Africa Oil Acquires Producing Assets in Deepwater Nigeria
Africa Oil Corp. (“AOI”, “Africa Oil” or “the Company”) announced the closing of the acquisition (the “Acquisition”) of a 50% ownership interest in Petrobras Oil and Gas B.V. (“POGBV”). BTG Pactual E&P B.V. will continue to own the remaining 50% of POGBV.
The total cash payment by AOI to close the Acquisition, including the Nigerian Government’s consent fee, amounts to $519.5 million. This includes a deferred payment of $24.8 million which is due by end of June 2020.
The primary assets of POGBV are an indirect 8% interest in Oil Mining Lease (“OML”) 127 and an indirect 16% interest in OML 130. OML 127 is operated by affiliates of Chevron Corporation (“Chevron”) and contains the producing Agbami Field. OML 130 is operated by affiliates of TOTAL S.A. (“TOTAL”) and contains the producing Akpo and Egina Fields.
Aggregate gross field production from these assets averaged approximately 442,000 barrels of oil per day (“bopd”)1 for the period January 1st to December 29th, 2019. Average daily entitlement production2 net to AOI’s 50% shareholding in POGBV for the same period, was approximately 33,630 bopd. This compares to a January 2019 average net entitlement production of 22,460 bopd, with growth over the course of 2019 being mostly due to the production ramp-up on the Egina field, which came onstream in late December 2018.
Africa Oil CEO Keith Hill commented,
“We are very pleased to have acquired an interest in these established, low unit cost, producing assets with additional appraisal and development upside, that are operated by some of the best companies in the industry. With the addition of production and cash flow, Africa Oil is transforming into a significant, Africa-focused independent E&P company. Combining these assets with our Kenya development project and exploration portfolio, we believe that Africa Oil has tremendous growth potential in a range of oil price scenarios”.
Key highlights 3, 4, 5:
A transformational transaction as Africa Oil becomes a full-cycle E&P company with material reserves and production, strong operating netbacks, and free cash flow generation that is supported by an active oil price hedging program at the POGBV level;
Year-end 2018 net entitlement proved reserves (“1P”) of 62.7 million barrels of oil equivalent (“MMboe”) and proved plus probable reserves (“2P”) of 94.7 MMboe, net to AOI’s 50% shareholding in POGBV, with more than 90% comprised of light and medium oil;
Based on the year-end 2018 entitlement reserves and LR’s 2019 production estimates, pro-forma (as of December 31st, 2019) entitlement 1P reserves of 49.2 MMboe (95% liquids) and 2P reserves of 80.6 MMboe (93% liquids) net to AOI’s 50% interest in POGBV;
These reserves are for the three producing fields only and don’t account for undeveloped discoveries in the licenses;
2019 average operating cost estimate6 of $7.0 /boe;
2019 average operating netback estimate7 of $50.1 /boe;
Total cash payment of $519.5 million is funded from cash on hand and a loan for $250 million (“Loan”) provided by Banco BTG Pactual S.A.;
A deferred payment of $123 million, subject to update, may be due to the seller depending on the date and ultimate OML 127 tract participation in the Agbami field5; and
POGBV has an existing reserve-based lending facility, with a syndicate of international banks with a drawn amount of $1.825 billion.
The three fields in these two licenses are all giant deep-water fields, located over 100 km offshore Nigeria, and are some of the largest and highest quality in Africa. All three fields have high quality reservoirs and produce light, sweet crude oil.
Two of these fields, Agbami and Akpo, have been on production since 2009. The TOTAL-operated Egina FPSO, started production in December 2018 and ramped up to plateau production of approximately 200,000 barrels of oil per day during the first half of 2019.
In addition to the current producing reservoirs there are additional growth opportunities in undeveloped horizons within existing fields; adjacent undeveloped discoveries; and identified exploration targets within the licenses that are under consideration for development and exploration drilling. One advanced opportunity is the Preowei oil discovery, which is being considered as a satellite tie-back to the Egina FPSO. In the first half of 2019 the Field Development Plan for the Preowei field within OML 130 was approved by the Government of Nigeria. Preowei is not currently included in the Company’s reserves estimates.
Reserves and 2020 Guidance
The company will file its Material Change Report and NI 51-101 F1 report effective 31st December 2018 on SEDAR (sedar.com) within 10 days from the date of the Acquisition closing. The company also plans to release its NI 51-101 F1 reserves report effective 31st December 2019 by end of the first quarter, 2020.
Africa Oil expects to announce its 2020 production and capital investment guidance with the release of its full year results on or around February 25th, 2020.
Standard Bank acted as financial advisor to Africa Oil in connection with the Acquisition. PillarFour Capital has provided the board of Africa Oil with a fairness opinion that, subject to the various factors, assumptions, qualifications and limitations upon which the opinion is based, the consideration to be paid by Africa Oil pursuant to the Acquisition is fair, from a financial point of view, to Africa Oil.
Vinson & Elkins and Torys LLP acted as legal counsel to Africa Oil in relation to the Acquisition and the Loan.
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