MX Oil plc, an oil and gas investment company, has agreed to invest in an indirect, non-operated, 5% revenue interest in the OML 113 licence, offshore Nigeria, which includes the Aje Field, a development stage project with proven, flow tested discoveries where production is expected by January 2016.
MX Oil said that this investment is in line with its strategy to acquire high impact near term production assets in proven oil and gas jurisdictions to build a cash generative platform.
In addition, the company announced the issue of 133,333,333 new ordinary shares via a placing at 4.5p per share to raise £6 million ($9.3 million) before expenses to provide additional working capital and funding for future capital expenditure and investment.
OML 113 offshore Nigeria
The interest in OML 113 is currently held by Jacka Resources Limited, (Jacka), a resources company listed on the ASX, through wholly owned subsidiaries. Jacka acquired this for $16 million in 2011 and has subsequently invested a further AU$11 million into the project to date by way of loans to its asset holding subsidiary. This debt will be assigned to MX Oil for US$3 million to be satisfied by the issue of 43,380,325 new ordinary shares in MX Oil at the placing price of 4.5p per share and the assignment of rights to invest into the asset holding company to fund the development to first oil.
This right was acquired from Jacka, by Cornhill Asset Management (Cornhill) and an associated investor. In consideration for the acquisition of this right to fund the project and therefore the benefit from any future cash flows to MX Oil form OML 113, the company will make certain conditional payments to Cornhill. The first payment of $800,000 will return the funds invested by Cornhill and an associated investor into Jacka and is conditional on the spudding of the next production well in Aje. A success fee of $1 million is due to Cornhill upon the commercial production of hydrocarbons from the Aje field. These payments, will comprise a related party transaction by virtue of Andrew Frangos being a director of Cornhill and MX Oil.
This investment right enables MX Oil to continue to fund the asset holding company in place of Jacka, which, if funded in full to commercial oil production, would result in MX Oil having the economic benefit of Jacka’s interest in OML 113.
The company said it intends to raise additional funds prior to first oil and for Phase 2 and Phase 3 development. The additional capital expenditure for Phase 1 is expected to be financed by way of a non-dilutive debt facility. The company added it is in advanced discussions with regard to such a facility.
The future phases of development are also dependent on the project partners meeting their commitments in respect to funding. In the event of a future potential change of control of the holding company that owns the interest in OML 113, Nigerian ministerial consent will be needed.
In consideration for acquiring the exclusive right to fund the asset holding company in place of Jacka, and subject to the spudding of the next Aje production well, a payment of US$800,000 will be due to Cornhill. A further $1 million will be payable on the commercial production of hydrocarbons from the Aje field. Of this, US$800,000 would represent the repayment of funds previously invested into Jacka by Cornhill and an associated investor with the balance comprising a transaction success fee.
“This is a game-changing acquisition for MX Oil.”
MX Oil’s Chief Executive Officer, Stefan Olivier, said, “We are highly encouraged by the reaction this acquisition has received from both existing and new investors, and we are pleased to now have institutions on our register, alongside our historic and supportive retail shareholder base. Aje, as an investment, ticks all the boxes: compelling economics in the current low oil price environment; a defined development plan in place targeting near term production; considerable exploration upside; located in a prolific hydrocarbon jurisdiction close to existing infrastructure; and acquired at a highly attractive price. To have been able to secure this acquisition on these terms is testament to the MX Oil management’s ability to source and secure interests in assets with company-making potential. We are looking forward to announcing a spud date for our Aje production well in the near term, and are excited by the prospect of bringing this field into production with our new partners and beginning to realise Aje’s excellent potential.
“This is a game-changing acquisition for MX Oil. It accelerates our transformation into a highly cash generative oil and gas investment company, and it provides a platform from which to fund the development of the conventional onshore concessions we are looking to secure in Mexico as part of the on-going Bid Round 1 licensing round. In Mexico, we have already been granted access to the data room and we are currently carrying out due diligence alongside our local partner Geo on a number of blocks. Concessions are due to be awarded in Mexico in December this year and we remain confident of winning two or more oil-producing blocks. Alongside expected production in Nigeria by January 2016, the next six months promise a great deal of newsflow which should excite our shareholders, as we look to create a leading oil and gas company.”
OML 113 covers an area of 835 sq km offshore Nigeria close to the Benin border and holds the Aje field as well as a number of exploration prospects. Aje, which was discovered in 1997, has multiple oil, gas and gas condensate reservoirs in the Turonian, Cenomanian and Albian sandstones, similar to the producing Jubilee field offshore Ghana. To date four wells have been drilled: Aje-1 and Aje-2 both flow tested oil and gas condensate at high rates, while Aje-4 intersected significant pay in four productive reservoirs.
The Government of Nigeria approved the Aje Field Development Plan (FDP) in March 2014 and by October 2014, the Final Investment Decision (FID) for the project was agreed. The FDP involves a three phase development programme. Phase 1 will focus on the Aje Cenomanian oil reservoir and include the drilling of two subsea wells and a leased Floating Production Storage and Offloading vessel (FPSO). The contract for Rubocon Offshore’s Front Puffin FPSO has already been signed. Initial Production of 41° API oil from these two wells is estimated at 11,000 bopd and is due to start by January 2016.
Phase 2 of the FDP will see two further wells drilled which is expected to increase total Cenomanian oil production to 19,000 bopd. Phase 3, which will target the development of the Turonian gas condensate reservoir, is currently in the planning stage. Phase 1 is underway with works on the FPSO and subsea equipment on-going. Drilling of the new well is on course to start in the near term 2015, after which production equipment will be installed, ahead of first oil, by year end.
According to MX Oil, in tandem with the development of the field, work is on-going to interpret the newly acquired 3-D seismic data. This new data will be used for planning Phases 2 and 3 on Aje and also to fully evaluate the exploration potential over the whole of the OML 113 licence, including the syn-rift exploration play that has been significantly de-risked following the 2013 Ogo discovery on contiguous block OPL 310.