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LEKOIL begins legal action against Ministry over consent delay on OPL 310

Leading West Africa-focused oil exploration and production company, LEKOIL Limited, has commenced legal proceedings against the Ministry of Petroleum Resources over government’s failure to grant consent for LEKOIL’ s investment in Oil Prospecting Lease (OPL) 310 block offshore.

OPL 310 is an offshore license which includes the potentially large Ogo oil discovery, which is located in shallow water offshore Lagos.

The legal tussle followed its acquisition of previous stake holding by Afren Plc.

LEKOIL in its prayers averred that “Despite progressing exploration and appraisal activities on OPL 310 as previously announced, LEKOIL has, to date, not received Ministerial Consent for its acquisition of the additional 22.86 per cent interest in OPL 310 or a satisfactory explanation of why such consent has not been forthcoming.  As a result, the Company has taken the decision to apply to the Federal High Court for a declaration that is expected to expedite the consent process, and preserve the unexpired tenure in the licence.”

The company recalled that “On 1 February 2013, Mayfair Assets and Trust Limited, a subsidiary of LEKOIL, farmed into Afren Investments Oil and Gas (Nigeria) Limited’s (AIOGNL) interest in OPL 310 for a 17.14 per cent participating interest and 30 per cent economic interest, subject to Ministerial Consent from Nigeria’s Minister for Petroleum Resources.  Ministerial Consent was granted for the interest on 9 June 2017.

Business Hilights can recall that on 31 July 2015, Afren plc (“Afren”), the parent company of Afren Oil & Gas that held interests in the OPL 310 licence, was put into administration and its assets put up for sale.  On 1 December 2015, LEKOIL announced an agreement with the administrator of Afren and Afren Nigeria Holding Limited to acquire the shares of AIOGNL, which held a 22.86 per cent participating interest in OPL 310.  This interest was also subject to Ministerial Consent from the Minister for Petroleum Resources.  The acquisition meant that LEKOIL would hold a consolidated participating interest of 40 per cent and an economic interest of 70 per cent in OPL310 and would become the technical and financial partner of Optimum Petroleum Development Company (“Optimum”), the operator and local partner in OPL310 which retains a 60 per cent participating interest.”

The plaintiff further affirmed that an application for the transfer of the 22.86 per cent interest was duly made by Afren Nigeria in January 2016.  As the transaction was not undertaken on the basis of an Assigned Interest in the oil block, approval by Optimum was not required under the JOA between Optimum and Afren.  In March 2016, LEKOIL was notified by the Ministry of Petroleum Resources that the necessary due diligence exercise would be conducted that month.  The due diligence exercise did not take place and has not been rescheduled by the Department of Petroleum Resources since then.

Continuing, LEKOIL argued that “The delay in regulatory consent for LEKOIL on the block stands in the way of the company’s plans for the development of a work programme for the Ogo field (the only discovery on the block) for which it has signed a Memorandum of Understanding with GE Oil & Gas, now Baker Hughes, a GE Company”.

Technical background details on LEKOIL showed that in 2013, the first exploration well (Ogo-1) drilled by the OPL 310 partners – then consisting of Optimum, LEKOIL and Afren – was the Ogo prospect, a four-way dip-closed structure in the Turonian to Albian sandstone reservoirs. The drilling programme included a planned side-track well (Ogo-1 ST) which aimed to test a new play of stratigraphically trapped sediments at the basement of the Ogo prospect. The Ogo-1 well encountered a gross hydrocarbon section of 524ft, with 216ft of net stacked pay whilst the Ogo-1 ST well encountered the same reservoirs as Ogo-1 in addition to the syn-rift section which encountered a 280 ft vertical section gross hydrocarbon interval. Owing to well data collected from the two wells, the partners estimated P50 gross recoverable resources to be at 774 mmboe across the Ogo prospect four-way dip-closed and syn-rift structure.

On 1 December 2015, the Company announced an agreement with the administrator of Afren and Afren Nigeria Holding Limited to acquire the shares of AIOGNL, which held a 22.86% participating interest in OPL 310 for a total consideration of US$13 million.  Post-acquisition, the Company holds a 40% working interest and 70% economic interest in the block, with AIOGL’s 22.86% working interest and 40% economic interest subject to Ministerial Consent.