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LekOil to acquire near-term production assets in Nigeria

Published: 17:31 20 May 2014 AEST

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A 90% owned Nigerian subsidiary of LekOil (LON:LEK) has struck a deal to acquire a 40% stake in oil assets in the Niger Delta, which could be in production within 12 to 18 months.

To acquire the stake in the Otakikpo marginal field LekOil Nigeria will pay US$11mln in cash and will commit to spending US$67mln on field development.

Otakikpo is located near existing infrastructure and it is estimated to contain 36mln barrels of 2P (proved + probable) oil reserves and 12bn cubic feet of gas.

Three wells have been drilled on the property, all of which encountered hydrocarbons in multiple intervals. The programme LekOil Nigeria is committing to will see those three wells re-entered and brought into production.

“Acquiring this interest in Otakikpo is a very attractive proposition, economically and operationally for Lekoil,” said chief executive Lekan Akinyanmi.

“It brings access to near term production - in line with our growth strategy, cash flow to fund activity on our other assets and upside potential to be proved up from 3D seismic and appraisal drilling.”

LekOil is now conducting a share placing, of 33mln new shares, to help fund to acquisition and the proposed work programme. The placing is being arranged by Mirabaud Securities, UBS and Ladenburg Thalmann & Co. It is not being underwritten.

Some of the proceeds will be used to fund around 20% of the proposed work programme, while reserves based lending is expected to cover the bulk of the costs.

In acquiring the stake, an initial US$7mln is to be paid as a ‘signature bonus’ whilst a further US$4mln will be paid once production begins.

Also, once production begins, LekOil’s will have a larger share of the generated cash flows (88%) until its expenditure on the initial programme is recouped.

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