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OML29 Acquisition Deal: Aiteo Sets Record Straight

 

Following widespread media reports that a "Talevaras-led" consortium won the bid for Oil Mining Lease (OML) 29 together with the Nembe Creek Trunk Line, two among the assets being divested by Shell and its joint venture partners, Aiteo Group has released a statement clarifying the position. In the statement Aiteo explained that it owns an 85 per cent stake in the deal, while Tempo Energy Resources has a 10 per cent stake and Taleveras holds only a 5 per cent stake in the consortium. As a result, Aiteo has objected to the description of the consortium as being "Talevaras-led" insisting that it led the bid.

 

In the statement issued by Mrs. Oseyemi Oluwatuyi, from the Communications Department of Aiteo Group, she used the opportunity to reveal that the total cost of acquisition of OML 29 along with the vital 60-mile Nembe Creek trunkline was $2.562 billion, although the group expects to spend $2.7 billion, including working capital.  

 

The Aiteo Group consortium emerged winner of the OML 29 in a fiercely contested bid that saw the group beat several other indigenous and international companies to clinch the deal.

 

The deal, according to Aiteo, is expected to translate to the creation of over 20,000 jobs in the exploration and production sub-sectors of the oil and gas industry.

 

Established reports have it that OML 29's remaining reserves (P1+P2) hold about 2.2 billion barrels of oil equivalent (BOE), while its hydrocarbon fields could deliver as much as 160,000 barrels of oil per day and 300MMscfpd of gas at peak.

 

Shell and its joint venture partners are divesting their interest in OMLs 18, 24, 25 and 29 (including Nembe Creek trunkline). Shell owns a 30 per cent interest, while Total owns 10 per cent, and Eni 5 per cent in each of the assets. The international oil companies (IOCs) are in joint ventures in the assets with the Nigerian National Petroleum Corporation (NNPC), which owns the remaining 55 per cent interest in the assets. Although Shell is the operator of the assets, NNPC has stated that bidders should not assume that operatorship would transfer to them. In recent times, the exploration and production company of NNPC, Nigerian Petroleum Development Corporation (NPDC), has claimed operatorship and is now working to develop the assets that it has scooped up operatorship of, in recent divestment.  

 

Dutch giant, Shell, which, along with its partners have been divesting their interests in a steady stream of onshore assets, has declined to confirm the winners of the bids until it has signed the sales purchase agreements for all 4 blocks. The winning bidders now await Ministerial Consent, which has in the past, often taken many months to obtain.

 

Mart Resources and Partners Complete Umugini Pipeline

 

Toronto Stock Exchange listed Mart Resources and its co-venturers in Umusadege marginal field, Midwestern Oil and Gas Company (the operator) and SunTrust Oil Company have completed the Umugini pipeline tie-in at the Eriemu flow station. Other start-up activities, including the pumping of line fill, Mart said in a statement, have been completed.

 

The line fill process required to commence shipment of oil to the Trans-Forcados crude oil export pipeline and onward to the Forcados oil export terminal and the inspection of the Umugini pipeline facilities by the Operator of the Umugini pipeline was successfully completed by the end of September 2014. Accordingly, the company said, Umugini pipeline is ready for injection of crude into the Trans Forcados crude pipeline and Shell Petroleum Development Company's (SPDC) pipeline system connected to the Forcados oil export terminal.  

 

The commencement of oil flow will occur following the receipt of the formal authorization of oil injection by the operator of the Trans Forcados export pipeline. The authorization is apparently expected imminently.  

 

The company stated: "The commencement of oil flow through the Umugini pipeline is expected shortly."  

 

Mart also gave a drilling update on Umusadege, stating that the drilling and completion of the UMU-12 well has been concluded. The well was drilled into the VIII sand, landing a 1,200 foot lateral drain hole at a measured total depth of 10,010 feet. The average oil column is approximately 40 feet.  

 

Clean-up and testing of the UMU-12 well will commence after the rig has been moved from its current location to the new UMU East drilling pad where it will drill UMU-13, an exploration well intended to appraise the eastern prospect on the licence. The UMU-13 exploration well is to be drilled as a vertical well to penetrate the crest of the east prospective structure.

 

NPDC, Seplat JV to Invest $200m in First Phase of Azura Power Plant

 

Nigerian Petroleum Development Company (NPDC) and its joint venture partner, dually listed (London and Nigeria) Seplat Petroleum Development Company are to invest $200 million in the first phase of the $1billion Azura-Edo Independent Power Plant (IPP). President Jonathan recently flagged-off the first phase of the project, which is the first fully privately financed IPP in the country. The power plant, which is located in the Ihovbor/Orior Odemwende communities of Edo State, is being developed by the NPDC and Seplat.

 

Speaking at the foundation laying ceremony, which was performed by President Goodluck Jonathan, the Minister of Petroleum Resources, Diezani Alison-Madueke, disclosed that the Nigerian Gas Company would be providing gas transportation to the power plant using the 50-kilometer stretch of the Escravos Lagos Pipeline.  

 

According to the Minister, the Azura-Edo power plant gas transaction is a pioneer in the two-tier gas pricing arrangement as proposed in the gas master plan, which envisions a willing buyer-willing seller pricing. She maintained that through the NPDC and the Seplat joint venture, 450 megawatts (mw) of power would be supplied with 120mmscf/per day of gas from the new gas processing facilities at the Oben Gas Plant.

 

Mrs. Alison-Madueke stated that the Azura and Seplat typified the success stories of President Goodluck Jonathan-led administration in the power and oil and gas sectors.

 

OPEC Daily Basket Price Stood at $81.89 a Barrel Wednesday, 15 October 2014

 

The price of OPEC basket of twelve crudes stood at $81.89 a barrel on Wednesday, compared with $85.14 the previous day, according to OPEC Secretariat calculations. As OPEC crude prices continue to fall, dropping a steep $3.25 in just one day, OPEC member nations are divided over what action to take to halt the trend. The next scheduled meeting of OPEC Ministers is on the 27th of November but some member nations think it is too far away to wait as prices begin go into free fall.

 

Saudi Arabia has said in recent times that it will not cut production, having decided on a strategy of gaining market share and along with Kuwait, Iran, Iraq, and the United Arab Emirates, it has cut prices sparking fears of a price war that will drive prices down even further. Venezuela has called for an emergency meeting of OPEC to discuss the issue and Iran has now joined the voices calling for an immediate production cut.  

 

Most energy analysts blame oversupply and declining demand for the soft oil prices which have also seen prices of global bench mark crude, Brent and the American benchmark crude, West Texas Intermediate (WTI) slide by 20 per cent or more since early in the summer. Brent crude stood at $84.47 while WTI stood at $82.70 today. Nigeria has seen production rise on a steady basis, increasing from 2.006 million barrels per day in August to 2.030 million barrels per day in September. Angola, Libya, and Iraq have also seen an increase in production. The dramatic rise in US shale oil production has added to the glut, with the International Energy Agency (IEA) currently estimating that there is about 1 million barrels of worldwide daily oil production in excess of demand currently.  

 

The high production cost of tight oils - as much as $90 per barrel as against $10 to $25 per barrel for conventional oil - may make it uneconomic for the level of shale production to continue at current rates in the US.   The question however is whether it is likely to deter production soon enough to make a significant impact on current prices.

 

As producing nations continue to watch the free falling prices, in Nigeria, the Federal Government has ruled out borrowing, even though the 22 per cent drop in crude prices over the last four months could erode external reserves by about $4.5 billion. The Federal Government says it is putting contingency plans in place to avert any shocks on the economy from the decline in oil prices.

The OPEC Reference Basket of Crudes comprises Saharan Blend from Algeria, Girassol from Angola, Oriente from Ecuador, Iran Heavy, Basra Light from Iraq, Kuwait Export, Es Sider from Libya, Bonny Light from Nigeria, Qatar Marine, Arab Light from Saudi Arabia, Murban from the United Arab Emirates and Merey from Venezuela.

 

FG Issues Supplementary Import Permits to Marketers

 

As the Quarter 4 allocations await approval, the Federal Government has issued supplementary permits for the import of 600,000 metric tonnes of gasoline in October under the third quarter import program, the Petroleum Products Pricing Regulatory Agency has said.

 

"The supplementary allocation was approved last week and it will be just for the month of October," a PPRA source has told Platts. Import permits for October were also issued in the June-July period, but the total volume of those allocations are unclear.

 

The supplementary allocations would serve as a stop-gap measure while the agency awaits final approval from the oil ministry for Q4 allocations.

 

 

Failure to Report Afren's $400m Payments to Oriental Energy Broke Listing Rules

 

Beleaguered London Stock Exchange (LSE) listed exploration and production company, Afren Plc has announced the completion of the independent review by law firm, Willkie Farr & Gallagher (UK) LLP of certain transactions undertaken by its former chief executive officer, Osman Shahenshah. The remit of the law firm was to find out whether such transactions should have been announced at the time they were entered into in accordance with the requirements of the LSE Listing Rules.

 

The firm found that of three transactions under review, the company had failed to comply with its reporting obligations under the listing rules in respect of two of those, whilst there were no disclosure rules in relation to the third transaction. The company, the firm found, had not suffered any material loss as a result of the transactions.  

 

The transactions that breached the rules were a payment of $100 million in 2012 and another of $300 million in 2013 to Oriental Energy Resources, Afren's partner in the Ebok Field. Shahenshah had described the two transactions as being in the ordinary course of business.  

 

In the fist transaction, Afren agreed to pay $100 million to Oriental in lieu of oil. The payment was made in two tranches of $95 million and $7 million, representing 5 per cent of Afren's market capitalisation. In the second transaction, Afren paid $300 million to Oriental, representing 12 per cent of its market capitalisation in return for Afren acquiring rights to certain tax allowances and increasing its share of oil revenues from the Ebok oilfield.

 

The review found that the first transaction "was not, in reality, an agreement for the prepayment of oil, nor was it a way of funding Oriental's costs in developing Ebok in a manner which might be considered to be in the ordinary course of business." The review concluded that: "It was a loan of $100 million to Oriental and was included in Afren's balance sheet for 31 December 2012 under the line 'prepayments and advances to partners'. Accordingly it was neither in the ordinary course nor of a revenue nature and should have been announced as a class 2 transaction on 25 July 2012 once the second tranche of $7 million was paid." With regards to the second payment, the review concluded that due to its size and incidence, it should have been declared.  

 

Afren said in a statement that it had notified the Financial Conducts Authority (FCA) of the breaches and will make the full report available to the FCA. They may have to pay a penalty for breaching the rules. Oriental has already begun to pay back some of the money.

 

The review was undertaken as part of the company's investigations into illegal payments received by Osman Shahenshah and chief operating officer, Shahid Ullah and two associate directors, Iain Wright and Galib Virani.  

 

Shahenshah and Ullah were involved in an arrangement with Oriental that involved Oriental paying 15 per cent of its cash receipts from Ebok for the period from 2013 to 2017 to a British Virgin Islands special purpose vehicle (SPV) Ntiti Ltd.  Oriental had agreed to make the payments to Ntiti in return for the unreported $400 million funding from Afren provided by Shahenshah and his co-conspirator in the unauthorised receipts, Ullah. Ntiti, which was owned and/or controlled by the two executives, received $45 million, out of which $17.1 was paid to both of them in the form of extraordinary bonuses.  

 

Afren's board has now sacked Shahenshah and Ullah for gross misconduct. The associate directors implicated have also been dismissed, all with immediate effect. Disciplinary proceedings against a further seven employees who participated in the unauthorised payments have commenced. Legal proceedings are also underway to recover the sums from them. In addition, the company said in a statement, it is taking steps to improve its internal reporting and controls.  

 

Oriental's relationship with Afren began in 2008 when they signed a Technical Services Agreement (TSAs) for the appraisal of the Ebok Field, which Oriental had farmed into in 2007. This was followed by joint venture agreements in 2009 for the development of Okwok Field and in 2010 in respect of oil mining lease (OML) 115.  

 

An aggressive drilling programme in 2010 resulted in the rapid development of the Ebok Field and by the end of 2011 the Ebok field had already produced approximately 3.0 million barrels of oil. By January 2012 there were 14 production wells on Ebok.

Commenting on recent events, executive chairman of Afren, Egbert Imomoh, who at the time of the payments was a non-executive chairman, said: "The decisive and comprehensive actions we have set out today should leave no-one in any doubt about how seriously Afren takes the issues uncovered in July and our commitment to rebuild the confidence of shareholders, partners, staff and our other stakeholders. Our focus is now on delivering the significant opportunities we have before us with an open and transparent approach to our business based upon mutual respect, the highest standards of ethics, governance and business conduct."  

 

The company's board says it has now begun an executive search for the replacement of the sacked senior executives. Egbert Imomoh remains executive chairman whilst Toby Hayward has been appointed interim CEO.

 

Afren is hoping its swift action, following the discovery of the actions of the CEO and his cohorts will help stabilise its shares on the market. Afren stocks, which were down 30 per cent in the last few weeks rose 2.4 per cent on the announcement of the dismissals. Analysts say that confidence will only be restored when the new management team is in place and their strategy and direction become clear. Meanwhile, a tightening of the internal controls will help to settle the market's anxiety. Most are predicting that, though Afren remains vulnerable, this is not the end for the successful exploration and production company.

 

RenCap Rates E&P Companies in High Growth Potential Group 

 

Leading international investment banking and research organisation, Renaissance Capital, has rated oil exploration and production (E&P) companies in Africa high within companies with growth potentials.

 

In its recent report titled "African Oil and Gas, Think Local, Be Selective" RenCap said there are upside potentials in most of the African E & P companies that should necessitate investment considerations.  

 

Eight African oil company stocks comprising of Afren, African Oil, Caverton Offshore Support Group Plc, Eland Oil & Gas, Lekoil, Mart Resources, Oando Energy Resources, Savannah Petroleum and Seplat Petroleum and Development Plc were covered by the report, out of which Seplat and Lekoil whose target prices for the stocks imply 50-100 per cent upside potential, were among the top three.

 

"We see the greatest upside for Seplat coming from possible merger and acquisition (M&A) transactions, and believe it is strongly positioned to capture upcoming non-organic growth opportunities thanks to its indigenous status. Our investment case for Lekoil is based on an attractive and undervalued asset base offering both high cash returns and material exploration upside; strong delivery by management since its Initial Public offering and its indigenous status," the firm said.

 

Lekoil is expected by RenCap to post one the highest returns in the medium term. "Our positive investment stance on Lekoil is based on the combination of an attractive and undervalued asset base offering both high cash returns and material exploration upside; strong delivery by management since IPO; and indigenous status, which should allow the company to receive additional tax breaks and increases its chances for future asset acquisitions," the firm said.

 

Seplat enjoys prominence, according to the report, because it has the biggest upside risk to its valuation from possible M&A transactions, and therefore it is strongly positioned to capture upcoming non-organic growth opportunities.

 

The report also said the African exploration and production (E&P) universe spans 27 companies with a combined market cap of $30 billion.  

 

"African E&Ps have tended to show more robust economics than their peers, breaking even at a $40/bl oil price, while North American shale E&Ps require a $60-70/bl price. Correlation with key indices has been declining, while beta has been increasing. We believe a buy-and-hold strategy no longer works in this universe: stock selection - now, more than ever - drives performance."

 

"The continent has come to the forefront of the global exploration drive over the past decade, contributing 80% to new reserves additions globally (excluding OPEC countries), and becoming the second-biggest contributor after the FSU to the global oil supply. While production was previously concentrated in just two key Sub-Sahara African (SSA) countries (Nigeria and Angola), we estimate that by the end of this decade this oil club could already include up to 22 country members," the report concluded.

 

Lekoil Denies Special Placement to Raise $37.5m

 

Africa-focused exploration and production company, Lekoil has issued a statement denying media reports that it is set to raise $37.5 million through a special placing of 33,000,000 ordinary shares. Various media organisations had reported that the company was hoping to raise the funding for the development of Otakikpo marginal field in which Lekoil acquired a 40 per cent stake earlier this year. The Alternative Investment Market (AIM) listed company, which currently holds interests offshore Nigeria and offshore Namibia, said it has no such plans currently.

 

The company said in a statement: "Lekoil wishes to make clear that the Company is not undertaking an equity placement at present and the reports are erroneous and refer to events that occurred earlier this year in May."

 

Located in oil mining lease (OML) 11 in the eastern Niger Delta, Otatikpo marginal field was awarded to Green Energy International Ltd in 2011 in a discretionary allocation. Lekoil signed a farm in agreement with Green Energy under which it acquired a 40 per cent participating interest in Otatikpo. Lekoil Oil was required to pay a signing bonus of $7 million to Green Energy as well as a production bonus of $4 million. The latter is contingent on production as well as receipt of ministerial consent to the transfer of the participating interest. Lekoil entered into the joint venture as Green Energy's technical partner.

 

Under Lekoil's agreement with Green Energy, it will fund the initial work programme, which consists of the re-entry of the existing wells on the field. Lekoil will also fund all costs, estimated at approximately $67 million, until commencement of production. It will recover the expenditure on the initial work programme from a preferential 88 per cent of production cash flow from Otakikpo. Green Energy can terminate the agreement if Lekoil fails to follow through on its obligation to pay $11 million for the acquisition or to fund the initial work programme.  

 

Although the transfer of the equity participation interest is contingent on Ministerial Consent to the transfer, the parties also signed a Financial and Technical Services Agreement, enabling Lekoil to commence work immediately.

 

Otatikpo had 2C reserves estimates of 36 million barrels (mmbbls) of oil at the time of the acquisition in May 2014 but this was revised upwards after a competent persons report (CPR). The CPR was provided by AGR TRACS International Ltd, which carried out a comprehensive review of the surface and subsurface data.  

 

Following the review, AGR TRACS reported that the gross unrisked 2C Contingent Resources for Otakikpo were estimated to be 56.75 million barrels (mmbbl). The CPR increases the estimated unrisked oil resources net to Lekoil by over 45%.

 

The CPR has also estimated Stock Tank Oil Initially In Place (STOIIP) ranges for four exploration prospects within the onshore part of the Otakikpo acreage giving unrisked P50 potential gross aggregate Oil in Place volumes of 162.8 mmbbl. Lekoil intends to conduct further studies in the southern shallow water area of the acreage where it believes that additional prospectivity exists.

 

Lekoil said at the time of acquisition that it expected the field to be in production within 12-18 months.

 

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