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Shell Concludes Sale of OML 18 to Erotron Consortium

 

One of the members of the winning consortium in the bid for Shell's oil mining lease (OML) 18 has confirmed the conclusion of the deal. Toronto Stock Exchange listed Mart Resources is part of the Erotron consortium that won the block after reportedly bidding $1.2 billion for the 21,000 barrels per day producer. Mart and its partners in the deal, Midwestern and Suntrust Oil, will now take over the 45 per cent interest of Shell Petroleum Development Company, Total E&P Nigeria and Nigerian Agip Oil Company in OML 18. The Nigerian National Petroleum Corporation (NNPC) holds the remaining 55 per cent.

 

Erotron will acquire the block and all associated assets, wells, pipelines and infrastructure. The deal is subject to Ministerial Consent, but the parties are hopeful that approval will not take much time. Only when approval is given, can the transaction achieve final closing. Meanwhile, the consortium members have put down their initial bid deposit of 10 per cent which is non-refundable and the closing cash consideration, which is refundable if the transaction is not completed. Mart ends up with a 10% share of OML 18 for which it has paid $134 million, representing its proportionate share of the initial bid deposit, the remaining closing cash consideration and transaction costs and initial working capital for the consortium's special purpose vehicle (SPV).  

 

Shell was the operator of the block pre sale, but it has not been revealed who will now operate the block. NNPC has in the past, however, warned buyers not to expect to automatically acquire the right to operate the block. This did not deter the bidders and it is expected that they will be operated by NNPC's wholly owned exploration and production subsidiary, the Nigerian Petroleum Development Company (NPDC).  

 

Revealing more about the financing of the transaction, Mart said that the acquisition cost of the consortium's participating interest in OML 18 will be satisfied by way of (1) senior secured, non-recourse reserves-based financing secured against the consortium's participating interest in OML 18 and all petroleum sales revenues accruing from OML 18; and (2) an equity contribution by the consortium members proportionate to their direct or indirect working interest in OML 18.  

 

Whilst the other members of the consortium have stayed tight-lipped, Mart has been giving details of how it arranged its own financing, as it is required to give to investors under listing rules. To fund its share of the closing cash consideration, Mart has arranged to increase its existing secured term loan credit facility with Guaranty Trust Bank from $175 million to $232.5 million. The increased secured loan credit facility has a term of five years and bears interest at 90 days LIBOR plus 4% (floor of 8.25%), which interest rate is unchanged from the terms of the Company's existing facility with GT Bank.

 

The proposed acquisition provides Mart the opportunity to diversify its assets and operations in Nigeria beyond its current successful operations at the Umusadege marginal field, in which it has an interest, together with its partners in the Erotron consortium, Midwestern and Suntrust Oil.

 

OML 18 covers 1,035 square kilometers and is located onshore in the southern part of the Niger Delta in Rivers State. It contains nine fields and associated infrastructure that includes seven oil flow stations, three associated gas gathering processing plants and one non-associated gas processing plant, and associated gathering facilities.  

 

Approximately 140 wells have been drilled on OML 18. Three fields are currently in production on the block. Production in recent years has ranged between 20,000 to 30,000 barrels of oil per day from approximately 30 producing wells. Aggregate cumulative oil production from OML 18 since 1970 is approximately 1,060 million barrels, with peak production in January 1971 at 140,000 barrels of oil per day.

 

Crude oil production from OML 18 is exported through the Bonny Crude Oil Terminal via the Nembe Creek Trunkline. Gas production from OML 18 is delivered to various power, industrial and commercial customers via the Nigeria Gas Company's pipeline.

 

Wade Cherwayko, Chairman and CEO of Mart, commenting on the acquisition said that Mart had been looking for an opportunity for several years to diversify its portfolio of assets in Nigeria. He said: "OML 18 is a significant asset with considerable exploration upside and production. The other Consortium SPV members are Nigerian companies with considerable oil and gas exploration and development experience who are familiar with the region and who are expected to be able to work effectively with the local communities to further materialize the exploration and production potential of this asset."

 

Shell had already concluded the assignment of the choice asset in this round of divestment, OML 29, to the consortium led by Aiteo (with an 85 per cent stake), and which includes Tempo Energy Resources with 10 per cent stake and Taleveras with just 5 per cent stake in the consortium. The OML 29 acquisition, which comes along with the vital 60-mile Nembe Creek Trunkline was won by the consortium with a bid of $2.562 billion.

 

The sale of OML 24 is also on course. Pan Ocean won OML 24 with a bid of $900 million for OML 24. Although it is generally assumed they went into the bid alone, there are reports that they went in with a downstream partner. Although they were said to have been having difficulty finding the cash to close the deal, it seems that they have succeeded in doing so and are now in the process of concluding the paper work on the deal.

 

It seems to be a different story for Crestar, which is led by James Bay Resources and has former Director of the Department of Petroleum Resources, Osten Olorunsola and some ex-Shell people on board, who won the bid for OML 25 after reportedly bidding $500 million. There are suggestions that even though Crestar may have found a willing financier for the closing cash, they have not yet been able to close the deal. It appears that there is a dispute of some sort within the consortium, which may have created an untidy situation, causing the transaction to stall.

 

Shell has so far raked in over $1.78 billion over the last few years as it continues on its mission to sell off its Nigerian onshore assets. The company plans to raise $15 billion from the sale of assets worldwide this year.

 

JV Partners Take FID For Development of Aje Field, Offshore Lagos

 

Joint venture partners in oil mining lease (OML) 113 have taken an important step towards turning Lagos State into an oil producing state. The partners have taken the Final Investment Decision (FID) to begin work on the first phase in the development of the Aje field, situated offshore Lagos.

 

The partners, which include Vitol, First Hydrocarbons Nigeria (a subsidiary of Afren), Energy Equity Resources, Panoro Energy and Jacka Resources, and the operator, Yinka Folawiyo are aiming for a target production of 10,000 barrels per day from two well in the field. First they will re-enter Aje-4 well and expect to commence production from that well, whilst drilling of Aje-5 continues. Activity has progressed rapidly with the establishment of the project team in Lagos, identification of a floating production, storage and offloading (FPSO) vessel - the Front Puffin in this case - a drilling rig, ordering of key long lead item equipment and tendering for installation services.

 

OML 113 contains the Aje field as well as a number of exploration prospects.  Aje field was discovered in 1997, in water depths ranging from 100-1500m. Unlike the majority of Nigerian fields, which are Tertiary sandstones, Aje has multiple oil, gas and gas condensate reservoirs in the Turonian, Cenomanian and Albian sandstones, and as such has more affinity with the recent Jubilee and Tweneboa discoveries offshore Ghana.  Four wells have been drilled to date on the Aje Field. Aje-1 and -2 tested oil and gas condensate at high rates. Aje-4, drilled in early 2008, logged significant pay and confirmed the presence of four productive reservoirs and the field has full 3D seismic coverage.

 

In Q1 2014 the partners acquired approximately 1000km2 of new 3D seismic data over the licence area. The seismic processing was co-ordinated by First Hydrocarbon Nigeria Ltd through their parent company Afren, in conjunction with their neighbouring OPL 310 data. They expect that the data will enable better development planning for the second phase of development drilling on Aje and provide improved data to fully evaluate the exploration potential over the whole of the OML 113 license, including the exciting synrift exploration play that was significantly de-risked through the Ogo discovery made in OPL 310 last year.

 

In March 2014 the government approved the Aje Field Development Plan (FDP) following which, work progressed towards a Final Investment Decision (FID) on the project. The FDP describes a development of the Aje Cenomanian oil reservoir via two subsea wells and a leased FPSO. The FDP mid-case reserves are 32.4MMbbls with production starting by the end of 2015 at a plateau of 8,000 bbls/day.

 

OPEC Daily Basket Price Stood at $81.67 a Barrel Thursday, 23 October 2014

 

The price of OPEC basket of twelve crudes stood at $81.67 a barrel on Thursday, compared with $81.94 the previous day, according to OPEC Secretariat calculations. After a brief recovery on 17October, prices are once again on a downward trajectory.

 

The new OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

 

Oriental Energy Refutes Afren Report of Loans and Unauthorised Payments

 

Oriental Energy has come out with guns blazing following London Stock Exchange listed Afren's revelations that the independent review by law firm, Willkie Farr & Gallagher (UK) LLP (WFG) of certain transactions undertaken by its former chief executive officer, concluded that two of the transactions were in fact loans. As such, Afren was in breach of listing rules as it should have disclosed the transactions under disclosure rules but instead hid them in its books as transactions in the ordinary course of business.

 

According to the WFG review, 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.   

 

In the first 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.  

 

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."  

 

Oriental launched a stringent rebuttal of the conclusions reached by WFR. Oriental denies that the forward sale of crude oil transaction of $100 million in July 2012 was a "loan" as characterised by WFG. Oriental explained that it had entered into a Forward Sale of Crude Oil Agreement with Afren in July 2012, something Oriental said, was a common practice among partners in the international upstream petroleum industry. The Forward Sale Agreement was an agreement for the prepayment of oil. Oriental agreed to sell approximately one million barrels of its future oil production to Afren thereby permitting Afren to book those reserves in 2012.  

 

The reason the $100 million payment to Oriental was included, in Afren's balance sheet for 31 December 2012 under the line "Prepayment and Advances to Partners" was because it was, Oriental explained, indeed a prepayment for Oriental's future oil production. Afren, as a result of the Agreement, properly deducted $100 million in oil equivalent barrels from Oriental's 2014 Profit Oil claims Oriental.

 

In the second transaction the WFG review reported that 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. With regards to the second payment, the review concluded that due to its size and incidence, it should have been declared.   

 

Oriental again denied that this was a loan, explaining that it was not in fact one, but two payments, one of $180 million and another of $120 million.  

 

Under the Joint Operating Agreement (JOA) executed by the parties, Oriental said it should have received its share of net Profit Oil from May 2013 but did not receive any such payments from Afren until August 2013 when it received the $180 million, half of which was payment in arrears of Oriental's Profit Oil and the other half of which was the prepayment of approximately four months of Oriental's Profit Oil through year end 2013. It is Oriental's position that this payment could not be characterised as a loan: to the extent that Oriental received prepayment for its oil, Oriental sold those barrels to Afren.  

 

A further $120 million payment was made to Oriental in November 2013. Oriental explained that this was in settlement of a longstanding dispute over the ownership of certain tax allowances resulting from capital expenditures on the project before and after production began in April 2011. The dispute was finally resolved in August 2013, although the $120 million was not paid until late November 2013.

 

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

 

With regards to these unauthorised payments Afren explained in a statement that 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, it said, had agreed to make the payments to Ntiti in return for the unreported $400 million funding from Afren provided by Shahenshah and Ullah. Ntiti, which was owned and/or controlled by the two executives, received $45 million, out of which $17.1 million was paid to both of them in the form of extraordinary bonuses.

 

Oriental on the other hand denied that there was anything wrong in the payments, explaining that in October 2013 it had entered into an agreement, the Oil Field Development Optimization Services Agreement, with Ntiti represented by senior executives of the Ebok Joint Operating Team (JOT).  Under the Agreement, Oriental agreed to pay up to 15% of its annual net Ebok Profit Oil proceeds to Ntiti for the purpose of providing incentive compensation and retention of key employees who had proven themselves to be essential members of the Ebok JOT, a group reporting to the Ebok Operating Committee and comprised of employees seconded by both Oriental and Afren, as provided by the JOA.  The Optimization Agreement provided financial compensation to select key employees of both companies upon attainment of annual performance goals set by the Ebok Operating Committee.

 

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.  

 

Oriental on the other hand had nothing but praise for "these outstanding men and women [who] have delivered enormous value to the Afren shareholders and it is more than tragic to witness the destruction of the lives and livelihoods of these dedicated Afren employees."

 

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.

 

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. 

Worthington Group to Invest in OPL 236

 

London Stock Exchange listed investment company, Worthington Group, has reached agreement to invest £12.5m in CPS Energy Resources (CPS), an oil and gas exploration company focused on Africa. The British investment company has just celebrated its 60th anniversary as a London Stock Exchange main market listed company this year. The company has four areas of investment focus: property, litigation claims, new economy and emerging markets. Worthington believes that exceptional shareholder returns can be achieved by utilising its main market Sterling paper to acquire investments in these sectors worldwide.

 

CPS is a UK company, which entered into an option agreement with Oando Exploration and Production Limited (OEPL) to jointly develop the contract area covered by oil prospecting licence (OPL) 236. Oando holds OPL 236 under a production sharing agreement with the Nigerian National Petroleum Corporation granted in 2008. Under the terms of the option agreement, CPS will provide US $30m of financing over 3 years for the first phase of the exploration programme. The Production Sharing Agreement lasts until 2028. The operator of the licence, OEPL is a subsidiary of Oando plc.

 

After commercial, technical, and legal due diligence, CPS exercised its option and when the deal is concluded, it will acquire an 80.75% participating interest in the Production Sharing Contract for OPL 236, subject to receipt of standard approvals including regulatory approvals.

 

Under the terms of the Worthington transaction, the LSE listed company will subscribe for £12.5m of new CPS ordinary shares at a price that equates to 27.5% of the agreed likely stock market value of CPS (i.e. a discount of 72.5%) when, as expected, it lists in 2015. Worthington is, inter alia, currently reviewing comparable listed companies in order to agree this discounted valuation prior to investing.

 

In order to help fund the deal, and pending the granting of shareholder approval at the Worthington's next General Meeting for the allotment and issue of new equity securities, existing loan note holders have agreed to exercise their conversion rights, and to place the shares resulting from the conversion with institutional and other investors. They have agreed to re-invest the proceeds in the Company by acquiring new loan notes with a conversion price of £1.95 per share.  

 

Following the conversion into 5,000,000 shares, as set out above, application to list the shares for trading will be made to the FCA. The total number of ordinary shares in issue will then be 19,498,783.

 

Commenting on the investment, Worthington CEO Doug Ware said, " Oil and gas is an attractive investment area for us. We are hopeful that this transaction and our new relationships in Africa will lead to further oil and gas opportunities in the region over the coming months. Nigeria has a thriving economy, and is now receiving international recognition as an economic powerhouse for the future. We are therefore very glad to have secured an opportunity to have a meaningful exposure in this important emerging market. We will announce more details in relation to this investment opportunity in due course" 

 

OPL 236, at over 1,600 sq km, is one of the largest concessions ever granted in Nigeria. The block is onshore within the oil rich Niger Delta, and is surrounded on each side by proven oil and gas fields, including the Shell Imo River fields which are Nigeria's largest onshore fields with oil production rates of approximately 25,000 barrels a day. 

 

To date, five survey wells have been drilled on the OPL, including one by Gulf Oil (Chevron). This well was appraised by Gulf Oil, using open hole wire line log testing, and the well was classed as a gas discovery before being plugged prior to Gulf's takeover by Chevron.

 

Gulf Oil believed the field discovery to be 204 billion cubic feet (BCF) of Gas Initially in Place (GIIP), based on their single well discovery. Significant upside may exist, both on the discovery, and on the remaining licence. The existing discovery requires further appraisal and more exploration of the licence is required in order to fulfil its potential. After all costs of extraction, and using industry standard methodology, the net value of the gas discovery alone is estimated to be in excess of US $240m. Gas price rises announced by the Federal Government in March 2014 would, when implemented, have a significant positive impact on the valuations.

 

In addition to these gas reserves, likely oil resources are estimated by Degeconek Ltd, consultants to the West African oil industry, to exceed 400m barrels. However, how much of this proves to be economically recoverable is dependent on further analysis. 

 

 

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