Nigeria: Ogo partners progressing towards two-well program

Nigerian oil and gas company Optimum Petroleum, together with its partner Lekoil, is progressing towards appraisal and development program at the Ogo discovery located in OPL 310 block offshore Nigeria.

Lekoil said on Friday it had reached a resolution with Optimum Petroleum, its partner on and the operator of OPL 310, to progress appraisal and development program activities at the Ogo discovery, which sits within the Block. Optimum and Lekoil are initially targeting a two-well program over the next twelve to eighteen months.

However, this is subject to receiving an extension of the OPL 310 license from the Ministry of Petroleum Resources for the Block and the companies securing the necessary funding for the program.

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 License (OML), as soon as practicable. Assuming a successful appraisal, a full field development (FFD) program 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 license by twenty years.

It is also worth reminding that there has been an ongoing dispute as to the legitimate ownership of a 22.86 percent 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 companies have agreed to use the 22.86 percent 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. The potential funding partner may be sourced by either Lekoil or Optimum.

Although the agreement does not address the recovery of the $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 percent participating interest in OPL310), Lekoil said it is working with Optimum on a resolution of this matter alongside the possible allocation of the 22.86 percent to a potential funding partner and remains hopeful that an agreement can be reached.

The agreement

Pursuant to the agreement, a payment structure for previously outstanding G&A arrears payable by Lekoil to Optimum in the amount of approximately $3 million has been agreed, with approximately $1 million having been paid to date, with the balance to be paid by mid-October 2019.

Lekoil will also pay Optimum $5 million for an operator’s fee in regard to Lekoil’s 17.14 percent participating interest upon receipt of the extension.

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 $10 million 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).

Further, Lekoil has agreed to pay 42.85 percent of $10 million payable to the Nigerian Government on conversion of OPL 310 to an OML and 42.85 percent of $ 10 million to the Nigerian Government on reaching first oil. The balance of the two $10 million payments will be made by the potential funding partner.

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 be within normal parameters for a fee associated with a license extension.

In addition, Lekoil will, subject to securing funding, cover 42.85 percent of the capital expenditures and operating expenses of the Block to first oil, being its 17.14 percent pro rata of an aggregate 40 percent participating interest held by it and the potential funding partner. The potential funding partner will cover the remaining 57.15 percent of the capital expenditures.

Lekan Akinyanmi, Lekoil 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.”

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.”

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