MoU signed for further development at Otakikpo

RNS Number : 9298D

Lekoil Limited

01 July 2019

 

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

1 July 2019

LEKOIL Limited 

("Lekoil" or the "Company")

Memorandum of Understanding Signed with Schlumberger and Major International Oil Company for Further Development at Otakikpo in OML 11

LEKOIL (AIM: LEK), the oil and gas exploration and development company with a focus on Nigeria and West Africa more generally, is pleased to announce the Otakikpo Joint Venture (JV) between Green Energy International Limited ("GEIL") and LEKOIL (with LEKOIL as Technical Partner).  The JV has signed a Memorandum of Understanding ("MOU") with Schlumberger and a subsidiary of a major international oil company which has been operating in Nigeria for more than half a century ("Major Oil Company").  The MOU covers a comprehensive infrastructure sharing and drilling programme around a group of marginal field assets in OML 11.  Standard Chartered Bank ("SCB") is to act as the lead financial advisor for the Project and perform financial advisory, security and banking services required for the Project.

The phased development plan of the project consists of drilling up to five new wells in Otakikpo, expanding processing infrastructure to comprise an onshore terminal to be located outside the Otakikpo field operations area, construction of an export pipeline connecting the onshore terminal to an offshore buoy to handle Otakikpo and other fields in OML11.  The Otakikpo Joint Venture will partake in the costs of its field development with funds provided for such participation by the development consortium ("Consortium") (see below for further details).  Project management and associated asset management costs provided by Schlumberger will be shared between the Otakikpo Joint Venture and the operators and owners of other marginal fields participating in the Project.

Capital expenditure to be incurred by the Otakikpo Joint Venture is expected to be approximately US$170 million covering new wells and processing infrastructure, of which LEKOIL is expected to fund US $68 million.   The anticipated costs consist of debt repayment to financing parties, including the Major Oil Company, in addition to a project implementation fee paid to Schlumberger. Repayment of the facilities anticipated to be provided to the Otakikpo Joint Venture pursuant to the project will be made from production revenues from Otakikpo, in priority to any existing lending facilities (subject to agreement with existing lenders), future CAPEX and returns to equity holders.

 

Under the terms of the MOU, the Major Oil Company will provide funding to the Otakikpo Joint Venture alongside the other funding partners, subject to due diligence, project economics, entry into definitive documentation and final investment decision.  The Otakikpo Joint Venture will enter into an exclusive offtake agreement with the Major Oil Company for the sale of crude produced pursuant to this project. Schlumberger will act as technical and project execution partner to provide oilfield services and project management services to assist in ramping up production and long-term field management. The Consortium will also form multidisciplinary project management teams from LEKOIL and GEIL.

Due diligence will be undertaken and the financial terms and cost of capital will be finalized following final investment decision.  The final investment decision is subject to the satisfaction of customary conditions precedents, including the credit committee approval of financing parties and the execution of definitive project agreements. Site mobilisations are tentatively scheduled for late Q3 2019.

Lekan Akinyanmi, CEO of LEKOIL said, "This MOU is a significant milestone for LEKOIL and the Otakikpo JV. It secures the necessary funding, subject to the various conditions being satisfied, to drill additional wells and unlock further value at Otakikpo. We are pleased to be working with Schlumberger (who brings world class implementation) and other members of the consortium. We look forward to the transformation of operations infrastructure and an opportunity to earning revenue along the value chain".

    For further information, please visit www.lekoil.com or contact:

Lekoil Limited Alfred Castaneda, Investor Relations	[phone]
Strand Hanson Limited (Financial & Nominated Adviser) James Harris / James Spinney / Ritchie Balmer	[phone]
Mirabaud Securities LLP (Joint Broker) Peter Krens / Edward Haig-Thomas	[phone] / [phone]
Numis Securities (Joint Broker) John Prior / Ben Stoop	[phone]
Tavistock (Financial PR) Simon Hudson / Barney Hayward / Charles Vivian	[phone]

 

Background to Otakikpo

Otakikpo is sited in a coastal swamp location in oil mining lease (OML) 11, adjacent to the shoreline in the south-eastern part of the Niger Delta. LEKOIL Nigeria exercises the rights and benefits of its 40% Participating and Economic interest in Otakikpo via the Farm-in Agreement and Joint Operating Agreement signed on 17 May 2014 with Green Energy International Limited ("GEIL"), the Operator.

The Company holds 90% of the economic interests in LEKOIL Nigeria. LEKOIL Limited's economic interest in Otakikpo therefore equates to 36%.  The Otakikpo Joint Venture began operations in December 2014. Ministerial consent was granted by the Honourable Minister of Petroleum Resources of Nigeria in June 2015.  Commercial production started in February 2017.

 

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