NORTH Sea minnow Deltic Energy has seen its shares surge ten per cent after one of the Scottish oil and gas industry’s biggest names bought into its acreage.

Deltic announced that it has struck a deal to sell stakes in five exploration licences to Cairn Energy.

Edinburgh-based Cairn won renown for making big finds in what are regarded as frontier areas, such as the Thar desert in India and the waters off Senegal.

The company’s decision to farm-in to Deltic’s licences provides a clear signal that Cairn sees the potential to make big finds in the North Sea.

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Cairn recently sold stakes in two bumper producing fields in the North Sea and bought a big portfolio in Egypt. It retained some UK exploration interests, although drilling activity has slumped in the basin.

The UK North Sea faces stiff competition for investment from other areas. Oil and gas firms slashed discretionary spending amid the fallout from the pandemic.

HeraldScotland: Deltic Energy chief executive Graham SwindellsDeltic Energy chief executive Graham Swindells

Investor interest in oil and gas exploration firms may have been impacted by campaigners’ efforts to have curbs imposed on activity amid concern about emissions.

Cairn’s move represents another big vote of confidence in the quality of Deltic’s exploration work. Deltic sold stakes in licences containing big prospects to Royal Dutch Shell in 2019.

The deals involving Shell and Cairn provide vindication for Deltic’s decision to refocus on an area of the North Sea it felt had been overlooked by bigger fish.

The former Cluff Natural Resources acquired North Sea licences during the downturn that followed the sharp fall in oil prices from 2014. It had been working on plans to produce gas by burning coal under the Forth, before running into opposition.

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The business was founded by Algy Cluff, who played a part in the discovery of the huge Buchan field in the North Sea in 1975 then went into mining in Africa.

He was succeeded as chief executive in 2018 by Graham Swindells, who said yesterday that the agreement with Cairn represented the commencement of a wide-ranging partnership.

Mr Swindells said Cairn’s successful history of opening up new basins was aligned with Deltic’s exploration-focused strategy.

“The partnership will result in a significant investment across multiple licences … as we jointly progress the next high impact drilling targets,” said Mr Swindells.

Cairn has agreed to farm in to five licences on which Deltic has identified a range of gas prospects.

Industry leaders have said gas can be used to support the transition to a cleaner energy system while the required renewables capacity is developed. It is a less carbon-intensive energy source than coal.

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Cairn has agreed to pay up to $1m (£0.72m) to Deltic on formal completion of the farm-out agreement and appears prepared to invest heavily in exploration work on the licences.

Deltic said Cairn will fund 100% of an agreed work programme for each of the five Southern North Sea licences up to the point of making drill or drop decisions on them.

It will cover up to $17.5m costs if the firms decide to drill a well on either of the two licences that contain the most advanced prospects.

A Cairn spokesperson said: “The agreement provides a welcome addition to Cairn’s existing UK exploration portfolio, and we look forward to working alongside Deltic to progress the opportunities within the acreage.’

In March Shell and Deltic decided to go ahead with a plan to drill a well on the Pensacola prospect, which has generated lots of excitement.

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Last year Deltic spurned takeover approaches from Reabold Resources and Independent Oil and Gas. Directors reckoned they undervalued the business.

Deltic shares closed up 0.2p, at 2.2p. That left it with a market capitalisation of around £30m, against £890m for Cairn.