15 February 2017, Sweetcrude, Lagos — I read with concern an article titled; Optimum unhappy over Lekoil – Afren Deal on OPL 310 with a spiteful rider; claiming it didn’t give a go-ahead to the sale of Afren shares on the promising block near the Aje field, the operator is fighting back.This was published by Africa Energy Intelligence on the 31st of January, 2017.
As an industry player with a special interest in indigenous operators and profound knowledge of this Exploration and Production Sector transactions, one owes a social and professional duty to correct some inaccuracies in the article. Some of the issues raised are not only inaccurate, erroneous and misleading; but mischievous and fictional.
The referenced article alleged that Optimum Petroleum, the operator of OPL310 refused to endorse the sale of Afren’s 23% stake on the acreage to Lekoil as it was not informed about the terms of the sale. The article further alleged that two leading officials in charge of Nigeria’s oil industry have each supported side in the issue.
The author inferred that while Mordecai Danteni Baba Ladan, Director of the Department of Petroleum Resources (DPR) backs Optimum, Chairman of NNPC and Minister of State, Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, endorsed the acquisition of Afren’s 23% stake by Lekoil.
Current state of affairs of the deal
The information gathered revealed that LEKOIL through its subsidiary, Mayfair Assets and Trust (Mayfair), acquired a participating interest of 17.14% in OPL310 from Afren Investments Oil and Gas (AIOGNL), a subsidiary of Afren, consented to by Optimum Petroleum as required under the Joint Operating Agreement (JOA) re: transfer of ownership interest in the OPL. Optimum provided its written consent to this in a timely manner.Prior to this, Afren held a 40% participating interest in OPL 310.
As consideration for the 17.14% interest transfer, LEKOIL funded the first $50M towards drilling an exploration well and sidetrack that resulted in the significant “Ogo” discovery – one of the largest in the world.LEKOIL has spent over $120M to date on OPL 310.Ministerial Consent was applied for the 17.14% interest in 2013; the Department of Petroleum Resources completed the customary due diligence process in April 2014.
In December 2015, LEKOIL acquired the shares of Afren Investments Oil and Gas Nigeria Limited (AIOGNL) which holds a 22.86% Participating Interest in OPL 310 (post the transfer to Mayfair). It is important to note that Operator consent was not required for this transaction because it was a purchase by LEKOIL of the company, AIOGNL.
On March 9, 2016, DPR began the due process of considering the application for Ministerial consent for the 22.86% Participating Interest. As part of this process, a due diligence exercise on LEKOIL by the DPR is yet to be scheduled. LEKOIL has continued technical work and secured partnerships to develop assets and shared same with Optimum. LEKOIL has continued to engage with Optimum and has held 3 technical workshops in 2016 as well as executed a non-binding term sheet to revise some terms in favour of Optimum.
Application for Ministerial Consent has since been submitted to the Department of Petroleum Resources. Sources close to the transaction revealed thatDPR has begun the due process of considering the application for Ministerial consent for the 22.86% participating interest.
Looking beyond the deal
Optimum and Lekoil are both indigenous oil and gas exploration and production companies both participating inOPL 310; a Dahomey basin block adjacent to the Lagos shoreline, exploring well and sidetrack that resulted in the significant “Ogo” discovery – one of the largest in the world in 2013 according to Wood Mackenzie.Post discovery, gross recoverable resources attributable from the Ogo field only are estimated to be 774 mmboe (P50).
With significantly large gas resources OPL 310 is arguably one of the most important discoveries in Nigeria and could be a key component in addressing Nigeria’s long-term power need. The Ogo discovery expands the oil producing potential of the country.
According to official data, independents now control over 30 percent of the upstream sector. Focus should now be to account for at least 50 percent of oil production from the current 30 percent. There were several underdeveloped discoveries onshore Nigeria and if harnessed will significantly boost production of crude oil for the country.
More opportunities have opened in recent years as the playing field has become more level and indigenous companies like Optimum and Lekoil are striving to ensure that they make their marking the upstream sector of the oil industry and to fill the gap left by international companies.
Nigerians are encouraged by the growth in indigenous participation in the oil industry and celebrate success stories like Optimum and Lekoil.
Where indigenous companies deliver value, they should be cheered and reinforced to grow local technical capital and make sustainable investments with long – term potential for economic growth.
The government as represented by the industry regulator – the Department of Petroleum Resources (DPR) has to be decisive and take decisions based on the facts of the case in a timely manner. The overall impact of a delayed resolution cannot be over- emphasised.
The earlier the work programme is finalised, the better for Nigeria. Additional crude production in these times can only have a positive effect on the economy.
It will also encourage other indigenous independents to seek opportunities and partnerships that benefit all.
*Ibrahim Ahmed, Oil & gas commercial Analyst