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Lekoil and Green Energy Sign Otakikpo JV Agreements with Schlumberger

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Africa-focused Oil and gas exploration and production company Lekoil said its Otakikpo joint venture with Green Energy International Limited (GEIL) has executed definitive agreements with industry giant Schlumberger for the next phase of the Otakikpo marginal field development.

The Otakikpo joint venture is made up of Green Energy International, the operator of the Otakikpo marginal field, and the technical partner, Lekoil Oil and Gas Investments (LOGL), in which the company had a 90% economic interest.

The two joint venture companies signed a memorandum of understanding with Schlumberger and a subsidiary of a major oil company, for a comprehensive infrastructure sharing and drilling program targeted at marginal field assets in Oil Mining Lease (OML) 11.

The companies have also executed additional service agreements with Schlumberger which cover comprehensive infrastructure upgrades and field management services in relation to the planned upstream drilling program.

The upstream drilling programme will include phased drilling of up to seven new wells in Otakikpo with project capital expenditures estimated at US$110.0m, of which LOGL will provide funding of up to US$44m of the estimated total cost of US$110m.

Lekoil expects to raise its own part of the required funding for the first two wells from a combination of offtake financing from a subsidiary of a major international oil company and cash flow from existing production. The funding for subsequent wells is expected to come from the cashflow generated by incremental production.

The drilling of the first two wells, estimated at US$25.0m – US$10m net to LOGL, is expected to increase gross production to approximately 10,000 bopd from the current gross rates of 5,755 bopd with existing infrastructure at Otakikpo expected to accommodate incremental production.

As a result of the lower oil price environment and a change of project scope by the Otakikpo JV and other project stakeholders, these project capex estimates are a reduction of approximately 35% on previous estimates of US$170.0 million (US$68.0 million net to LEKOIL) as announced on 1 July 2019. Rig mobilization is expected to occur as soon as the partners of the Joint Venture have both raised funding for the first two wells, according to their respective participating interest. A further announcement on the financing and timelines for the upstream drilling project will be made in due course,” Lekoil said.

Lekoil also said the Otakikpo JV has entered into an infrastructure sharing and utilization agreement in respect of the production from the Otakikpo marginal field with Integrated Hydrocarbon Infrastructure Limited (“IHIL”), a special purpose company incorporated and owned by GEIL to build, own, operate and maintain the shared infrastructure facilities, (the “ISUA”).

Under the ISUA agreement, IHIL will assume the role of facility operator (from its parent, GEIL) and will build, own, operate and maintain certain flow stations, pipeline facilities and terminal facilities to be used for the evacuation of crude oil produced from the Otakikpo marginal field.

These facilities will be built outside the Otakikpo area with a view to handle Otakikpo and other fields within OML 11. IHIL will provide certain services to the Otakikpo JV such as measurement, sampling, treatment, transportation and storage of crude produced from the Otakikpo marginal field and injected into the facilities. Lekoil will pay IHIL a fixed tariff for the use of the facilities.

There are conditions to the ISUA becoming fully effective, including IHIL securing debt financing to develop the infrastructure facilities. Once fully effective, the ISUA will remain in place for an initial period of five years.

The Otakikpo JV has entered into a field management services agreement with Schlumberger in respect of the overall exploration, appraisal, evaluation, exploitation, development, production and associated activities of the Otakikpo marginal field (the “FMSA”). The FMSA will govern the relationship between the parties in relation to certain services including the operation, management and, where applicable, decommissioning, of the fields and infrastructure.

In accordance with the FMSA, GEIL, LEKOIL, and Schlumberger will form a multidisciplinary project management team in which Schlumberger will act as project execution manager to provide oilfield services and project management services to assist in long-term field managing and growing production output.

The Otakikpo JV will pay Schlumberger fees comprising of the cost related to the secondment of Schlumberger personnel to the Joint Project Management Team (“JPMT”), other specified costs and expenses incurred by Schlumberger, and a project implementation fee, for the duration of the agreement, in an amount consistent with a market margin on gross incremental production for the provision of the services to be provided by Schlumberger.

In compliance with the FMSA, the Otakikpo JV companies have also entered into an agreement with Schlumberger for the secondment of certain Schlumberger personnel to form part of the JPMT for the development of the Otakikpo marginal field and the implementation of the planned drilling program.

Lekan Akinyanmi, Lekoil’s chief executive said: “We continue to make progress towards our ambitions to drill additional wells and unlock further value for all stakeholders from Otakikpo. We are pleased to be working with Schlumberger, a world-class project execution service provider, and we are committed to advancing this exciting and transformative project that is aimed at increasing the value and cash generation abilities of the field.”

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