TIDMLEK
RNS Number : 6331K
Lekoil Limited
30 August 2019
30 August 2019
LEKOIL Limited
("LEKOIL" or the "Company")
Joint update with OPL 310 Operator - Optimum Petroleum
Development Company
LEKOIL (AIM: LEK), the Africa-focused oil and gas exploration,
development and production company, is pleased to announce it has
reached a resolution with Optimum Petroleum Development Company
("Optimum"), its partner on and the Operator of OPL 310 (the
"Block").
The Company has executed a legally binding agreement
("Agreement") with Optimum to progress appraisal and development
programme activities at the Ogo discovery (which sits within the
Block). Optimum and LEKOIL (together, the "Parties") are initially
targeting a two-well programme over the next twelve to eighteen
months, subject to:
i) receiving an extension of the OPL 310 licence from the
Ministry of Petroleum Resources for the Block ("Extension");
and
ii) the Parties securing the necessary funding for the programme.
LEKOIL and Optimum have agreed to drill two additional
appraisal-development wells, contingent on the results of the
initial two well appraisal campaign and the associated extended
well tests to be undertaken. All wells will be designed to be
compatible with an early production scheme.
Both Optimum and LEKOIL have agreed to progress the appraisal of
the Block and conversion to an Oil Mining Licence ("OML"), as soon
as practicable. Assuming a successful appraisal, a full field
development ("FFD") programme will be undertaken and embarked upon
by LEKOIL and Optimum with an industry partner, discussions on
which are at an advanced stage. Assuming granted, which is at the
discretion of the Department of Petroleum Resources, the OPL to OML
conversion is expected to extend the licence by twenty (20)
years.
Further to previous announcements, there has been an ongoing
dispute as to the legitimate ownership of a 22.86 per cent stake in
OPL 310. This dispute has been the principal reason that
development of the Block has been delayed. Rather than pursue this
matter further, the Parties have agreed to use the 22.86 per cent
equity stake in the Block as a potential funding and security
vehicle for the accelerated development of the Block by an industry
partner or a third party that elects to farm-in to the Block to
fund field development (both the industry partner and the third
party being referred to herein as a "Funding Partner"). The
potential Funding Partner may be sourced by either LEKOIL or
Optimum.
Although the Agreement does not address the recovery of the
US$13 million consideration previously paid by LEKOIL with respect
to the acquisition of the shares of Afren Oil & Gas (Nigeria)
Limited ("AOGNL") in 2015 (which held the 22.86 per cent.
participating interest in OPL310), LEKOIL is working with Optimum
on a resolution of this matter alongside the possible allocation of
the 22.86 per cent to a potential Funding Partner and remains
hopeful that an agreement can be reached.
Further Details on the Agreement
1. Pursuant to the Agreement, a payment structure for previously
outstanding G&A arrears payable by LEKOIL to Optimum in the
amount of approximately US$3.0m has been agreed, with approximately
US$1m having been paid to date, with the balance to be paid by mid
October 2019.
2. LEKOIL will also pay Optimum US$5.0m for an Operator's fee in
regard to LEKOIL's 17.14 per cent participating interest upon
receipt of the Extension.
3. The Agreement also makes provision for LEKOIL to pay Optimum
certain production prepayments from the proceeds of a continuous
sale of crude oil produced from Ogo, such amounts being subject to
2P reserves or aggressive production milestones being achieved. The
payments, once due, include a US$10m per year payment for five
years following completion of a successful well (being a well
capable of producing 5,000 BBL/d of Crude Oil).
4. Further, LEKOIL has agreed to pay (a) 42.85 per cent of
US$10m payable to the Nigerian Government on conversion of OPL 310
to an OML and (b) 42.85 per cent of US$10m to the Nigerian
Government on reaching First Oil. The balance of the two US$10m
payments will be made by the potential Funding Partner.
5. Upon receipt of the Extension, LEKOIL will also pay the
Ministry of Petroleum Resources the fee to be prescribed by the
Minister of Petroleum Resources in respect of the Extension, the
quantum of which is expected to within normal parameters for a fee
associated with a license extension.
In addition, LEKOIL will, subject to securing funding, cover
42.85 per cent of the capital expenditures and operating expenses
of the Block to First Oil, being its 17.14 per cent pro rata of an
aggregate 40 per cent participating interest held by it and the
potential Funding Partner. The potential Funding Partner will cover
the remaining 57.15 per cent of the capital expenditures.
All payments set out above made to or on behalf of Optimum are
cost recoverable to LEKOIL. Whilst LEKOIL hopes to have secured a
Funding Partner in short order and therefore progressing appraisal
and development activities at pace, LEKOIL will be required to fund
payments 1 and 2 within approximately the next 6 months. LEKOIL
expects to fund these payments from a combination of existing cash
resources, cash from future production and drawdown on available
debt facilities.
Cost recovery terms are as follows:
-- 70 per cent of net production (revenue less royalty) ("Cost
Oil") will be allocated for cost recovery for all funding
partners.
-- 30 per cent of net production ("Profit Oil") will be split
pro-rata amongst the three partners (18 per cent Optimum, 5.14 per
cent LEKOIL and 6.86 per cent by the potential Funding Partner for
the 22.86 per cent Interest).
-- All LEKOIL's costs will be recovered at a mark-up of 150 per
cent plus an additional compounding of 5 per cent per annum in
respect of cost of capital to LEKOIL.
-- Post cost recovery, all parties will split the net revenue
according to their participating interest (Optimum 60 per cent,
LEKOIL 17.14 per cent and the potential Funding Partner 22.86 per
cent)
The Agreement provides for LEKOIL, Optimum and the potential
Funding Partner to recover costs and expenses in the following
priority:
-- firstly, Optimum recovering its sunk costs in the amount of
approximately $17m (to the extent not already settled);
-- secondly, LEKOIL shall be entitled to recover its past costs
with a 50 per cent agreed uplift and Optimum shall be entitled to
recover one-third of its past costs with a 50 per cent agreed
uplift pari passu from Cost Oil;
-- thirdly, LEKOIL shall be entitled to recover its future costs
with a 50 per cent agreed uplift and Optimum shall be entitled to
recover a further one-third of its past costs with a 50 per cent
agreed uplift pari passu from Cost Oil; and
-- fourthly, the potential Funding Partner shall be entitled to
recover its future costs and Optimum shall be entitled to recover
one-third of its past costs with a 50 per cent agreed uplift pari
passu from Cost Oil.
In addition, to underscore the resolution of historical issues
and disputes between the parties, and to create a strong and
lasting alignment with Optimum for the success of the OPL 310 joint
venture, LEKOIL proposes, subject to LEKOIL shareholder approval,
to grant to Optimum a combination of up to 1.2 per cent of LEKOIL's
issued share capital as at the date of the Agreement, to be issued
immediately following shareholder approval, and warrants for up to
0.8% of outstanding LEKOIL ordinary shares as at the date of the
Agreement in four equal tranches exercisable at 25 pence, 50 pence,
75 pence and 100 pence.
LEKOIL and Optimum are committed to working constructively
together and will be aligned in mutually increasing value for
LEKOIL shareholders.
Further updates in relation to the Agreement and the Extension
will be published as required.
Lekan Akinyanmi, LEKOIL's CEO, commented,
"We are pleased to have come to an understanding with Optimum,
the Operator of the OPL 310 Block. We look forward to working
closely with them to unlock significant value for our investors and
all stakeholders, not only with the appraisal potential identified
at Ogo, but also with the other promising exploration leads readily
identifiable in the OPL310 Block. We would like to thank all our
shareholders for their continued patience and support through this
prolonged process, and we feel confident that this support will be
well rewarded in the future."
Engr. Yusuf K. N'jie, Managing Director, Optimum Petroleum,
commented,
"We are pleased to be moving forward alongside our partner,
LEKOIL, toward the appraisal and development of OPL 310 and look
forward to a successful campaign, achieving our collective
objectives for the benefit of our respective stakeholders."
For further information, please visit www.lekoil.com or
contact:
LEKOIL Limited
Alfred Castaneda, Investor Relations +44 20 7920 3150
Strand Hanson Limited (Financial &
Nominated Adviser)
James Spinney / Ritchie Balmer / Eric
Allan +44 20 7409 3494
Mirabaud Securities Limited (Joint
Broker) +44 20 7878 3362 / +44 20
Peter Krens / Edward Haig-Thomas 7878 3447
Numis Securities Limited (Joint Broker)
John Prior / Emily Morris +44 20 7260 1000
Tavistock (Financial PR)
Simon Hudson / Barney Hayward / Charles
Vivian +44 20 7920 3150
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END
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