A Review of the Nigerian Energy Industry

Lekoil posts N6bn loss in two years

13 May 2015, Lagos – LEKOIL Limited, yesterday, announced a loss of $11.9 million, about N2.38 billion for its 2014 financial year. With this performance, Lekoil, an oil and gas exploration and development company with a focus on Nigeria and West Africa, has posted a total loss of $30 million (N6.01 billion) for two consecutive years, 2013 and 2014. In its 2013 financial year, the company posted a loss of $18.1 million, an equivalent of N3.62 billion.

US dollars moneyThe company, in a statement announcing its audited result for the year ended, December 31, 2014, however, failed to state the reasons for the loss. Directors of the company on the other hand, stated that the ability of Lekoil to continue to operate as a going concern is dependent on the continuing of exploration and evaluation activities on Oil Producing License, OPL 310. The directors also added that it is important that ongoing development activities on Otakikpo continued as planned and the availability of sufficient cash resources to fund ongoing operations.

In this regard, the company said, “Having evaluated these factors, the Directors believe the use of the going concern assumption to be the appropriate basis for the preparation of the 2014 financial statements, for the following reasons: “The Company and its partner on Otakikpo are working on an agreed plan to achieve first oil by mid-2015. On OPL 310 the parties are working on a 2015 provisional plan, which includes completion of interpretation of 3D seismic data and drilling of an appraisal well.

“The Directors are of the view that the current cash balance, together with the cash inflow from Otakikpo production, will be sufficient to fund the development and production activities on Otakikpo and the completion of the interpretation of the 3D seismic data on OPL 310.”

It further stated that economic evaluations, in respect of the Otakikpo estimated net 2P reserves and 2C contingent resources under the Phase I and II development of Otakikpo is a robust project with a NPV (10 per cent) of $77.2 million net to Lekoil. At a $40 oil price scenario on marginal field terms the NPV could rise to $85.2 million if provisional pioneer status is obtained.

Commenting on the company’s performance, Chairman, Lekoil, Mr. Samuel Adegboyega, said, “We are sincerely grateful for the support shown by our investors, the Nigerian government, the local communities we operate in, and our entire workforce who are allowing us to turn our vision into a reality.”

He stated that the company’s immediate priority, going forward, is to re-enter the Otakikpo 2 well to start followed by Otakikpo 3 well, and then grow initial production in order to generate the cash required to part fund the further development of the field and to fund ongoing activities on our portfolio.

Continuing, he said, “Given that Lekoil’s Nigerian subsidiaries are classed as indigenous companies in Nigeria, another of our shorter term objectives is to look to secure Ministerial Consent to the farm-ins, and pioneer tax status which, if granted, will have significant fiscal benefits for the Company as we grow production. “Longer term, we plan to acquire onshore 3D seismic over Otakikpo. We also plan to appraise the shallow water opportunities in the offshore part of field which is already covered by 3D seismic.

“The fall in oil prices from mid-2014 has resulted in us lowering our short to mid-term oil price assumptions in our development plans to levels at or below those prevailing today. For Otakikpo, our analysis reveals that the breakeven price for the project is below $30 per barrel in our base case. This breakeven number can be lowered further if we are successful in our application for Pioneer Tax Status for Otakikpo.”

Also commenting, the Chief Executive Officer, CEO, Mr. Lekan Akinyanmi, said, “Given the current low oil price environment and capital constraints for many smaller Exploration & Production companies, we expect to see many more opportunities over the course of the next 12 months. “However, our main focus during 2015 will be on enhancing shareholder value through the development and monetisation of Otakikpo together with the continued appraisal work to further de-risk the Ogo discovery.”

– Vanguard

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