Lekoil's Reveals Resource to Reserve Conversion at Otakikpo

Nigeria and West Africa focused Lekoil has revealed details of the completion of an addendum to its Competent Persons Report (CPR) on the Otakikpo Marginal Field located on oil mining lease (OML) 11 offshore Nigeria, which it farmed into in May last year. The addendum was produced for the company, listed on the London Stock Exchange's Alternative Investment Market (AIM) by AGR TRACS International Ltd, the authors of the original CPR in September 2014. 

Highlights of the addendum include:

• Phase 1 gross 1P Proved Reserves of 8.43 mmbbls (net to Lekoil: 3.03 mmbbls)
• Phase 1 gross 2P Proved and Probable Reserves of 14.99 mmbbls (net to Lekoil: 5.40 mmbbls)
• Phase 2 gross 2C unrisked Contingent Resources of 41.61 mmbbls (net to Lekoil: 14.98 mmbbls)

Lekoil Nigeria holds a 40 per cent economic interest in Otakikpo, which is located within oil mining lease (OML) 11, offshore Nigeria, adjacent to the shoreline in the eastern part of the Niger Delta.  The Company holds 90 per cent of the economic interests in Lekoil Nigeria. Lekoil Limited's economic interest in Otakikpo therefore equates to 36 per cent.

The addendum also includes new economic evaluations, which indicate that the project, involving the recompletions of the 002 and 003 wells on Otakikpo remains viable in spite of current oil prices. In respect of Lekoil's 2P reserves and 2C contingent resources, the development of Otakikpo is a robust project with an NPV (10%) of $77.2 million under a $40 oil price scenario on Marginal Field Terms. The NPV increases to $85.2 million under Provisional Pioneer Status.   Under an $80 oil price scenario, the NPV goes up to $260.8 million (Marginal Field Terms) rising to $365.3 million (Provisional Pioneer Status). Pioneer Status is a special designation allowing a company, if successful if successful in its application, to take advantage of a tax holiday of up to seven years.

Back in December 2014, the company said that based on its own internal analysis and assumptions it would break even at an oil price of less than $30 per bbl (life of field basis) after finding that the indicative costs to first oil would be substantially lower than expected due to more favourable service costs in the tenders received. This analysis did not even include the impact of the Pioneer Tax status, which they have now applied for.

The Field Development Plan now consists of two phases. Phase 1 comprises the recompletions of the 002 and 003 wells with the installation of an Early Production Facility ("EPF") of 6,000 bbls/d capacity and export via shuttle tanker, expected to commence in the first half of 2015. Phase 2 covers the subsequent incremental development of the rest of the field with a new Central Processing Facility and seven new wells coming on stream from early 2017.

Contracting has already commenced for the rig, well services and production facilities construction. Rig mobilisation is initially expected within the first quarter of this year at the same time as construction and the subsequent commissioning of production facilities.

The approval of the Phase 1 recompletions, together with the commencement of the tendering and EPF site preparation, means that the anticipated production from the two wells can now be re-classified as "Reserves - Approved for Development" while the future production expected from the seven new wells in Phase 2, even though they remain as Contingent Resources but are now classified as being with an improved Chance of Commercial Success of 80 per cent due to the progress of Phase 1.

Lekoil paid a signature bonus of $7 million for its interest in Otakikpo in 2014, contingent on production and ministerial consent. A further sum of $4 million will be paid as a production bonus on commencement of production. Lekoil will fund costs to first oil and will be entitled to recover its expenditure preferentially from 88 per cent of production cash flow from Otakikpo.

Lekoil believes that additional prospectivity exists in the southern (shallow water) portion of the acreage, which it expects to be defined by further studies and appraisal in due course.

NDPR Continues Winning Streak With New Discovery on Ogbele

Niger Delta Petroleum Resources (NDPR) has continued its winning streak after hitting oil in its Ogbele 9 appraisal well located on oil mining lease (OML) 54. The company is now working towards completing Ogbele 9. Two more wells are planned, Ogbele 10 and 11, in its aggressive development plan. Only recently, the company announced it had discovered 387 feet net gas sand in Ogbele 8. They are hoping to boost their current Ogbele production of 3,500 barrels per day (bpd) to 10,000 bpd by the time the new and planned wells are complete. The new discoveries should enhance the company's valuation given that it is seeking to raise funds after managing to sweat the Ogbele marginal field to extract maximum value out of it.  

Last year, NDPR finally executed the long awaited Omerelu Farmout Agreement with the NNPC and Chevron Joint Venture. NDPR was granted a right of first refusal of the Omerelu Field located in OML 53 at the same time that it negotiated and executed the Ogbele Field Farm Out Agreement (FOA) in 2000. The right could be exercised only if, and when, the NNPC/Chevron JV declared Omerelu Field a marginal oil field. Six years ago, NDPR first exercised that right and after a protracted and painstaking period of negotiations between all parties including the Department of Petroleum Resources (DPR), Omerelu and is now an asset of the Company.

Dr. Layi Fatona, Managing Director of NDEP Plc, which wholly owns NDPR Ltd, said at the time: "An exciting time lies ahead. As we work towards First Oil, we will draw from the lessons learnt in our journey as pioneers of marginal field development in Nigeria; not least the co-option of host communities through the Host Community Development & Environment Trust and the importance of working in an environmentally friendly manner."

Last year, the parent company, NDEP revealed its plans to raise $450 million through a "public offer or special placement of shares." The company said it intended to use the funds to redevelop and ramp up production in Ogbele field and to develop its newly acquired Omerelu. It also said it would also use some of the funding raised to increase the capacity of their gas plant on Ogbele, refinance existing debt and look at new projects and acquisitions. The company, which says it has a pan African outlook, is said to be considering international acquisitions, particularly in South Sudan and Zambia. Their attempts to win Shell and other Chevron divestments have so far not been successful.

NDEP, which operates some assets through its subsidiary NDPR, is one of Nigeria's independent indigenous success stories. The company was formed by a number of seasoned oil and gas professionals and they executed the first farm out of a marginal field in Nigeria with the acquisition of Ogbele from Chevron, going on to achieve first oil on the field in 2005.

The Company's growing portfolio includes a 100 per cent interest in Ogbele marginal field; an 18.75% participating interest in the onshore producing OML 34 in 2012; a 100% participating interest in the onshore Omerelu Field located within OML 53 and currently under appraisal; and a 6% participating interest in OPL 227.

Other assets are a 25,000 barrels per day (Mbopd) flowstation; a 1,000 bpd mini refinery (Diesel Topping Plant), which is currently the only privately owned and licensed producing refinery in Nigeria; a 100 MMscf/d gas processing plant (Ogbele Gas Plant) and a 20 km 12" gas pipeline built to deliver 26 MMscf/d from Ogbele through the NLNG manifold at Rumuiji to the Bonny NLNG plant.

FBN Capital Plc and Chapel Hill Denham were appointed financial advisers for the fundraising, which was to be done on local and international markets.   Chief Executive Officer, Layi Fatona predicted that the first tranche of $200 million would be raised before the end of 2014. No update has been issued so far on the progress of the fundraising.

Trans-Forcados, Nembe Creek Pipelines Shut Due to Leaks

The Minister of Power, Professor Chinedu Nebo has revealed that the Trans-Forcados oil pipeline has been closed after being vandalized in the Oteghele area of Bayelsa State. The section of pipeline affected is operated by the Nigerian Petroleum Development Corporation (NPDC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC).  

Professor Nebo made the revelation in a press statement as he explained to electricity customers that the shut in was going to affect electricity supply because of disruption to gas supplies available for power generation. This is the third incident on the pipeline in 17 days, which sustained damage to the 24-inch and 28-inch sections early in January, taking around a week each time to repair. Traders are expecting the shut in to affect exports of the Forcados grade of crude oil.

At the same time, the troubled Nembe Creek Trunkline, recently bought by Aiteo Group and its partners as part of the Shell divestment from oil mining lease (OML) 29 has also come under attack. The 150,000 barrels per day vital people was closed to remove theft connections. The closure did not affect Bonny Light exports.

OPEC Daily Basket Price Stood at $43.05 a Barrel Thursday, 22 January 2015

The price of the Organisation of Oil Exporting Countries (OPEC) basket of twelve crudes stood at $43.05 a barrel on Thursday, compared with $43.25 the previous day, according to OPEC Secretariat calculations.

The death of King Abdullah bin Abdulaziz, who has been succeeded by his half-brother Prince Salman, is unlikely to reverse the slide of oil prices after the revelation that it is to be business as usual in terms of Saudi oil policy. Initially oil prices surged after speculation that there could be a change in policy. Brent crude jumped $1.18 to $49.70 a barrel, a 2.4% gain, while US benchmark for March delivery rose $1.02, or 2.2%, to $47.33 a barrel.

Critical to the situation is whether or not the oil minister, Ali Al-Naimi will be retained by Crown Prince Salman. Al-Naimi has been in charge of oil policy in the kingdom for almost 20 years and has recently been reported as saying that he would like to spend more time on his job as the chairman of the King Adbulaziz University of Science and Technology. It has now been revealed by Saudi state television that Al-Naimi is to be retained. This could mean that the policy of leaving production uncut will remain in place.

Saudi Arabia's intractable position on the issue of production cuts and its willingness to see oil prices crash to the current level has led some in the Nigerian oil industry to question Nigeria's continuing membership of OPEC. They argue that Saudi Arabia's influence in OPEC is wielded to serve only its interest and that of its Gulf allies, with an interest only in maintaining market share at the peril of other members who have a lower price sensitivity threshold. Industry watchers are predicting that the downward slide is likely to continue once it becomes clear what the new Saudi policy will be.  

Oil prices have tumbled to more than 50% less than they were in the summer at over $100 a barrel. The boom in shale oil production has made the US a major producer, leading to a glut in supply. Weak global demand is adding to the problems, as a result of which analysts are predicting that prices are likely to go sub-$40 before they start to rally. The new King now holds the key as the world watches with bated breadth to see if he will go against his predecessor's established policy and cut production.

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).

NERC Chairman Gives Clarifies on New Gas Price

There has been some confusion over the recent increase in the price of domestic gas from $1.5 per thousand cubic feet (mcf) to $2.5 per mcf. The confusion was created after the announcement failed to give clarity on whether the new price would apply to existing long term contracts. Now, the Chairman of the Nigerian Electricity Regulatory Commission (NERC) Dr. Sam Amadi has clarified the issue. He has revealed that the increased price would apply to both existing Gas Supply Agreements (GSAs) and future GSAs, irrespective of when the particular contract was signed. The new tariff has set transportation costs at $0.80/mcf.  

The government hopes that the new gas tariff, which took effect form the 1st of January 2015, will improve the supply of gas to power plants around the country and give the power sector the shot in the arm it needs.  

A corresponding increase in the tariff for electricity has been delayed till June 2015 to enable the effect of the increased electricity supply to be experienced by consumers, before they are hit by new tariffs.

Seplat Gets Extension to 30 January for Afren Takeover Offer

Seplat has received confirmation from the UK Takeover Panel that it now has until January 30th to either announce a firm intention to make an offer or announce that it does not intend to make an offer for Afren. Afren had previously issued a statement, followed by Seplat, saying that Afren had received a "highly preliminary approach from the Seplat Petroleum Development Company plc regarding a possible combination with Afren."

Seplat was initially given a January 19 deadline to make a firm offer but remained undecided. It requested an extension of time and now, in accordance with the rules of the UK City Code on Takeovers and Mergers (the "Code"), it now has until 5pm on the 30th of January to make a decision. The new deadline can still be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code. Both Afren and Seplat have stressed that there is no certainty that offer will be made or the terms of any offer.  

Beleaguered and scandal hit Afren has seen its share price drop a spectacular 84 per cent last year after sacking its chief executive officer and chief financial officer for unauthorized receipts. The two have since repaid $20 million to the company. Again, early this year, Afren revealed that it had to downgrade its reserves in Kurdistan after its annual reserves review showed a material reduction in previously published estimates of reserves and resources. The updated Competent Person's Report (CPR) essentially eliminated gross 2P reserves of 190 mmbbls and revised gross 2C resources from 1,243 mmbbls to around 250 mmbbls. With all these problems, it was only a matter of time before Afren became the target of a takeover attempt.

Not willing to stand around while Seplat makes up its mind, Afren has begun a financial restructuring and is rumored to have drafted in Morgan Stanley to assist it. The company would not confirm the appointment of the investment bank, but did admit that it was reviewing its capital structure, liquidity and funding requirements with its advisors. As part of that process, the company says, it is in discussions with its lenders regarding amendments to its existing facilities, in addition to seeking a deferral of a $50m amortisation payment that is due at the end of January 2015. It says it is also reviewing its cost base and capital expenditure plans for 2015.

Seplat has itself been on the hunt for new assets following its successful simultaneous listing on the main board of the Nigerian Stock Exchange and the London Stock Exchange. It raised $500 million and began to look around at prospective assets. So far, it has not made any acquisition but has recently doubled its war chest after securing $1 billion debt re-financing from Nigerian and international banks. The company does not however intend to go crazy and have been commended in the past for their financial discipline. They say that if they were to make an offer for Afren, it would have to be a very realistic offer for the company, which is now said to be worth just over $300 million. Other prospective bidders are said to be standing in the sidelines.

CAMAC and Northern Offshore in $50 Million Dispute over Drillship Contract

A major contractual dispute is brewing after Northern Offshore, a Bermuda holding company, which operates offshore oil and gas drilling units issued the Nigerian based subsidiary of Houston based CAMAC Energy with a Notice of Contract Termination. The notice was issued to Oceanic Consultants Nigeria Ltd. (Oceanic), an affiliate of CAMAC, which contracted the Energy Searcher from Northern Offshore to work on the plugging and abandonment operations on the Oyo-5 and Oyo-6 wells.

Northern Offshore claims that Oceanic breached various terms of the drilling contract for the drill ship Energy Searcher. They say they will be filing a claim against CAMAC, which guaranteed Oceanic's obligations under the drilling contract, for $50 million. The matter will be dealt with in arbitration pursuant to the arbitration provisions of the contract. Northern Offshore says it hopes to have the rig demobilized out of Nigeria by late January.

Meanwhile, CAMAC has said that it is the one that has terminated the contract with Northern due to a repudiatory breach of contract and other material breaches by Northern. They claim that the breaches have apparently caused significant damage and loss to the company. CAMAC says it is considering all legal options.

Oyo field is located on CAMAC's principal assets, oil mining leases (OMLs) 120 and 121 in deep water, offshore Nigeria. Oyo was the first deep water discovery in Nigeria and has been in production since December 2009. Drilling operations at the Oyo-7 well commenced in September 2013 using Transocean's Sedneth 701 drilling rig. At the end of last year, they contracted Transocean's Sedco Express ultra deepwater semi-submersible rig, which arrived on location in December to expedite the timing of production tie-in from the Oyo-7 and Oyo-8 development wells. 

The Sedco Express is under contract for up to three wells and the Company intends to use the rig to complete the Oyo-7 and Oyo-8 wells as well as another exploration well. CAMAC has an option to extend the contract.

The Nigerian National Petroleum Corporation invites interested and registered Nigerian companies to respond to the opportunity for the provision of telecommunications services via a submarine cable along the Nigerian coast from Lekki in Lagos State to Qua Iboe Oil Terminal in Akwa Ibom. The scope of services covers the provision of leased submarine fiber optic circuits from Lekki in Lagos State to Qua Iboe oil terminal in Akwa Ibom State with high capacity bandwidth (minimum of STM-2) capable of transmitting multi customer (different oil companies) bandwidth-intensive data, voice and video traffic. Only tenderers who are registered in the NipeX NJQS products/services 3.11.20 (telecommunication installation/support services) and 3.01.12 (telecommunications services) shall be invited to submit technical bids. The closing date for this opportunity is 30th January, 2015.

Total - Provision of Chemical Delivery Services

Total E&P Nigeria Limited invites interested and registered Nigerian companies to respond to the opportunity for the provision of chemical delivery services for its offshore Egina& Akpo FPSOs operations. The scope of services covers the provision of production chemical delivery services, procurement, supply and delivery services, provision of subsea production chemicals (demulsifier, demulsifier and naphtenates dispersants blend, scale inhibitor, corrosion inhibitor blends, biocides, subsea solvents, wax inhibitor, hydraulic fluid. Only tenderers who are registered in the relevant Product/service Category shall be invited to submit technical bids. The closing date for this opportunity is 28 January 2015.

Agip - Provision of Civil Works and Maintenance Services

Nigerian Agip Oil Company invites interested and registered Nigerian companies to respond to the opportunity for the provision of civil works and maintenance services. The scope of services covers the provision of soil investigations, foundation piling and earthworks. Only tenderers who are registered in the NJQS product/category civil works/ building contracting services shall be invited to submit technical bids. The closing date for this opportunity is 11 February 2015.