OER Signs Documentation to Acquire 40% Participating Interest in Qua Ibo Marginal Field Within OML 13
CALGARY, Alberta, March 27, 2013 /PRNewswire/ --
Oando Energy Resources Inc. ("OER" or the "Company") (TSX: OER) is pleased to announce that, further to its press release dated September 17, 2012, it has signed binding documentation ("Final Agreements") with Oando Plc ("Oando"), to indirectly acquire, from Oando, equity interests in Oando Qua Ibo Limited ("OQI"), a Nigerian company established to hold a 40% participating interest in the Qua Ibo Marginal Field within Oil Mining Lease 13 ("OML 13") located onshore Nigeria, and Oando Reservoir and Production Services Limited, a Nigerian company ("ORPS" and together with OQI, the "OQI Companies") (collectively, the "Acquisition"). Oando currently holds 94.6% of the issued and outstanding common shares of OER. No securities of OER will be issued in relation to the Acquisition and completion of the Acquisition will not result in any changes to the shareholders of OER. The Acquisition is expected to close on or about April 12, 2013 (the "Closing Date"), subject to satisfaction of customary closing conditions.
Commenting, Pade Durotoye, OER's Chief Executive Officer, said "We are very excited about the transfer of this asset to the OER portfolio as we expect that it will significantly increase our resource base and our drive to create additional reserves and ramp up our production. The execution of the work programme for the development of this asset has already commenced and we look forward to it delivering value to us in the short term."
Asset Overview
The Qua Ibo Field is located onshore near the mouth of the Qua Ibo River in AkwaIbom state, approximately two kilometres from the Mobil Producing Nigeria Qua Ibo Terminal.
A total of five wells, Qua Ibo -1, Qua Ibo -2, Qua Ibo -3, Qua Ibo -4 and one side track (Qua Ibo -3ST1), have been drilled in the Qua Ibo Field, of which the latter two were drilled by ORPS and NEPN. The Qua Ibo -1 well was plugged and abandoned after inconclusive tests in 1960. The Qua Ibo -2 well had indications of oil in six horizons and gas in five zones at depths of 3,310 to 7,100 feet in 1971. It is currently suspended, but inaccessible. The drilling of Qua Ibo -3 appraisal well began in the fourth quarter of 2008 and was suspended in 2009. The primary objective of Qua Ibo -3 was to determine if oil seen in the deeper D 5.0 zone in wells Qua Ibo -1 and Qua Ibo -2 was from one continuous pool linking the two wells. This appraisal confirmed that the D 5.0 zone is compartmentalized by a fault and that Qua Ibo-1 and Qua Ibo-2 are in separate independent fault blocks, D5.0 North and D5.0 South.
Qua Ibo -4, planned as a highly deviated appraisal/development well, was spudded on September 30, 2012 and drilled to a total depth of 6,940 feet measured depth (3,964 feet true vertical depth), targeting four of the reservoirs which had been prognosed based on the results of the previous wells, namely C 1.0 to C 4.0 reservoirs. It found 26 feet net oil (specific gravity of 18.8 degrees API) at the C 4.0 reservoir, and gas at the C 1.0 and C 2.0 reservoirs. An attempt was made to test the C4 reservoir but this was unsuccessful due to sand production. The C 3.0 reservoir was wet. The well is perforated across the C4 sand and is currently suspended while finalizing plans to complete as a single string producer with Electric Submersible Pump (ESP).
Qua Ibo -3 ST1 was re-entered on November 21, 2012 as an updip sidetrack of the Qua Ibo -3 well, targeting the D 5.0 reservoir (North). The deviated well was drilled to a total depth of 10,773 feet MD (7,260 feet TVD) on December 3, 2012. 43 feet of oil was encountered in two lobes of the D 5.0 reservoir (North). The well was initially completed as a single string selective producer, but after testing the lower lobe, the decision was made to recomplete the well as a dual string producer. The well is currently testing in the upper zone.
It is expected that Qua Ibo -5, the sixth well in the Qua Ibo Field, will be drilled as an additional drainage point to produce the C 4.0 reservoir, also with ESP. First oil is expected in the third quarter of 2013 upon the successful completion of the Qua Ibo -5 production well, successful testing and completion of the Qua Ibo -4 well and tie back to the nearby Qua Ibo facilities. The drilling campaign is currently being undertaken and the tie back will commence once the wells have been completed and tested.
Reserves and Resources
The Petroleum and Renewable Energy Company Limited ("Petrenel"), an independent qualified reserves evaluator within the meaning of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), undertook an evaluation of the reserves and resources of the Qua Ibo Field in a report dated March 26, 2013 with an effective date of December 31, 2012 (the "Petrenel Report"). The Petrenel Report was prepared in compliance with NI 51-101 and the COGE Handbook.
Summary of Oil Reserves and Net Present Values of Future Net Revenue as of December 31, 2012, based on forecast prices and costs as used by Petrenel in the Petrenel Report.
The following is a summary of the oil reserves and net present values of future net revenue of OER associated with the Acquisition as evaluated by Petrenel. The estimated future net revenue figures contained in the following tables do not necessarily represent the fair market value of OER's reserves. There is no assurance that the forecast price and cost assumptions contained in the Petrenel Report will be attained and variances could be material. Other assumptions relating to costs and other matters are included in the Petrenel Report. The recovery and reserve estimates attributed to OER's properties described herein are estimates only. The actual reserves attributed to OER's properties may be greater or less than those calculated.
Summary of Oil Reserves
Reserves - Light and Medium Oil
Gross[1] Net[2]
Mbbls Mbbls
Proved
Developed Producing 0.0 0.0
Developed Non-Producing 0.0 0.0
Undeveloped 738.3 701.4
Total Proved 738.3 701.4
Probable 303.3 288.2
Total Proved plus Probable 1,041.7 989.6
Possible 362.5 344.4
Total Proved plus Probable
plus Possible 1,404.2 1,334.0
Notes:
1. Represents OQI's working interest share prior to deduction of royalties.
2. Represents OQI's working interest share after deduction of royalties.
Net Present Value of Future Net Revenue as of December 31, 2012
Before Future Income Tax Expenses[1]
and Discounted at
0 per 5 per 10 per 15 per 20 per
cent cent cent cent cent
($000s)
Proved
Developed Producing 0.00 0.00 0.00 0.00 0.00
Developed
Non-Producing 0.00 0.00 0.00 0.00 0.00
Undeveloped 34.86 28.91 24.36 20.81 18.00
Total Proved 34.86 28.91 24.36 20.81 18.00
Probable 22.07 17.41 14.14 11.77 10.00
Total Proved Plus Probable 56.94 46.33 38.51 32.58 27.99
Possible 29.58 23.61 19.40 16.32 14.00
Total Proved Plus Probable
Plus Possible 86.52 69.94 57.91 48.91 41.99
Notes:
1. Qua Ibo is assumed to be subject to the terms of the Marginal Field Licensing, and the Petroleum Profits Tax has been assumed as Income Tax. Unit value is calculated on OQI's net reserves
After Future Income Tax Expenses[1] and Discounted at
0 per 5 per 10 per 15 per 20 per
cent cent cent cent cent
($000s)
Proved
Developed
Producing 0.00 0.00 0.00 0.00 0.00
Developed
Non-Producing 0.00 0.00 0.00 0.00 0.00
Undeveloped 16.15 13.60 11.57 9.93 8.59
Total Proved 16.15 13.60 11.57 9.93 8.59
Probable 9.34 7.45 6.10 5.10 4.35
Total Proved Plus
Probable 25.49 21.05 17.66 15.03 12.93
Possible 12.66 10.09 8.29 6.97 5.98
Total Proved plus
Probable
plus Possible 38.15 31.14 25.95 21.99 18.91
Notes:
1. Qua Ibo is assumed to be subject to the terms of the Marginal Field Licensing, and the Petroleum Profits Tax has been assumed as Income Tax. Unit value is calculated on OQI's net reserves.
The total Proved plus Probable plus possible volume is an arithmetic sum of multiple estimates of Proved plus Probable plus Possible reserves, which statistical principles indicates may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of Proved plus Probable plus Possible and appreciate the differing probabilities of recovery associated with each class as explained in the appropriate section.
Contingent Resources
All Contingent Resources presented in the table below are considered to be economically recoverable based on forecast prices and costs assumed by Petrenel in the Petrenel Report.
Values in the table below are unrisked.
Total (100%) Gross Working
Resources[1] Interest[2] Net Entitlement[3]
Low Best High Low Best High Low Best High
Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estim
-ate
Light
and
Medium
Crude
Oil
(Mbbls) 4,263 5,924 7,497 1,705 2,370 2,999 1,620 2,251 2,847
Notes:
1. Represents OML 13 prior to deduction of royalty.
2. Represents OQI's working interest share prior to deduction of royalty.
3. Represents OQI's working interest share after deduction of royalty.
Classification of these resources as Reserves is contingent upon a successful commercial test of the C4.0 resevoir. This will require the implementation of a successful solution to sand production which is believed to have plugged the Qua Ibo-4 well during testing. The medium/heavy nature of the crude will also require successful deployments of ESPs to lift the oil.
Structure of Acquisition
In February 2012, OQI signed a farm-in agreement to acquire a 40% participating interest in the Qua Ibo Field from Network Exploration & Production Nigeria Limited ("NEPN"), a Nigerian company, which transfer of interest remains subject to third party and Nigerian governmental consent. Approval of the Nigerian Department of Petroleum Resources was obtained in October 2012 and OER now awaits approval from the Nigerian Minister of Petroleum Resources. In the event that the consent of the Nigerian Minister of Petroleum Resources is not obtained, OQI shall be entitled to certain economic interests in the Qua Ibo Field. If the economic interests are for any reason unenforceable, then OQI is entitled to be reimbursed by NEPN in respect of all the disbursements, costs and contributions made by OQI in respect of the development and operation of the Qua Ibo Field. Separately, pursuant to the terms of the Farm-In Agreement, OQI has the option and right to acquire up to a 40% interest in the share capital of NEPN at an aggregate subscription price of US$1 which, so long as the economic interests are valid and effective, bear no economic rights or obligations and shall, if the economic interests become invalid and ineffective, entitle OQI to 40% of the economic rights and benefits in all distributions of NEPN.
As the Qua Ibo Field is a marginal field, the royalties which OER and NEPN are required to pay to the Nigerian government are treated favourably in accordance with applicable Nigerian law. Pursuant to the joint operating agreement, NEPN is operator of the Qua Ibo Field. In addition, ORPS is technical services provider and accordingly oversees, together with NEPN, the operations on the Qua Ibo Field. In its role as technical services provider, ORPS has agreed to fund NEPN's share of development costs on the Qua Ibo Field until first oil, following which it will be entitled to be reimbursed for these costs, plus a 10% fee.
Pursuant to a financing agreement between ORPS and NEPN (the "Financing Agreement"), ORPS agreed to provide funding to NEPN, on a secured basis, of up to US$90 million. As at February 28, 2013, the amount drawn down by NEPN was approximately US$28.4 million. In order for ORPS to fund the ORPS Loan and for OQI to fund its obligations as the holder of a 40% working interest in the Qua Ibo Field, OQI entered into a secured loan agreement with Diamond Bank plc, a Nigerian bank, providing for a facility of US$100 million (the "Diamond Bank Loan"). As at February 28, 2013, the amount drawn down under the Diamond Bank Loan was US$45 million. The security for the Diamond Bank Loan comprises pledges over the shares of OQI, as well as an assignment of the proceeds from the sale of crude oil from OML 56 (Ebendo). Oando is a guarantor of the Diamond Bank Loan.
Pursuant to the Referral and Non-Competition Agreement between Oando and OER dated July 24, 2012 and the Heads of Agreement between Oando and OER dated September 17, 2012, Oando agreed to sell its interests in the Qua Ibo Field to the Company for a purchase price consisting of all properly documented and commercially reasonable expenses incurred by Oando relating to its acquisition up to the closing date of the Acquisition, plus an administrative fee of 1.75%. As at February 28, 2013, Oando's properly documented and commercially reasonable expenses, including plus the 1.75% administrative fee and including fees and interest payable under the Diamond Bank Loan, aggregated to approximately US$3,333,355. OER and Oando have agreed that OER will calculate the purchase price within 60 days of the Closing Date, following which the purchase price will need to be paid. The Acquisition was negotiated at arm's length between OER and Oando.
On the Closing Date, OER will, through indirect wholly-owned Dutch subsidiaries, acquire shares of the OQI Companies. The shares to be indirectly acquired by OER will entitle it to 40% voting rights and the right to receive all of the dividends and distributions from the Qua Ibo Field (other than on liquidation). Oando will also own shares in the OQI Companies, which will entitle Oando to 60% voting rights but no rights to receive dividends or distributions from the Qua Ibo Field (other than on liquidation). OER, through the indirect wholly-owned Dutch subsidiaries, will enter into shareholders agreements with Oando governing how the shares of the OQI Companies can be exercised and transferred. These shareholder agreements will be substantially similar to the shareholder agreements relating to Oando Akepo Limited, Oando Petroleum Development Company Limited and Oando OML 125&134 Limited.
OER Approval Process
Prior to the execution of the Final Agreements relating to the Acquisition, OER's Corporate Governance Committee, comprised of the independent directors of the Company, met several times to review materials prepared in relation to the Acquisition, including the Petrenel Report, a legal due diligence report, as well as a reservoir engineering peer review report. OER also obtained an audit opinion which stated that the schedule of costs incurred by Oando until September 30, 2012 was prepared, in all material respects, in accordance with the financial reporting provisions in the share purchase agreements providing for the indirect acquisition by OER of equity interests in the OQI Companies. Following these meetings, the Corporate Governance Committee unanimously recommended to the board of directors of OER that they approve the execution of the Documentation.
TSX Approval and Multilateral Instrument 61-101
As a "non-exempt issuer" OER is subject to Part V of the Toronto Stock Exchange Company Manual (the "Manual"). Pursuant to section 501(c) of the Manual, where the value of consideration to be received by a related party in a transaction exceeds 10% of the market capitalization of the issuer, the TSX will require that the transaction be approved by the issuer's security holders, other than the related party. Pursuant to the Final Agreements, OER will pay to Oando the sum of $3,333,355 (the "Cash Payment") and assume, indirectly, on a consolidated basis, the obligations owing by the OQI Companies under the Diamond Bank Loan and otherwise (the "Underlying Obligations"). The Cash Payment equals approximately 2.8% of OER's market capitalization (as at February 28, 2013), whilst the Cash Payment and the Underlying Obligations, taken as a whole, exceeds 42% of OER's market capitalization (as at February 28, 2013). The Underlying Obligations do not take into account underlying receivables owed to the OQI Companies from third parties, which are substantial. In light of the potential to view the consideration payable to Oando as exceeding 10% of the market capitalization of OER, OER has, in consultation with the TSX, relied on section 604(f) of the Manual. Pursuant to section 604(f) of the Manual, security holder approval is not required where at least ninety percent (90%) of the issuer's equity and outstanding voting securities are held by one person.
OER is issuing this press release pursuant to section 604(f) of the Manual and accordingly the Closing Date will be at least 10 business days from the date hereof. In addition, the board of directors of OER have concluded, pursuant to the requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), that neither the fair market value of, nor the fair market value of the consideration for, the Acquisition, insofar as it involves interested parties, exceeds 25% of OER's market capitalization (as defined in MI 61-101). The Closing Date is expected to be less than 21 days after the date hereof as a result of the commercial agreement between OER and Oando.
About Oando Energy Resources Inc. (OER)
OER currently has a broad suite of producing, development and exploration properties in the Gulf of Guinea (predominantly in Nigeria) with current production of approximately 3,500 barrels of oil per day. OER has been specifically structured to take advantage of current opportunities for indigenous companies in Nigeria, which currently has the largest population in Africa, and one of the largest oil and gas resources in Africa.
Forward Looking Statements:
This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements.
Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: risks related to the proposed acquisition of the Qua Ibo Field, risks related to the international operations, the actual results of current exploration and drilling activities, changes in project parameters as plans continue to be refined and the future price of crude oil. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (http://www.sedar.com) for the Company. The forward-looking statements and information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Cautionary Statements
There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources.
The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.
"Reserves" are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on analysis of drilling, geological, geophysical, and engineering data; the use of established technology; specified economic conditions, which are generally accepted as being reasonable, and shall be disclosed. Reserves are classified according to the degree of certainty associated with the estimates.
"Proved Reserves" are those Reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves.
"Probable Reserves" are those additional Reserves that are less certain to be recovered than Proved Reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable Reserves.
"Possible Reserves" are those additional Reserves that are less certain to be recovered than Probably Reserves. It is unlikely that the actual remaining quantitates recovered will exceed the sum of the estimated Proved plus Probable plus Possible Reserves.
"Contingent Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or lack of infrastructure or markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.
"Best Estimate" is considered to be the best estimate of the quantity of resources that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. Those resources that fall within the best estimate have a 50% confidence level that the actual quantities recovered will equal or exceed the estimate.
"Low Estimate" is considered to be a conservative estimate of the quantity of resources that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. Those resources at the low end of the estimate range have the highest degree of certainty - a 90% confidence level - that the actual quantities recovered will equal or exceed the estimate.
"High Estimate" is considered to be an optimistic estimate of the quantity of resources that will actually be recovered. It is unlikely that the actual remaining quantities of resources recovered will meet or exceed the high estimate. Those resources at the high end of the estimate range have a lower degree of certainty - a 10% confidence level - that the actual quantities recovered will equal or exceed the estimate.
For further information:
Pade Durotoye, CEO
Oando Energy Resources Inc.
pdurotoye@oandoenergyresources.com
+1-403-561-1713
Tokunboh Akindele
Head Investor Relations
Oando Energy Resources Inc.
takindele@oandoenergyresources.com
+1-403-560-7450
Jeremy Dietz/David Feick
Investor Relations
+1-403-218-2833
jdietz@equicomgroup.com
dfeick@equicomgroup.com
(OER. OER.WT. OER.WT.A.)
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