Otakikpo partners ink service agreements with Schlumberger for next phase of drilling

Partners in the Otakikpo marginal field, located offshore Nigeria, have executed service agreements for the next phase of the drilling program.

The Otakikpo Joint Venture is made up of Green Energy International Limited (GEIL), the operator of the Otakikpo marginal field, and the technical partner, Lekoil Oil and Gas Investments Limited (LOGL), in which Lekoil has a 90 per cent economic interest.

Lekoil said on Monday that the JV has executed definitive agreements for the next phase of the Otakikpo marginal field development.

Further to the execution of a non-binding Memorandum of Understanding (MOU) with Schlumberger in July 2019, the Otakikpo JV has executed additional service agreements with Schlumberger.

The agreements cover the comprehensive infrastructure upgrades and field management services in relation to the planned upstream drilling programme.

The upstream drilling programme consists of phased drilling of up to seven new wells in Otakikpo with project capital expenditures estimated at $110 million, of which Lekoil is expected to provide funding of $44 million.

Drilling of the first two wells, estimated at $25 million ($10 million net to LOGL), is expected to increase gross production to approximately 10,000 bopd from the current gross rates of 5,755 bopd. Existing infrastructure at Otakikpo is capable of accomodating this incremental production.

As a result of the lower oil price environment and a change of project scope by the Otakikpo JV and other project stakeholders, these project capex estimates are a reduction of approximately 35 per cent on previous estimates of $170 million ($68 million net to LOGL).

LOGL expects to raise, according to its participating interest, its own portion of the required funding for the first two wells from a combination of offtake financing from a subsidiary of a major international oil company and cashflow from existing production.

Funding for subsequent wells is expected to come from the cashflow generated by incremental production.

Rig mobilisation is expected to occur as soon as the partners of the Joint Venture have both raised funding for the first two wells.

The Otakikpo JV has entered into an infrastructure sharing and utilization agreement in respect of the production from the Otakikpo marginal field with Integrated Hydrocarbon Infrastructure Limited (IHIL), a special purpose company incorporated and owned by GEIL to build, own, operate and maintain the shared infrastructure facilities (ISUA).

Pursuant to the ISUA, IHIL will assume the role of facility operator (from its parent, GEIL) and will build, own, operate and maintain certain flow stations, pipeline facilities, and terminal facilities to be used for the evacuation of crude oil produced from the Otakikpo marginal field.

These facilities will be built outside the Otakikpo area with a view to handle Otakikpo and other fields within OML 11. IHIL will provide certain services to the Otakikpo JV such as measurement, sampling, treatment, transportation and storage of crude produced from the Otakikpo marginal field and injected into the facilities.

LOGL will pay IHIL a fixed tariff for the use of the facilities. There are conditions to the ISUA becoming fully effective, including IHIL securing debt financing to develop the infrastructure facilities. Once fully effective, the ISUA will remain in place for an initial period of five years.

The Otakikpo JV has also entered into a field management services agreement with Schlumberger in respect of the overall exploration, appraisal, evaluation, exploitation, development, production and associated activities of the Otakikpo marginal field (the FMSA).

The FMSA also manages the relationship between the parties in relation to certain services including the operation, management and, where applicable, decommissioning, of the fields and infrastructure. In accordance with the FMSA, GEIL, LOGL and Schlumberger will form a multidisciplinary project management team in which Schlumberger will act as project execution manager to provide oilfield services and project management services to assist in ramping up production and long-term field management.

The Otakikpo JV will pay Schlumberger fees comprising of the cost related to the secondment of Schlumberger personnel to the Joint Project Management Team (JPMT), other specified costs and expenses incurred by Schlumberger, and a project implementation fee, for the duration of the agreement, in an amount consistent with a market margin on gross incremental production for the provision of the services to be provided by Schlumberger.

In accordance with the FMSA, the Otakikpo JV has also entered into an agreement with Schlumberger for the secondment of certain Schlumberger personnel to form part of the JPMT for the development of the Otakikpo marginal field and the implementation of the planned drilling programme.

During the term of the secondment agreement, all Schlumberger secondees will remain employees of or contractors to a member of the Schlumberger Group.

Subject to agreement between the Otakikpo JV parties, GEIL as the Operator will be responsible for paying Schlumberger monthly costs related to the secondment of Schlumberger personnel to the JPMT, such costs being reimbursable to GEIL by the Otakikpo JV. The various secondment rates are dependent on the secondment role that will be carried out.

The Otakikpo JV has also entered into a master services agreement with Schlumberger for the provision of various well drilling and completion products and services to implement the planned upstream drilling programme.

Such services exclude services or products relating to the development and management of the shared infrastructure.

Lekan Akinyanmi, Lekoil CEO, commented, “We continue to make progress towards our ambitions to drill additional wells and unlock further value for all stakeholders from Otakikpo.

“We are pleased to be working with Schlumberger, a world-class project execution service provider, and we are committed to advancing this exciting and transformative project that is aimed at increasing the value and cash generation abilities of the field”.