Africa-focused oil and gas exploration, development and production company LEKOIL announced progress in one of its Nigerian projects months after a temporary setback in its asset acquisition spree in the West African country.
The company said on August 30 that after months of negotiations it has finally struck a deal with Optimum Petroleum Development Company, another Nigeria-registered entity on how to progress development of the offshore OPL 310 asset that has been in the limelight for the better part of 2019 over a disputed ownership transfer.
Lekoil said it has executed a legally binding agreement with Optimum to progress appraisal and development program activities at the Ogo discovery, which sits within the OPL 310. Optimum is a partner and operator in the block.
"We are pleased to have come to an understanding with Optimum, the Operator of the OPL 310 Block,” said LEKOIL’s CEO Lekan Akinyanmi.
“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,” he added.
The OPL310 partners are initially targeting a two-well program over the next 12 to 18 months.
The drilling program, however, hinges on the decision of Nigeria’s Ministry of Petroleum Resources extending of the OPL 310 license and both parties mobilizing the needed financing for the drilling work.
Furthermore, the two companies have agreed to drill two additional appraisal-development wells based on the results of the initial two well appraisal campaign and the associated extended well tests that would be carried out.
A successful well-drilling assignment is expected to be followed by Competent Person's Report (CPR) update and field development planning ahead of full field development.
“Assuming a successful appraisal, a full field development program will be undertaken and embarked upon by LEKOIL and Optimum with an industry partner, discussions on which are at an advanced stage,” added LEKOIL.
In addition, LEKOIL and Optimum are pursuing a request to the Department of Petroleum Resources to have the OPL converted to OML, which if granted would extend the licence by 20 years.
Under the LEKOIL/Optimum agreement, LEKOIL is to pay 42.85% of US$10m payable to the Nigerian Government on conversion of OPL 310 to an OML and another 42.85% 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 according to the agreement.
In addition, LEKOIL will also pay the Ministry of Petroleum Resources the fee that is to be prescribed by the ministry if an agreement is reached to extend the OPL310 permit.
LEKOIL says if the anticipated financing is secured, the company will “cover 42.85% of the capital expenditures and operating expenses of the Block to First Oil, being its 17.14% pro rata of an aggregate 40% participating interest held by it and the potential funding partner.”
The company further said the remaining 57.15% of capital expenditures will be covered by the potential funding partner.
But before last week’s deal between LEKOIL and Optimum, the ownership of 22.86% stake in OPL 310 has been in dispute for a while leading to the delay in the development of the asset as initially envisaged.
However, LEKOIL now says the company and Optimum have resolved not to pursue the matter any further but rather “use the 22.86% 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.” Either LEKOIL or Optimum is at liberty to source for the potential funding partner.
The Ogo-1 well and the Ogo-1 ST well were successfully drilled in 2013 at an estimated $50 million and resulted in a significant oil discovery with data from the vertical and side track wells placing estimates for the P50 gross recoverable resources attributable to LEKOIL from the Ogo field at 232 mmboe (P50) from gross recoverable resources of 774 mmboe, in excess of the expected pre-drill estimate of 202 mmboe.
For LEKOIL, the agreement with Optimum last week was a major boost at an otherwise demoralizing period for the company that has been busy removing one roadblock after another erected by the government in its endeavor to supposedly streamline investment in the Nigeria’s upstream segment.
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