Petroleum Africa
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Wednesday, May 21, 2014
Lekoil Oil and Gas Investments Ltd., a wholly owned subsidiary of Lekoil Nigeria Ltd., has agreed to acquire a 40% participating interest and economic interest in the Otakikpo Marginal Field on OML 11 from Green Energy International Ltd. (the Farmor).
The most recent 2C reserves estimates for Otakikpo are 36 million barrels of oil and 31 Bcf of gas. The company believes that Otakikpo could be brought into production within 12 to 18 months of commencement of the work program.
Lekoil Oil and Gas entered into a farm-in agreement effective May 17. As consideration for the assignment of the interest, Lekoil Oil and Gas is required to pay a signature bonus of $7 million to the Farmor and, contingent on production and receipt of ministerial consent to the transfer of the participating interest, a production bonus of $4 million.
In addition, Lekoil is required to fund an initial work program agreed with the Farmor for re-entry of the existing wells and all costs until commencement of production, with a base case estimate of approximately $67 million. Lekoil Oil and Gas’ expenditure on the initial work program shall be recovered preferentially from 88% of production cash flow from Otakikpo. The Farmor will be entitled to terminate the transaction if Lekoil Oil and Gas fails to pay the consideration when due or fund the initial work program. After funding the initial work program, Lekoil Oil and Gas will be liable for all obligations in respect of its 40% participating and/or economic interest in Otakikpo. Lekoil will also be the technical partner on Otakikpo. The company guarantees the obligations of Lekoil Oil and Gas under the farm-in agreement.
Otakikpo has partial 2D seismic coverage with a limited amount of 3D acquired over the southern area. Three wells have been drilled in the field and hydrocarbons were encountered in multiple intervals. The field is close to existing infrastructure for the delivery of crude to market. As a marginal field, Otakikpo will benefit from attractive fiscal terms, principally a 55% tax rate on net income.
Commenting, Lekan Akinyanmi, Lekoil’s CEO, said, “Acquiring this interest in Otakikpo is a very attractive proposition, economically and operationally for Lekoil. It brings access to near term production – in line with our growth strategy, cash flow to fund activity on our other assets and upside potential to be proved up from 3D seismic and appraisal drilling. As the technical and financial partner we will be able to showcase the technical ability within the company to bring assets into production.”
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