Alternative Investment Market (AIM)-listed, LEKOIL has announced a decision to acquire a 45% participating interest in the Production Sharing Contract (PSC) in relation to the Oil Prospecting Licence (OML) 276, covering a territory located onshore in the eastern Niger Delta basin. This is however subject to the receipt of the required consents.  

The agreed acquisition, from Newcross Petroleum, is for a total staged consideration of US$5million, payable subject to the milestones listed in the highlights below. Lekoil 276 will also enter into an interim governance agreement with Newcross and Albright Waves Petroleum Development setting out the terms of which Lekoil 276 will provide technical support to the PSC.

In statement from the company last weekend, Lekoil said the acquisition is consistent with the company’s continuing strategy to assemble a balanced portfolio of oil and gas interests, which already include production (Otakikpo), appraisal (OPL310) and high impact exploration assets in known basins (OPL325). “The Licence is covered by approx. 150 sq. km of 3D seismic, shot in 2008 by BGP Inc., a subsidiary of China National Petroleum Company (CNPC), as well as various 2D seismic surveys.  It is in close proximity to three existing producing fields, all less than 20 kms away,” the statement said

Newcross has previously identified ten prospects and seven leads in the area covered by the Licence. Four wells have been drilled in the License area, resulting in four discoveries (two oil and two gas), namely Uda; drilled in 1972 (oil & gas discovery), Okposo-East; drilled in 1980 (oil & gas discovery),    Mbo; drilled in 1990 (gas discovery), and Davy Bank; drilled in 1986 (gas discovery)

Preliminary resource estimates by Newcross, based on data from these four wells, reported gross recoverable volumes of 29 million barrels of oil and 333 Bcf of gas, upside of 33 million barrels of oil and 476 Bcf of gas (recoverable). “LEKOIL has verified these estimates internally, but also intends to commission an independent competent persons’ report in due course. LEKOIL sees a clear opportunity for re-entering one or more of these discovery wells, with the potential for rapid monetization of resources due to existing export facilities nearby,” the company said

The company expects to finance the acquisition with a combination of its existing financial resources and a financing solution with a strategic industry partner – discussions about which have already commenced, the company said

The acquisition is conditional upon, among other things, the extension of the term of the Licence and the PSC, obtaining the consent of the Nigerian National Petroleum Corporation (NNPC) and obtaining the approval of Nigeria’s minister of petroleum resources.

The application for extension has been filed with NNPC and awaits approval from both NNPC and ultimately the minister of petroleum resources. The Consideration is payable as follows:       US$750,000 to be held in escrow starting from the extension of the term of the licence and to be released upon receipt of the ministerial approval;      US$2.75 million to be paid after the ministerial approval is obtained and upon occurrence of the conversion of the OML lease; and US$1.5 million, to be paid within three months after the receipt of first crude oil sale proceeds from continuous commercial production from the PSC.

Lekoil 276 has also agreed to fund the costs of the programme attributable to Newcross and Albright and expects to recover all such carried costs, more specifically: “Exact capital requirements for the programme will be finalised once the extension for the Licence is received; the company does not anticipate any substantial capital expenditure to be required for the programme for the remainder of 2019; and cost recovery will be from crude oil sale proceeds structured as follows: 80% of Newcross and Albright Cost Oil; and 70% of Newcross and Albright Profit Oil.”

Commenting on the development, Lekoil chief executive officer, Lekan Akinyanmi, said the acquisition of an interest in the OPL276 PSC represents an excellent opportunity to further build our growing production base in line with our stated strategy to create a balanced portfolio of assets. “With the completion of this, LEKOIL will have acquired a potential near-term producing asset with significant resource potential. We are optimistic about the prospects here, which have shallow reservoirs and are cost-efficient to develop. Our focus will now shift to moving plans quickly forward for oil and gas production. We look forward to working with our partners to unlock additional value for our investors,” he said

Lekoil is a member of AIM, a sub-market of the London Stock Exchange that was launched on 19 June 1995. AIM allows smaller, less-viable companies to float shares with a more flexible regulatory system than is applicable to the main market. At launch, AIM comprised only 10 companies valued collectively at £82.2 million.

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