Africa Oil Announces the Closing of the Acquisition of Producing Assets in Deepwater Nigeria

Source Press Release
Company Africa Oil CorpPetrobras (IFRS US$ Current) 
Tags Corporate Deals, Deals, Upstream Activities
Date January 14, 2020

Africa Oil Corp. ("AOI", "Africa Oil" or "the Company") is pleased to announce 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.

Asset Highlights

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.

Advisors

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.

Notes 
   
Production relates to aggregate full field production and in case of Agbami, it is in respect of OML 127 and OML 128. The Agbami Field spans OML 127 and OML 128 and is subject to a unitization agreement, with 62.4619% of field production currently allocated to OML 127. Please refer to Note 5 for more details on the Agbami tract participation 
   
Net entitlement production for the Company is calculated using the economic interest methodology and include cost recovery oil, tax oil and profit oil. These are different from working interest production that are calculated based on project volumes multiplied by the Company's effective indirect working interest 
   
Net reserves are based on an independent reserves evaluation, effective 31st December 2018, prepared by Lloyd's Register ("LR") for Africa Oil in accordance with Canadian National Instrument 51-101 – Standards for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook")  for POGBV's net interest in OML 127 and OML 130 (the "LR Report") 
   
Pro forma (effective 31st December 2019) net entitlement reserves are based on LR's 2018 year-end reserves estimates less LR's forecasts of 2019 net entitlement production. These have been reviewed by LR, a Qualified Reserves Evaluator as defined in NI 51-101.  These estimates do not represent audited reserves and the company expects to provide its NI 51-101 effective 31st December 2019 by the end of the first quarter in 2020 
   
The reserves estimates are based on the original OML 127 tract participation of 62.4619% in the Agbami field with OML 128 having a tract participation of 37.5381%. This field is subject a tract participation redetermination that could see a higher interest (expected to increase to 72.064%) in favour of the OML 127 partners including POGBV; this is subject to Nigerian government's approval. Also, the reserves estimates don't account for the OML 130 discoveries, Preowei and Egina South, that are candidates for subsea tie-back developments to the Egina FPSO.  The Company expects to provide its NI 51-101 F1 reserves report (effective 31st December 2019) by end of the first quarter in 2020 to account for: potential progress on the Agbami redetermination process; 2019 actual production for OML 127 and OML 130; a potential technical revision of Agbami's reserves; and a potential reserves addition for the Preowei project, which benefits from a government approved field development plan 
   
Based on LR's 2019 production and cost forecasts using the 2P profile 
   
Based on the LR Report. Operating netbacks calculated as oil sales net of operating expenses. Operating netback is a non-IFRS measure and does not have a standardized meaning under generally accepted accounting principles. Investors are cautioned that this measure should not be construed as an alternative to net income or other measures of financial performance as determined in accordance with IFRS. The Company's method of calculating this measure may be different to similar measures used by other companies. The company's management believes that operating netback is a useful supplemental measure for management and investors to analyse operating performance and provide an indication of the results generated by our principal business activities prior to the consideration of other income and expenses 

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd