Green Energy International Limited (GEIL) and LEKOIL, the companies comprising Otakikpo JV which operates the Otakikpo field off Nigeria, have executed definitive agreements with Schlumberger for the next phase of the field development offshore Nigeria.
The Otakikpo JV in July 2019, signed a memorandum of understanding with Schlumberger and a subsidiary of an unnamed Major Oil Company, for a comprehensive infrastructure sharing and drilling program around a group of marginal field assets in OML 11 block offshore Nigeria.
LEKOIL said that Monday that the JV has now has executed additional service agreements with Schlumberger which cover the comprehensive infrastructure upgrades and field management services in relation to the planned upstream drilling program.
The upstream drilling program consists of the phased drilling of up to seven new wells in Otakikpo with project capital expenditures ("capex") estimated at US$110.0 million, of which LEKOIL is expected to provide funding of US$44.0 million.
Drilling of the first two wells, estimated at US$25.0 million (US$10.0 million net to LEKOIL), is expected to increase gross production to approximately 10,000 bopd from the current gross rates of 5,755 bopd. Existing infrastructure at Otakikpo is capable of accomodating this 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, LEKOIL said.
LEKOIL expects to raise, according to its participating interest, its own portion 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. Funding for subsequent wells is expected to come from the cashflow generated by incremental production.
"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.
Further, LEKOIL 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.
Field management services deal with Schlumberger
The Otakikpo JV has also 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 also manages 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 ramping up production and long-term field management.
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 accordance with the FMSA, the Otakikpo JV has 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 CEO, commented, "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."