Cameroon: Thali farm-out, well drilling on hold as PSC enters force majeure

Oil and gas company Tower Resources has delayed the completion date for its Thali PSC farm-out over coronavirus pandemic but still hopes to start drilling the Njom-3 well before mid-September.

Tower said on Monday that petroleum operations in Cameroon were affected by consequences of the Covid-19 pandemic, including international travel restrictions and Cameroon’s travel restrictions introduced on March 17.

Since the company, and other service providers, are temporarily limited in what they can do locally, the company notified the Ministry of Mines, Industry and Technological Development (MINMIDT) last week of an event of force majeure under the Thali PSC regulations.

Under force majeure, all obligations are temporarily suspended, so the same period of about seven months remaining under the current exploration period as of March 17 should remain once the force majeure period ends, without any further extension being requested.

Tower informed the Ministry that it was still possible to spud the Njom-3 well before September 15 despite the force majeure, if the situation returns to normal quickly enough, but at this moment this is inherently uncertain. However, the company remains committed to drilling Njom-3 as quickly as possible. It is worth reminding that Njom-3 drilling was previously set for June this year.

It is worth noting that the oil firm and OilLR agreed to amend their heads of terms to extend the proposed completion date of the Thali PSC farm-out to June 30. The two firms executed initial binding heads of terms in respect of a farm-out to OilLR of a 24.5 per cent working interest in the Thali PSC earlier this month.

Even though OilLR’s intended investors have the funds to complete the intended farm-in, both parties agreed that the transaction couldn’t be completed until the environment stabilizes sufficiently for the project to move forward.

The company is also continuing discussions with other potential investors in the Thali PSC, and while it fully expects OilLR to complete the agreed farm-in as set out in the heads of terms, Tower agreed with OilLR that in the event it receives additional offers of firmly committed funds which aggregate to more than $15 million, and if OilLR is unable to make an escrow payment on an agreed schedule, then the company will have the right to reduce OilLR’s share of the total farm-out down to a minimum of $5 million to accommodate the other potential investors.

This is to ensure that extending the completion schedule will not materially delay Tower’s access to funding from other sources as well. The other terms of the heads of terms with OilLR remain unchanged.

Jeremy Asher, Tower’s chairman and CEO, said: “We are glad that our partners at OilLR remain committed to the Thali project despite recent market upheavals and despite the operational delays required by the global response to the Covid-19 pandemic.

“[…] the Thali project economics remain very attractive at current Brent prices, with forward prices still well above $40 per barrel during our expected production period. The force majeure provisions of our PSC are designed to provide breathing space in precisely this kind of situation, and we are already planning and discussing with service companies how we can move forward as quickly as possible when things return closer to normal.“