Nigeria: Lekoil announces Placing to fund acquisition of 40% interest in Otakikpo Marginal Field
AIM-listed Lekoil, the oil and gas exploration and development company with a focus on Nigeria and West Africa, has announced that Lekoil Oil and Gas Investments, a wholly owned subsidiary of Lekoil Nigeria, has agreed to acquire a 40 per cent. participating interest and economic interest in the Otakikpo Marginal Field from Green Energy International. The Company holds ninety per cent of the economic interests in Lekoil Nigeria. The most recent 2C reserves estimates for Otakikpo are 36 mmbbl of oil and 31 Bcf of gas (14 mmbbl and 12 Bcf net to Lekoil Nigeria). The Company believes that Otakikpo could be brought into production within 12 to 18 months of commencement of the work programme.
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, The Shell Petroleum Development Company of Nigeria Limited, Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited. The Otakikpo Marginal Field was awarded to 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.
Lekoil Oil and Gas entered into a farm-in agreement with the Farmor, effective 17 May 2014. As consideration for the assignment of the Interest, Lekoil Oil and Gas is required to pay a signature bonus of US$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 US$4 million.
In addition, Lekoil Oil and Gas is 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 approx. US$67 million. Lekoil Oil and Gas' expenditure on the initial work programme ('IWP') shall be recovered preferentially from 88 per cent. 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, Lekoil Oil and Gas will be liable for all obligations in respect of its 40 per cent. 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.
The completion of the transfer of the 40 per cent. 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 per cent. participating interest, Lekoil will exercise the rights and benefits of its 40 per cent. economic interest in Otakikpo via the Financial and Technical Services Agreement which takes effect from 17 May 2014.
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.'
Placing
Lekoil is also pleased to announce that it intends to place up to 33,000,000 new ordinary shares of US$0.00005 each in the capital of the Company ('the Placing Shares'), representing approx. 10 per cent. of the current issued share capital of the Company, with certain existing and new institutional and other investors, via an accelerated book-build pursuant to existing shareholder authorities.
Use of proceeds
The IWP agreed with the Farmor for re-entry of the existing wells and all works until commencement of production is estimated to cost approx. US$67 million. The net proceeds of the Placing will be used to fund the equity portion (approx. 20 per cent.) of the work programme. It is intended that the balance of the Placing proceeds will be used for general corporate and working capital purposes, including the payment of fees associated with the Placing. The Company expects to fund approx. 70-80 per cent. of the work programme through a reserve based lending facility from domestic banks and has commenced discussions in that regard.
Details of the Placing
The Placing will be led by Mirabaud Securities and UBS Limited as joint bookrunners and Ladenburg Thalmann & Co. Inc. acting as US Placing Agent. The Placing is not being underwritten. The final offering price and total number of Placing Shares to be sold pursuant to the Placing will be determined in the context of the market with final terms to be determined following the completion of the book-building process. The book will open with immediate effect and close at the sole discretion of Mirabaud and UBS Limited. Details on the number of Placing Shares offered and the price at which they are offered will be announced as soon as practicable after the close of the book-building process.