The biggest strategic driver for CUI remains the potential for the GasPT product to...
Lekoil is an AIM-listed indigenous Nigerian oil producer with assets in the onshore and offshore Niger Delta as well as a non-core position in Namibia. Production from its Otakikpo marginal field has now started at a rate of 5,000bbl/d and management is guiding for an exit rate of 10,000bopd for this year. The share price has risen +70% in the past 12 months in anticipation of this achievement. However, the company seems confident to be able to pursue the appraisal of the Ogo discovery during 2017, which we believe could be taken positively by the market. We note that reserves and resources upgrades for Otakikpo are also possible when a new CPR is issued later this year. We value Lekoil at 36p per share on a risked basis.
The current portfolio is focussed on western and southwestern Africa. Management’s strategy is to have a balanced portfolio where producing/appraisal assets and exploration assets in known/unknown basins are broadly equally represented in order to balance the risk of exploration with the relatively safe funding option provided by production cash flows. The current portfolio is weighted towards exploration; management believes that this situation will redress itself when production increases in the near/medium term (Figure 1).
Lekoil’s key assets are its interest in the Otakikpo marginal field in the eastern Niger Delta and in the OPL 310 licence in offshore Nigeria. We consider that OPL 325 and the Namibian asset as non-core and of marginal value at this stage.
The Otakikpo marginal field is situated in the eastern part of the Niger Delta in OML 11 close to the shoreline. Lekoil has a 40% working interest an 88% economic interest in the field, whilst partner Green Energy has the remaining interest.
According to Lekoil, Otakikpo has aggregate gross 2P reserves and 2C resources of 56.6MMbbl, equivalent of 20.4Mmbbl net to Lekoil. Management reckon that additional potential resides onshore with an estimated gross STOIIP of 163MMbbl, as well as offshore. Lekoil has identified a number of prospects such as Otakikpo South as well as four prospects to the east of the current field with attractive potential (Figure 2).
The start of commercial production was announced on 20 February 2017, later than originally planned due to logistical difficulties linked to the swamp location and teething problems encountered at the start of the operations. However, the field has lived up to its potential and flow tests results have been better than expected by the initial CPR evaluation. Production started at 5,000bbl/d and management expects it to ramp up to 10,000bopd by the end of this year. Management also intends to issue a revised CPR to provide updated estimates of reserves and resources before year-end.
The economics of the field are robust with a breakeven below $25/bbl according to management estimates. Further investment to ramp-up production beyond 10,000bbl/d is under consideration and a decision should be taken later this year. The better than initially anticipated flow rates achieved in existing wells seem to indicate that expansion capex could be lower than previously thought.
The other key asset in Lekoil’s portfolio is its 40% working interest and 70% economic interest in OPL 310 which contains the Ogo discovery, the largest oil discovery in sub-Saharan Africa in 2013. Lekoil is partnered with Optimum in OPL 310. Management estimates gross prospective resources of 774MMboe or 542MMboe net with a hydrocarbon phase mix that c.50% of gas and 50% of oil, to be confirmed and pending further confirmation by an independent competent person’s report (CPR).
Lekoil also recently farmed-in OPL 325, acquiring an indirect controlling interest in a licence located c.100km south of OPL 31, offshore Nigeria. The initial consideration of $16.08m and a further $24.12m
payable in instalments of $12.06m each is contingent upon OML conversion after discovery and start of production. Other licence partners are NPDC with 20% and a Local Content Vehicle with 10%. Management believes that, whilst OPL 310 is located in a more proximal position with respect to the paleo-shelf of the Dahomey Basin where structural traps dominate hydrocarbon plays, OPL 325 is in a more distal position where sand deposition could have happened as large turbidites, hence where Jubilee-type plays could be present. Management relies on an extensive in-house study of the Dahomey basin to inform its exploration strategy in the region (Figure 3).
Management intends to pursue non-dilutive financing options in order to fund the appraisal of the Ogo discovery and is confident to finalise a commercial agreement by the end of this year. However, the company has no immediate plans for OPL 325, which remains more of an asset play at this stage.
We value Lekoil at 36p per share on a risked basis. We estimate a Core value of 24p based on the producing asset adjusted for financial items and corporate costs (Figure 4).
Important – Please read this information: This report has been commissioned by Lekoil Ltd and prepared and issued by Capital Network for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however, we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Capital Network at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. Capital Network does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Capital Network’s solicitation to effect, or attempt to effect, any transaction in a security. This document is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Capital Network has a restrictive policy relating to personal dealing. Capital Network does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Capital Network may have a position in any or related securities mentioned in this report. Capital Network or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Capital Network within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Capital Network, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.
The biggest strategic driver for CUI remains the potential for the GasPT product to...
In pence-per-share terms, the NAV increased by 0.8p during the quarter. This...