Otakikpo Project Update

RNS Number : 8361Z

Lekoil Limited

16 December 2014

 



16 December 2014

Lekoil Limited

("Lekoil" or the "Company")

Otakikpo Marginal Field Project Update

Lekoil (AIM: LEK), the oil and gas exploration and development company with a focus on Nigeria and West Africa, provides an update on its progress on the Otakikpo Marginal Field ("Otakikpo") in oil mining lease (OML) 11, offshore Nigeria, adjacent to shoreline in the eastern part of the Niger Delta.

Lekoil, the Technical and Financial Partner in the Otakikpo project (Lekoil: 40 per cent. participating and economic interest) and its partner Green Energy, have secured approvals for the well re-entry plan. The Company has also commenced a phased re-entry plan, fully funded with cash on hand, to reach production.  Earlier in the year, the Company had announced that it expected to begin production in the second half of 2015.  Based on the updated phased approach, we are pleased to announce that production is now expected in the first half of 2015, six months ahead of the previous schedule. Under the terms of the acquisition of the interest in Otakikpo, Lekoil will fund costs to first oil and be entitled to recover this expenditure preferentially. 

Based on our internal analysis and assumptions, which incorporate the AGR Tracs CPR data, the Company will breakeven at an oil price of less than $30 per bbl (life of field basis) with the lifetime unit costs being in the mid to low double digits. This analysis does not include the potentially positive impact of the Pioneer Tax status which is currently being applied for. The indicative costs to first oil are substantially lower than expected due to more favourable service costs in the tenders received so far. Contracting has commenced for the rig, well services and production facilities construction. Rig mobilisation is initially expected within the first quarter of 2015 at the same time as construction and the subsequent commissioning of production facilities. 

Progress is being made on discussions with lenders to provide debt financing to be used as funding for an accelerated work programme and we expect these discussions to be concluded in the first quarter of 2015. The accelerated work programme may be the optimal route to production if the Company secures Pioneer Tax status.

In September 2014, the Company announced a significant upgrade to 2C oil reserves estimates for Lekoil Nigeria's 40 per cent. participating interest and economic interest in Otakikpo.  Lekoil holds 90 per cent. of the economic interests in Lekoil Nigeria.

AGR TRACS International Ltd ("AGR TRACS") carried out a comprehensive review of the surface and subsurface data provided by Lekoil.  Following the review, AGR TRACS reported that the gross unrisked 2C Contingent Resources for Otakikpo were estimated to be 56.75 mmbbl.  This compares to the 36 mmbbl of gross oil resources in the most recent 2C resource estimates available at the time of the Company's acquisition of the interest in Otakikpo in May 2014.

In addition, Stock Tank Oil Initially In Place (STOIIP) ranges have been estimated by AGR TRACS for four exploration prospects within the onshore part of the Otakikpo acreage and, in total, these are estimated (on a P50, unrisked basis) to contain potential gross aggregate Oil in Place volumes of 162.8 mmbbl.  The Company also believes that additional prospectively exists in the southern (shallow water) portion of the acreage which will be defined by further studies and appraisal in due course.

Lekan Akinyanmi, Lekoil's CEO, said, "We are now ahead of schedule to achieve our target of first production from Otakikpo, which is value enhancing despite the depressed oil price, during the first half of 2015.  We have been very pleased with our progress on the development and look forward to learning more about the offshore area of the lease which we believe holds some exciting upside. We continue to accelerate our work with our partners, host communities and regulators to deliver on this valuable project and across our portfolio."

For further information, please visit www.lekoil.comor contact:

Lekoil Limited Dave Robinson, Chief Financial Officer	[phone]
Strand Hanson Limited  (Financial Adviser & Nominated Adviser) James Harris / James Spinney / Ritchie Balmer	[phone]
Mirabaud Securities LLP (Joint Corporate Broker)
Peter Krens Edward Haig-Thomas	[phone] [phone]
Tavistock Communications (Financial PR) Simon Hudson / Ed Portman	[phone]

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