San Leon Energy has confirmed entering a deal with Decklar Petroleum to finance the development of the Oza marginal field, in Nigeria.
The company believe Oza holds around 20 million barrels daily production.
The deal has similarities with San Leon’s involvement in OML 18.
The company will provide a loan of $7.5 million, with an interest rate of 10 per cent, per year.
Decklar, which has a risk service agreement (RSA) with Millenium Oil and Gas, will pay San Leon all available funds in order to meet payments under the loan.
San Leon will also take a 15 per cent stake in Decklar and nominate a director to the board.
“It’s our usual low-risk strategy with payback [of the loan] no matter what,” San Leon’s Chief Executive Officer, CEO Oisin Fanning said.
Decklar will use the cash to re-enter the original discovery well on the field, Oza-1, and then skid the rig to a new drilling slot.
A new development well will be drilled horizontally into a third zone tested by Oza-1. First oil should be produced within three months, Fanning said, noting the attractive tax treatment of marginal fields.
These first two wells should produce “significant production” and generate cash in a short period. Next, two more re-entries will be drilled with additional development drilling of eight to 10 wells.
San Leon believes new wells could be more productive than the first crop of wells, drilled by Shell Petroleum Development Co. (SPDC) between 1959 and 1974. New wells could flow at 3,000-5,000 barrels per day, Fanning said.
“It’ll be fairly rapid to get those eight to 10 wells. If the first well comes in, it proves what we think, so we would see them drilled month by month. Each well may take 40 days. Drilling onshore is so much easier than compared to working in the swamp around OML 18. On Oza wells will be cheaper and quicker.”
Another difference between Oza and OML 18 is pipeline security.
The latter has had repeated issues with bunkering to the point that partners on the block have constructed an alternative export link. The pipeline from Oza to the Trans Niger Pipeline (TNP) is “very simple and there’s been very little trouble”, Fanning said. Oil is exported via the Bonny Terminal, with Shell as the offtaker.
San Leon also has an option to provide Decklar with further financial support. This must be exercised within 45 days from the delivery of the well test results of the first development well.
“We are excited about the Oza oil field near-term production potential and believe that this represents a fundamental turning point”, Decklar’s CEO Duncan Blount said. Decklar is a subsidiary of TSX Venture Exchange-listed Asian Mineral Resources.