Petroleum Africa
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Tuesday, September 1, 2020
San Leon Energy, the independent oil and gas production, development and exploration company focused on Nigeria, has conditionally agreed to invest US$7.5 million by way of a loan to Decklar Petroleum, the local subsidiary of Asian Mineral Resources, listed on the Canadian TSX Venture Exchange. Decklar is the holder of a Risk Service Agreement (‘RSA’) with Millenium Oil and Gas Company on the Oza field in Nigeria. Until the loan and its interest are repaid, 100% of the Available Funds (as defined below) that can be distributed from Decklar’s RSA proceeds will be paid to San Leon in satisfaction of those payments. San Leon will also subscribe for a 15% equity interest in Decklar.
The Oza Oil Field was formerly operated by Shell Petroleum Development Company of Nigeria Ltd. (“Shell”). The field has three wells and one side track drilled by Shell between 1959 and 1974. During the period when Shell was the operator, there were two periods of extended production testing from the Oza-1, -2 and -4 wells. The field was never tied into an export facility, nor was it fully developed by Shell and put into commercial production.
In 2003, the Oza Oil Field was awarded to Millenium, having won the bid during the Marginal Fields Licensing Round. Since Millenium’s acquisition of the Oza Oil Field in 2003, approximately US$50 million has been spent on infrastructure in support of a restart of production including an export pipeline that connects the Oza Oil Field production into the Trans Niger Pipeline (TNP) which goes to the Bonny Export Terminal, a lease automatic custody transfer (LACT) unit fiscal metering system, infield flow-lines, manifolds and a rental 6,000 barrel per day early production facility (“EPF”). The RSA entered into between Decklar and Millenium provides Decklar with the majority share of production and associated cash flow from the Oza Oil Field in exchange for funding and technical assistance to restart commercial production and full field development; including a preferential return of its costs plus a share of cash flow thereafter. In exchange, Decklar is entitled to priority recovery of its capital from 80% of distributable funds. After achieving cost recovery, Decklar’s profit share is based on a sliding scale starting at 80% and declining to 40% once cumulative production exceeds 10 million barrels.
Decklar intends to fast-track the initial development of the Oza Oil Field including a re-entry on the existing Oza-1 well, anticipated to test three oil bearing zones and place the well into production from two of the three zones tested. The drilling rig is expected to then be skidded on the same location as Oza-1 to a new drilling slot and a development well is expected to be drilled horizontal into the third zone tested in the Oza-1 well re-entry. The Oza-1 well and new horizontal development well are anticipated to generate significant production levels and cash flow in an abbreviated time frame. The Oza Oil Field development is anticipated to then continue with one or two more existing well re-entries and additional development drilling with the potential for eight to ten wells being drilled in total for the full field development. Additional early production and central processing facilities will be added as required to accommodate additional production levels from the Oza Oil Field’s development activities. Decklar estimates that first production will be three to four months following the drawdown of the financing described within this announcement.
The Oza Oil Field has significant export and production processing facilities and infrastructure already in-place and operational, which will allow for the export and sale of crude oil from the Oza-1 well re-entry, the initial Oza horizontal development well and future wells.
San Leon has entered into a subscription agreement with Decklar. The Subscription Agreement entitles San Leon to purchase US$7,500,000 of 10% unsecured subordinated loan notes of Decklar and 1,764,706 ordinary shares of Decklar (representing 15% of the enlarged share capital of Decklar) for a cash consideration of US$7,500,000 and N1,764,706 (c. US$4,600), respectively. In addition, Decklar and San Leon have entered into an option agreement that, at San Leon’s sole discretion, entitles San Leon to purchase an additional US$7,500,000 of Loan Notes and 2,521,008 Decklar Shares (representing an additional 15% of the enlarged share capital of Decklar, together with a gross-up of the original 15% so as to provide San Leon with a total of 30% of the enlarged share capital of Decklar) for a cash consideration of US$7,500,000 and N2,521,008 (c. US$6,500), respectively, at any time until the date that is forty-five (45) days after the well test results of the first development well on the Oza Oil Field have been delivered to San Leon.
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