailed question in terms of what term we would look at.

28:13 The way the way we think makes this work is actually making the gas project part of the overall data center project and to have a number of ways of having further gas and further par to extend the overall life of that project. And the way we're thinking of doing it is by securing access to gas an offshore gas supply. So there there's some other fields quite close to us that could could potentially plumb into and have, immediate offshore access to gas supply from from a fairly short, pipeline. There's an opportunity for us to perhaps connect to the tail end of the, grid arrays in the, the data, and the nearby wind farms, and that can provide an alternative route to market for those, wind farm operators.

29:15 There's lots of opportunities to do this, and none of them are just writing a long term contract. It's about a much closer integration between the gas operator, the power station operator, and the data center operator. Right. Oh, this is a good question. And I think this is from someone who's nicked my name. It's from Steven b. Right? What do you believe the market is currently under appreciating about ORCADIAN, and what could drive a rerating? Very good. So we've got almost 200,000,000 barrels of viscous oil to sea resources in our licensed portfolio in the North Sea, and our market cap is £10,000,000.

30:07 That's nonsense. That's nonsense. And there's 14,000,000 barrels of that that are carried all the way to first oil where we don't have to dilute our interest and we don't have to farm it out to anyone. That farm out is already done. So we think our market cap is ridiculous for our current oil resource portfolio. We think our market cap is ridiculous for the gas resources we have in Earlham. So interestingly, our our broker did a note on us this morning. And one of the things they did was they looked at actually a recent transaction that's happened in the Southern North Sea in this environment where Neonext bought Deltagard.

30:54 And if you look at his note, what you'll find is if if Earlham and Orwell were bought for someone for the same car price per million standard cubic feet, The value of Earlham Norwell is around about £30,000,000. So the gas by itself is worth three times our mark market cap. And who knows? Because I don't know. Who knows what the value of this gigagrid strategy could be? It could actually be a very big number, and we're very focused on making it a very big number. But we think our market cap is off the mark in three different ways. It's far too low for the oil we have. It's a fraction of what Deltic were able to sell themselves to Neo next, and it doesn't take into account anything for this giga grid strategy.

31:52 So what could drive a rerating? Well, I think announcing this strategy should drive a rerating because, fundamentally, the reason our oil assets are not fully valued by the market is because everyone's got so depressed with having Ed Millivan as the secretary of state for net zero and energy security. And he's balking at approving the Jack Dawn Rosebank projects, which this country has to approve, and we have to approve it in time for those fields, especially Jack Tawan to supply gas in the winter. Otherwise, people's grannies are gonna die. Right? So he's got to get off the pot and approve Rosebank. He's gotta get off the pot and propose, approve Jackdaw.

32:41 And there's a slew of projects waiting in the queue to get approved after that. And once we're back developing oil and gas in the North Sea, there will be a rerating of ORCADIAN. But this strategy should rerate ORCADIAN already because this is a a a not quite, but near zero emissions project, near zero scope three emissions. So it has a it's a it's an exemplar project for the whole industry on how to approach development so that we really do minimize emissions, but we generate reliable electricity. This project doesn't work with wind parallel. It doesn't work with wave parallel.

33:27 It doesn't if you'd unless you put dispatchable power from abated gas, this project doesn't work. But with abated gas, this works. This is the project that will unlock that value. So may maybe I was a bit strong. Who knows? What time scales are we looking at for delivering the milestones for this project? I'd like to be submitting the CSR within six months, and it'll take longer after that to get the environmental statement and the full field development plan together. And the final question is from Matt h. With five licenses and multiple development opportunities, given the breadth of the portfolio, How are you prioritizing capital and management resources, and which assets do you believe have the greatest potential to deliver near term shareholder value?

34:22 Well, what I would say is we think we should be putting a lot of resource into this Erland project. We think this is a great opportunity, while the government comes to their senses about approving new projects. Even a completely zealous, green martyr would approve this project because it is such a low emissions project. So we want to put our most of our resources into that, but we are actually doing a lot of work on Finn at the moment. We're working with our partner, Sarah, Heather, and we're doing a lot of reservoir modeling and a lot of thinking about how best to develop that field is going on. With pilot, we're in the really lucky position that, Ping, who took over as operator, are leading this project and leading it exactly in the direction we set when we handed it over to them.

35:15 So we we feel we're making the best of our resources, but we would say that, wouldn't we? Anyway, I think that's all the questions. Think I'm done, Charles. Perfect. Thank you, Steven, for updating investors today. Before we ask investors to share their feedback, which you know is particularly important to the company, if I may, can I please just ask you for some closing comments? Right. Okay. I've forgotten I had to do closing comments, so I have to think of something something we think this is a great project. We think we've got a way to take data centers offshore, which takes away that conflict between data center owners and the communities they're being built in. We think we can bring power to them. We think we can bring we can enable AI compute at the gigawatt scale in The UK.

36:11 And currently, I don't think the plans of the government are gonna do that. So it's gonna take ideas like this to make this happen, and we think there's a great opportunity for all ORCADIAN shareholders to be part of this. Thank you very much indeed. Thank you once again for your presentation this afternoon. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback, which which help the company better understand your views and expectations. On behalf of the management team, ORCADIAN ENERGY PLC, we'd like to thank you for attending today's presentation, and good afternoon to you.