Lekoil Downgraded By BMO Capital Markets

Yemisi Izuora 

Lekoil was downgraded by equities researchers at BMO Capital Markets from an “outperform” rating to a “market perform” rating in a report issued on Wednesday, The Fly reports.

Lekoil Limited explores for, develops, and produces petroleum oil and natural gas in Nigeria, Namibia, Cayman, and internationally. The company owns a 40 per cent interest in the Otakikpo marginal field located in the south-eastern part of the Niger Delta; and a 40 per cent interest in the OPL 310 block located in the Upper Cretaceous fairway that runs along the West African Transform Margin.

Only on Tuesday, Lekoil Ltd, said it has withdrawn legal action against Ministry of Petroleum Resources, after the rejection of its application for the extension of the offshore OPL 310 licence, which expired in February.

A letter from the ministry on Tuesday said that ownership of the OPL 310 licence has reverted to the government. Also, the re-award will not be considered, until the lawsuit filed by Lekoil against the ministry has been withdrawn.

But in a rare diplomatic move, Lekoil decided to withdraw its legal action against government saying it will continue engagement with the regulator and the operator of OPL 310 to conclude all agreements and outstanding issues.

Oriental News Nigeria, reports that in March, a high court ruled that Lekoil still required the consent of the Ministry to acquire a 23 per cent interest in the block.

Lekoil had first applied for consent to acquire a participating interest in the block in 2016 but it has not been granted. In 2017, the acting president of Nigeria issued an executive order concerning the acquisition, but the court ruled that the order “could not supersede the powers of the minister to grant such consent”.

In 2013, the company invested $50M in drilling an appraisal well and sidetrack targeting Eko, Agege and the Syn-rift prospects. The result was a significant discovery in the Ogo prospect.

Based on data from the vertical and side track wells, revised estimates for the P50 gross recoverable resources attributable to LEKOIL from the Ogo field were identified as being 232 mmboe (P50) from gross recoverable resources of 774 million barrels of oil equivalent, mmboe. This far exceeds the expected pre-drill estimate of 202 mmboe.

Additionally, Syn-rift leads identified within OPL 310 are expected to contain light oil or condensate-rich gas, and further shallow water leads are being explored. Seismic processing and interpretation is now complete, to be followed by an appraisal well.

In December 2015 Lekoil agrees to acquire Afren’s 22.86 per cent participating interest (40 per cent economic interest) in OPL 310, increasing LEKOIL’s consolidated participating interest from 17.14 per cent to 40 per cent, subject to Ministerial Consent, and will become the technical and financial partner. Optimum Petroleum Development Company, the operator and local partner in OPL 310, retains a 60 per cent participating interest.

The OPL 310 Acquisition allows the OPL 310 partners to progress with exploration activities and field appraisal planning, following a delay caused by Afren’s insolvency and administration processes.

In March this year, however, a Federal High Court in Lagos, and presided by Justice Sule Hassan ruled that Lekoil’s acquisition of an interest in the OPL 310 block still requires consent from the Minister of Petroleum Resources.

Justice Hassan stated that the Executive Order issued by the Nigerian Acting President, Prof. Yemi Osinbajo in 2017, which should have deemed the Consent to have been granted, could not supersede the powers of the Minister of Petroleum Resources to grant such Consent. 

More specifically, the Judge disagreed that the Consent could be deemed granted and obtained in default which Lekoil believes is contrary to the provisions of the Executive Order. The Judge further noted that the Executive Order was signed in 2017, while Lekoil’s application for the Consent to acquire the 22.86 per cent participating interest in the block was made in 2016 and so could not be applied retroactively.

Justice Hassan further ruled that the Sale and Purchase Agreement executed by and amongst Lekoil 310 Limited, Afren Nigeria Holdings and the administrators for the purchase of AIOGL was inchoate based on the fact that Consent is pending.

Based on the judgement, the OPL 310 interest is still held by the seller, Afren Investments Oil and Gas Nigeria Ltd. 

Lekoil still holds a 17.14 per cent participating interest in the block, however, which received ministerial consent back in 2017.

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