Lekoil to acquire 40% interest in Otakikpo marginal field

Lekoil Oil and Gas Investments Limited, a wholly owned subsidiary of Lekoil Nigeria Limited, has agreed to acquire a 40 percent participating interest and economic interest in the Otakikpo marginal field from Green Energy International Limited.

The Otakikpo marginal field was awarded to Green Energy International (the farmor) by the Department of Petroleum Resources in 2011. The award also included a commitment to develop a small-scale gas utilisation project within 30 months of commencement of production.

Otakikpo lies in a swamp location, in oil mining lease (OML) 11, offshore Nigeria, adjacent to shoreline in the Eastern part of the Niger Delta. OML 11 is held by Nigerian National Petroleum Corporation, Shell Petroleum Development Company of Nigeria Limited, Total E&P Nigeria Limited, and Nigerian Agip Oil Company Limited (the head farmors).

Lekoil Oil and Gas entered into a farm-in agreement with the farmor effective May 17, 2014. The company is required to pay a signature bonus of $7 million to the farmor as consideration for the assignment of the interest and, contingent on production and receipt of ministerial consent to the transfer of the participating interest, a production bonus of $4 million.

The company is also required to fund an initial work programme 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.

Lekan Akinyanmi, Lekoil’s CEO, said in a release: “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.”

Lekoil Oil and Gas’ expenditure on the initial work programme (IWP) shall be recovered preferentially from 88 percent 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 IWP.

After funding the initial work programme, the company will be liable for all obligations in respect of its 40 percent participating and/or economic interest in Otakikpo. Lekoil will also be the technical partner on Otakikpo.

The completion of the transfer of the 40 percent participating interest from the farmor to Lekoil Oil and Gas is contingent on the approval of the head farmors and the Nigerian minister of petroleum resources.

Pending receipt of ministerial consent to the transfer of the 40 percent participating interest, Lekoil will exercise the rights and benefits of its 40 percent economic interest in Otakikpo through the financial and technical services agreement which takes effect from May 17, 2014.

FEMI ASU