LEK.L Regulatory News (LEK)

1 December 2015

Lekoil Limited

("Lekoil" or the "Company")

Acquisition of Afren's Participating Interest in OPL 310

Lekoil (AIM: LEK), the oil and gas exploration and production company with a focus on Nigeria and West Africa, has agreed to acquire Afren plc's ("Afren") entire 22.86% participating interest in OPL 310, which contains the Ogo discovery, for a total cash consideration of US$13 million (the "Consideration") (the "OPL 310 Acquisition").

Lekoil Nigeria Limited ("Lekoil Nigeria") via its wholly owned subsidiary, Mayfair Assets and Trust Limited (Nigeria) ("Mayfair"), holds a 17.14% participating interest and a 30% economic interest in OPL 310 obtained through a farm-in agreement signed in 2013 with Afren. The OPL 310 Acquisition will be undertaken by a wholly owned subsidiary of the Company, Lekoil 310 Limited.

Following the OPL 310 Acquisition, and prior to the drafting and formalisation of the detailed documentation that follows the signing of the term-sheet with Optimum Petroleum Development Company ("Optimum"), the operator and local partner in OPL 310 which retains a 60% participating interest, Lekoil will hold a consolidated1 participating interest of 40% (pending Nigerian Ministerial Consent ("Ministerial Consent")) and an economic interest of 70% in OPL 310 and will become the technical and financial partner.

Following the significant oil discovery at Ogo in June 2013, the Company acquired 3D seismic over the remaining 80% of the OPL 310 licence and interpretation of the seismic is ongoing. Following the completion of the deal, the partners will commission and announce a detailed work programme for 2016.

Highlights

· Lekoil to acquire Afren's 22.86% participating interest (40% economic interest) in OPL 310, increasing Lekoil's consolidated1 participating interest from 17.14% to 40% (and its economic interest from 30% to 70%), subject to Ministerial Consent, and will become the technical and financial partner.

· Of the Consideration, US$12 million is due immediately and US$1 million is due upon the earlier of receiving Ministerial Consent or two years following the signing of the OPL 310 Acquisition agreement (the "OPL 310 Acquisition Agreement"). The Consideration will be funded from existing cash resources.

· The Company executed a term-sheet with Optimum, which will be expanded in due course into a full suite of agreements (the "OPL 310 Commercial Agreements").

o Under the OPL 310 Commercial Agreements, Lekoil to recover carried costs from 70% of cash flows and be entitled to a further 12% of cash flows as profit oil. Following recovery of all carried costs, Lekoil's entitlements will revert to its consolidated1 participating interest of 40%.

o Lekoil's carried costs will be recovered at a 50% uplift with additional adjustments for its cost of capital.

o An aggregate amount of US$13 million of Optimum's past costs will be paid by Lekoil to Optimum within 6 months of signing the agreement.

· 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.

1. Note: Lekoil's consolidated interest in OPL 310 is held through two subsidiaries, Lekoil Nigeria and Lekoil 310 Limited. The Company's interest in Lekoil Nigeria remains unchanged from the date of admission to trading on AIM. Lekoil 310 Limited is a wholly owned subsidiary of the Company.

Commenting, Lekan Akinyanmi, Lekoil's CEO, said, "We have long stated our ambition to become a leading indigenous, risk diversified E&P business focused on Africa in general and Nigeria in particular. We believe that today's acquisition is a great result for our shareholders. It further demonstrates our ability to build a strong portfolio, and marks the culmination of a busy period in the development of the Company. Lekoil now has a suite of assets at different stages of development, with different teams working on them.

"Otakikpo provides near-term production with excellent expansion potential to 10,000bopd in phase 1; a 2P+2C gross recoverable resource base of 56.6mmboe, as well as additional prospects in the project area with gross P50 STOIP estimates of 163mmboe onshore and significant upside in the shallow water. Capital requirements for expanding production beyond 10,000bopd will be met from a combination of internally generated cash flow, debt financing and offtake arrangements.

"As previously announced, the recent OPL 325 transaction increases the known basin exploration part of the portfolio. For a US$16 million signature bonus, Lekoil has secured a 62% economic interest in a licence hosting very large exploration targets. Lekoil geoscientists have been analysing the potential on this licence for several years and it gives the Company great optionality in the Dahomey basin with limited work obligations.

"Finally, I am delighted to say that today's acquisition significantly enhances one of the key assets of our portfolio, OPL 310. The licence hosts world class exploration and appraisal potential at the Ogo field and also further upside potential in several other targets. Lekoil has a dedicated geological and geophysical team working on OPL 310 and in the coming months we expect to announce the interpreted results of the 3D seismic survey as well as the work programme as soon as it is approved by the relevant authorities.

"Our near-term focus is to bring Otakikpo into production. From this low-cost operational platform we will then work to de-risk Lekoil's extraordinary suite of appraisal and exploration assets so as to crystallise value for our investors and for the benefit of all stakeholders".

For further information, please visit www.lekoil.com or contact:

OPL 310 Acquisition

As part of its corporate strategy, Lekoil is continuing to progress the development of its key assets, OPL 310, OPL 325 and Otakikpo, and build a balanced portfolio of producing, development and exploration assets in Nigeria and West Africa.

Afren plc and Afren Nigeria Holdings Limited ("Afren Nigeria") in Administration

Simon Appell, Daniel Imison and Catherine Williamson were appointed Administrators of Afren plc on 31 July 2015 and also Afren Nigeria has been subsequently put into administration. The Joint Administrators are licensed in the UK by the Insolvency Practitioners Association. The affairs, business and property of Afren and Afren Nigeria are being managed by the Administrators, who act as agents of the companies and without personal liability. 

OPL 310 Acquisition Agreement

On 1 February 2013, Mayfair, a wholly owned subsidiary of Lekoil Nigeria, farmed into Afren Investments Oil & Gas (Nigeria) Limited's ("OPL 310 HoldCo") interest in OPL 310 for a 17.14% participating interest and 30% economic interest. Lekoil's right to the participating interest is subject to Ministerial Consent to the farm-in agreement. On 31 July 2015, Afren was put into administration and its assets up for sale. On 25th November 2015, Lekoil entered into an agreement with the administrator of Afren and Afren Nigeria to acquire OPL 310 HoldCo, Lekoil's partner in OPL 310 and technical adviser of the licence, for a total consideration of US$13 million, increasing Lekoil's consolidated1 participating interest in OPL 310 to 40%.

Total consideration for the OPL 310 Acquisition is US$13 million payable in cash, of which US$12 million is payable immediately and US$1 million is payable on the earlier of receiving Ministerial Consent or two years following the signing of the OPL 310 Acquisition Agreement. The acquisition also transfers the intercompany loans between Afren, Afren Nigeria and OPL 310 HoldCo, and certain of OPL 310 HoldCo's past costs and tax losses in relation to the licence to Lekoil.

OPL 310 Commercial Agreement

Lekoil recently executed a term-sheet with Optimum, the operator and local partner in OPL 310, which will be expanded in due course into a full suite of agreements.

Under the revised OPL 310 Commercial Agreement, it is envisioned the key terms will be as follows:

· Lekoil will be designated the financial and technical partner of the project.

· Lekoil will pay Optimum US$13 million as reimbursement of past costs, with US$10 million being payable within 30 days of execution of the OPL 310 Commercial Agreement and US$3 million being payable within a further 180 days.

· Lekoil will be entitled to 50% uplift and additional adjustment for its cost of capital on all carried costs.

· Under the OPL 310 Commercial Agreement, Lekoil to recover carried costs from 70% of cash flows and be entitled to a further 12% of cash flows as profit oil. Following recovery of all carried costs, Lekoil's entitlements will revert to its consolidated participating interest of 40%.

-ends-