December 17, 2017

LEKOIL – Acquisition of Interest in OPL 325, Offshore Nigeria

LEKOIL Social Media Images-07

Proposed Placing of New Ordinary Shares to raise up to US$40 million (approximately £26 million)

Lekoil (AIM: LEK), the oil and gas exploration and production company with a focus on Nigeria and West Africa, is pleased to announce the acquisition of an indirect controlling interest in OPL 325, (located to the south of OPL 310 in the Dahomey Basin) offshore Nigeria, for an initial consideration of US$16.08 million, with other payments due at developmental milestones totalling US$24.12 million (the “OPL 325 Acquisition”).  Lekoil considers that the OPL 325 Acquisition is consistent with its continuing strategy to assemble a balanced portfolio of oil and gas interests, including near term production (Otakikpo), appraisal (OPL 310) and high impact exploration assets in known basin (OPL 325).

The OPL 325 Acquisition will be financed out of a combination of the Company’s existing financial resources and a placing of new ordinary shares in the Company to raise up to US$40 million before expenses which will be launched immediately following publication of this announcement (the “Placing”). The proceeds of the Placing will also be applied to other corporate uses, as described below.

Highlights

OPL 325 Acquisition

  • Lekoil Exploration and Production Nigeria Limited (“LEPNL”) has acquired 88.57 per cent. of Ashbert Oil and Gas Limited (“Ashbert”), the operator of OPL 325, therefore receiving an entitlement to 62 per cent. of the equity of OPL 325
  • US$ 16.08 million signature bonus (the “Signature Bonus”)  paid to the Nigerian Department of Petroleum Resources (“DPR”)
    • Further amounts totalling US$24.12 million will be payable in instalments of $12.06 million each upon OML conversion (after discovery)  and on commencement of production
  • Exploration licence located to the south of  OPL 310, within the offshore  Dahomey basin wrench zone that straddles the western Niger Delta
  • OPL 325 was identified by the Company’s proprietary Dahomey Basin study, which had earlier highlighted OPL 310
  • The Company has completed preliminary interpretation of existing 3D seismic on the licence.
  • Estimated in October 2015 (by Lumina Geophysical) “Lumina” to contain STOIIP of 5.7 billion barrels (P50) in several large prospects with associated channel complexes.

Placing

Placing to raise up to US$40 million (approximately £26 million) as part of Lekoil’s overall funding strategy, discussions with commercial and financial institutions and debt providers progressing.

 

Corporate Update

OPL 310 Discussions

  • Advanced discussions continue with the administrator of Afren for the potential acquisition of its subsidiary which holds a 22.86 per cent. participating interest  and 40 per cent. economic interest in OPL 310 – if successfully concluded, the consideration will be met from existing financial resources and from the proceeds of the Placing

Otakikpo

  • First oil from Otakikpo-002 well flowed on 5 September 2015 and produced at a peak rate of 5,703 bopd for a period of 24 hours, significantly ahead of expectations.

 

Commenting, Lekan Akinyanmi, Lekoil’s CEO, said:

“The acquisition of an interest in OPL 325, nearby and on trend to our existing interest in OPL 310, represents an excellent low cost opportunity to extend our footprint in the overlooked but prospective Dahomey Basin in Nigeria.  It is precisely in line with our stated strategy to create a balanced portfolio of assets. With the completion of these acquisitions Lekoil will have acquired a substantial resource base in the Dahomey Basin. Our focus will now shift to de-risking these assets and crystallizing value for our investors. We consider the acquisition price to be very attractive and look forward working with our partners to unlock the significant value in this asset.”

 

The OPL 325 Acquisition

Lekoil has entered into an agreement to acquire, via Lekoil Exploration and Production Nigeria limited (“LEPNL”), 88.57 per cent. of the issued share capital of Ashbert Limited, which is the operator of, and holds a 70 per cent. cumulative working interest in, the Production Sharing Contract of the OPL 325 licence  (the PSC)  (the “OPL 325 Acquisition Agreement”).  Other OPL 325 licence partners are National Petroleum Development Company Ltd (“NPDC”) (20 per cent. working interest) and Local Content Vehicle (10 per cent. net working interest).

The OPL 325 licence area, located in the offshore Dahomey Basin within the wrench zone that straddles the western Niger Delta, is a promising exploration licence located 50km to the south of OPL 310.  Lekoil has had access to 3D seismic data over 740km2 and is encouraged by the results and its interpretation of the analysis.  Preliminary review of the prospects, based on an independent study by Lumina, prepared for Lekoil, suggests oil in place volumes of up to 5.7 billion barrels with an estimated 2 billion barrels recoverable based on analogues.  The Company has commenced detailed processing of existing 3D seismic data.

In connection with the agreement, Lekoil has entered into a Loan Agreement with Ashbert pursuant to which it has agreed to lend Ashbert an aggregate amount of US$40.2 to enable Ashbert to pay a US$16.08 million signature bonus to the DPR and further amounts totaling US$ 24.12 million which will be payable in equal instalments upon: the conversion of the OPL to an OML and upon first commercial production.

In addition to the consideration described above, Lekoil will pay Ashbert Shareholders the following amounts:

  •  A nominal amount for the 88.57 per cent. stake acquired in Ashbert;
  • US$0.5 million per year until the earliest of the date of first commercial production and the fifth anniversary of the date of the acquisition;
  • $0.24 million on DPR’s confirmation of payment of the first signature bonus
  • US$0.95 million in total upon the signing of a Joint Operating Agreement and a Production Sharing Agreement in relation to OPL 325 as reimbursement of back-costs;

Lekoil is expected to retain control of operatorship on execution of definitive agreements and will lead the negotiation of the Production Sharing Contract terms.  In the short to medium term the Company expects to undertake the interpretation of exploration data, and subsequently leverage key strategic partnerships to develop the asset.

 

Corporate Update

 Update on OPL 310 discussions

Lekoil continues to be in advanced discussions with the administrator of Afren regarding the potential acquisition of its subsidiary which holds a 22.86 per cent. participating interest and 40 per cent. economic interest in OPL 310 (the “Proposed Acquisition”).  Should the Proposed Acquisition be successfully concluded, the Company intends to meet the considerations from its existing financial resources and from the proceeds of the Placing.

Otakikpo Marginal Field development

On 17 May 2014 Lekoil acquired a 40 per cent. economic interest in Otakikpo from Green Energy International Limited,, becoming the project’s technical and financial partner. Since the acquisition Lekoil has undertaken a comprehensive review of surface and subsurface data progressed with development Phase 1. Phase 1 comprises the recompletions of the Otakikpo-002 and Otakikpo-003 wells with the installation of an Early Production Facility of 12,000 bopd capacity and export via shuttle tanker. First oil from Otakikpo-002 well flowed to surface on 5 September 2015, and over 24 hours produced at a peak rate of 5,703 bopd, significantly ahead of expectations.

Otakikpo-002 has been temporarily suspended to allow completion and testing of the upper C6 zone following which an official well-test programme will commence. The Company expects to finalise the evacuation infrastructure during the official well test period and determine the optimal production rate that maximises value from the well. The Company is also in advanced stages of talks regarding debt financing required for the development of this asset.

Use of Proceeds from the Placing

As previously announced, at 31 August 2015 Lekoil had cash balances totalling approximately US$32.4 million.  The gross proceeds of the Placing are expected to be US$40 million (approximately £26 million).  The Company has also been progressing discussions with offtakers and debt providers for additional funding and it has recently received a number of term sheets which it is currently reviewing before concluding on the optimal route forward.

The Company has a number of near-term opportunities, summarised below, which the net proceeds of the placing, and funds outlined above, will enable it to progress.

A summary of the proposed use of funds is outlined below:

Proposed use of funds US$ million
OPL 325 Acquisition

16

General corporate and W/C purposes

24

Total uses

40

 

Details of the Placing

The Placing is subject to the terms and conditions set out in the Appendix (which forms part of this announcement, such announcement and Appendix together being the “Announcement”).  The bookbuilding process will commence with immediate effect.  The timing of the closing of the book, pricing and allocations are at the discretion of Mirabaud and BMO Capital Markets as brokers and the Company.  Details on the number of Placing Shares offered and the price at which they are offered will be determined following the completion of the bookbuilding process.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares of the Company, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the Placing Shares.

It is intended that the Placing will be conducted in two stages, with 37,000,000 First Placing Shares being placed using the Directors’ existing authority to allot shares for cash on a non pre-emptive basis, as granted at Lekoil’s most recent AGM, and the Second Placing Shares being placed conditionally upon, inter alia, the passing of the Resolutions at the Extraordinary General Meeting to be held on 16 November 2015. Application will be made for the First Placing Shares and the Second Placing Shares to be admitted to trading on AIM and it is currently expected that trading in the First Placing Shares and, subject to the passing of the Resolutions, the Second Placing Shares, will commence on 2 November 2015 and 18 November 2015 respectively.

Your attention is drawn to the detailed terms and conditions of the Placing described in the Appendix to this Announcement (and which forms part of this Announcement).


For further information, please visit www.lekoil.com or contact:

Lekoil Limited

Hamilton Esi, Corporate Communications

 

+44 20 7920 3150

 

Strand Hanson Limited  (Financial & Nominated Adviser)

James Harris / James Spinney / Ritchie Balmer

 

+44 20 7409 3494
Mirabaud Securities LLP (Joint Corporate Broker)

Peter Krens / Edward Haig-Thomas

 

+44 20 7878 3362

+44 20 7878 3447

BMO Capital Markets Limited (Joint Corporate Broker)

Rupert Newall / Neil Haycock / Thomas Rider

 

+44 20 7236 1010
Ladenburg Thalmann & Co. Inc. (US Placing Agent)

Jim Hansen / Barry Steiner

 

+1 713 353 8914

+1 305 572 4200

Rand Merchant Bank

Liz Williamson

 

+44 78 8546 6505
Tavistock (Financial PR)

Simon Hudson / Ed Portman

Merlin Marr-Johnson (in Cape Town)

+44 20 7920 3150

+44 7803 712280

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