Independent oil and gas exploration company African Petroleum (AP) has signed non-binding heads of terms and a binding exclusivity agreement with an unnamed firm described as “well funded, listed oil and gas company with a strong track record in offshore deep-water drilling.”
The heads of terms and exclusivity agreement provide a framework for the incoming third party to secure a 70% operated interest in the company’s SOSP production sharing contract (PSC) in Senegal and the A1 and A4 licenses in The Gambia, AP said on Tuesday.
African Petroleum holds a 90% operated working interest in exploration blocks Rufisque Offshore Profond (ROP) and Senegal Offshore Sud Profond (SOSP). The National Oil Company Petrosen holds the remaining 10% equity. In The Gambia, AP holds a 100% operated working interest in offshore licenses A1 and A4.
AP explained that the exclusivity agreement grants the incoming third party an initial eight week period of exclusivity over the company’s SOSP PSC in Senegal and the A1 and A4 licenses in The Gambia. This period of exclusivity may be further extended under certain conditions. During the period of exclusivity the company and the incoming party will work together to finalize negotiations with the respective governments in order to amend the work commitment in Senegal and to enter the next phase of the licenses in The Gambia, complete due diligence, and agree and execute farm-in documentation.
The heads of terms sets out the broad commercial terms under which the incoming party intends to, subject to certain conditions, farm-in to the company’s SOSP PSC in Senegal and the A1 and A4 licenses in The Gambia. The terms propose that the incoming party will pay up to $8.5 million to the company, fund 100% of at least two deep water offshore wells at a gross cost of up to $35 million per well, fund 100% of a 3D seismic acquisition, fund 100% of pre-stack depth migration (PSDM) processing/reprocessing, and potentially fund 100% and 85% respectively of a further two wells at a gross cost of up to $35 million per well.
According to the broad commercial terms for Senegal, the incoming party proposes to farm-in to the SOSP PSC for a 70% operated interest in return for reimbursing 100% of certain license fee costs; paying 100% of acquiring 3D seismic and PSDM processing; and paying 100% of the first exploration well.
Further, the incoming party proposes to farm-in to the A1 license for a 70% operated interest in return for reimbursing 100% of certain license fee costs; paying 100% of PSDM reprocessing; paying 100% of the first exploration well; and paying 85% of the second exploration well.
As for the A4 license, the incoming party is to be granted a 15 month option to farm-in to the A4 license for a 70% operated interest in return for paying 100% of the annual license fees for the license during the option period. Should the incoming party exercise its option then it will pay 100% of the first exploration well in order to earn its 70% operated interest.
Commenting on this announcement, African Petroleum’s Chief Executive Officer, Jens Pace, said: “Whilst final farm-in agreements are subject to completion and the successful outcome of negotiations with the governments in Senegal and The Gambia, we are confident that the proposed partner’s reputation, strong balance sheet and appetite to explore the potential of these exciting licenses with the drill-bit, will greatly increase our ability to conclude the discussions with an outcome that benefits all parties. Our objective is to ensure that African Petroleum’s shareholders retain significant exposure to several firm and contingent wells, at no cash cost to the company, in one of the most exciting hydrocarbon basins in the world.”