Reminder of Old News Clips5 Sep 2019 23:10
Africa-focused oil and gas company Lekoil Ltd (LON:LEK) shares are worth twice as much as what they are currently selling for, according to French broker Mirabaud.
The AIM-quoted firm has a handful of assets in Africa, but the main two are the Otakikpo oil field and OPL310, both of which are in Nigeria.
Otakikpo has been producing continuously for just over a year now and the two wells at the project were averaging 7,600 barrels of oil per day (bopd) at the field at the turn of the year.
That has since fallen back slightly from those peaks, but Lekoil has plans to up production to 20,000 bopd by 2020 and is in the process of securing additional funding from industry sources to finance this second phase of development.
“The phase II target of 20,000 bopd will require only modest facilities upgrades (expected to cost in the region of US$15mln, gross, on our numbers), but will likely need 3-5 production wells (at c.US$18mln each), with all-in costs expected in the range of c.US$80-100mln,” wrote Mirabaud analyst James Midgley.
To figure out where to drill these new wells, Lekoil has been undertaking a 3D seismic programme which is expected to complete in the third quarter of this year.
Midgley reckons the company could finance the ramp-up itself but sees the merits of external funding as it frees up cash to be used elsewhere in the portfolio – “for example appraisal drilling on OPL310”.
Given that any industry is likely to want to review the 3D data before committing themselves, the analyst thinks that a deal is unlikely before the final quarter of this year.
Waiting on Nigerian authorities for OPL310 approval
Lekoil’s other primary asset is OPL310, situated in the Ogo field, just off the south coast of Nigeria.
The company is planning a two-well appraisal drilling programme at Ogo, with long-lead items such as wellheads already ordered.
It is still waiting on Nigerian authorities to approve its acquisition of an additional 22.86% stake in OPL 310, which will take its total participating interest in the asset to 40%.
Once that is all sorted, Lekoil expects to finalise its funding plans for the drilling programme.
“Naturally, while question marks remain over Lekoil’s ultimate interest in the licence, any new partnering discussions have been conceptual at best,” explained Midgley.
“Given the scale of the opportunity however (774 mmboe, gross recoverable P50 resources), and the work done in maturing the project (including GE’s commitment to provide US$1bn of development finance subject to successful appraisal of the field), a resolution to the partnership issue, in Lekoil’s favour or otherwise, could be the catalyst for a farm out in short order.”
The analyst has trimmed his production guidance for the next couple of years slightly to 5,750 bopd and 8,813 bopd in FY18 and FY19 respectively.
He has also included the higher oil price environment into his calculations, which offsets some small rises in opera
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