10 October 2011
Sirius Petroleum plc
("Sirius" or "the Company")
Proposed Farm-in to First Marginal Field
Sirius (AIM:SRSP), the investing company focussed on oil and gas exploration and development opportunities in Nigeria, announces that it has entered into a Financial and Technical Services Agreement ("FTSA" or "the Agreement") with Owena Oil and Gas Limited ("Owena") and Guarantee Petroleum Company Limited ("Guarantee") in relation to a proposed investment in the Ororo marginal oil field which is located in Oil Mining Lease 95 ("OML 95") in Nigeria.
Under the terms of the Agreement, Sirius has committed to fund the preparation of a Competent Person's Report ("CPR") and some additional preliminary preparation work including conducting an Environmental Impact Assessment, planning appropriate community projects, undertaking a site survey to finalise the subsequent drilling programme and will also cover certain operational costs. It is intended that these tasks be completed before 31 January 2012. On the satisfactory completion of these tasks, and at its sole discretion, Sirius may proceed to acquire a 40 per cent. interest in the Ororo Field in accordance with the terms of the FTSA. In consideration of entering into the Agreement, Sirius has agreed to pay US$1m in aggregate to Guarantee and Owena.
Ororo Field Summary
· The Ororo Field sits in shallow water offshore Ondo State, Nigeria, in water depths ranging between 23 ft and 27 ft.;
· The Ororo Field was discovered in 1986 with the drilling of the Ororo-1 well by Chevron, which penetrated 197 ft of hydrocarbons in twelve sandstone reservoirs at points close to the crest of each reservoir structure. These consist of 72ft true vertical thickness ("TVT") of net gas pay and 125ft TVT of net oil pay. The Ororo-1 well tested at c. 2,200 barrels of oil per day ("bopd") from a single zone, and ca 600 bopd from another; two further zones tested gas, and eight zones remain untested. Chevron acquired both 2D and 3D seismic over the Ororo Field;
· The recoverable hydrocarbons were most recently estimated to be in excess of 20 million barrels gross in a third party report prepared in 2006, which will be the subject of verification by the Competent Person (consultant) to be mandated by Sirius to produce a CPR;
· The closest producing fields are Mina, Isan, and West Isan, all of which are operated by Chevron and are situated between 4km and 6km from Ororo providing a low cost tie-in opportunity;
· Sirius' development partners are Owena (the state government vehicle owned by Ondo State set up to hold interests in Ondo State's oil and gas assets) and Guarantee Petroleum, an indigenous company designated as the Operator;
· If Sirius decides to proceed to field development, Sirius will be entitled to a 40 per cent. interest in the Ororo field, jointly operating the field with Guarantee and Owena, and Sirius will fund 100 per cent. of the development costs. Upon production of oil, Sirius will pay a further US$500,000 in aggregate to Guarantee and Owena and will be entitled to a preferential cash flow from the production of crude oil to recover its investment, receiving 88 per cent. of net cash flows from Ororo, until full Cost Recovery is achieved, at which time Sirius' cash flow entitlement will revert to 40 per cent. in accordance with its equity interest;
Subject to satisfactory completion of the preliminary works programme, including Environmental Impact Assessment and Drilling Site Surveys, and subject to rig availability, Sirius anticipates that production from the Ororo field could start as early as Q3 2012.
Commenting, Ed Johnson, CEO of Sirius Petroleum, said: "The marginal field opportunities in Nigeria make this area of operation very scaleable for Sirius, and the Ororo farm-in would mark the first stage of the delivery of our strategy to derive significant value for our shareholders and partners via the acquisition of high quality marginal field oil & gas assets to build a strong upstream business. The Ororo field itself represents an optimal first asset, with an existing flow test and with a potentially rapid time to first production.
"We are very well positioned to develop our first and subsequent assets in Nigeria where we have established a series of strong partnerships. Given our in-country relationships and strong financing position, with commitments in place from third parties to procure funding lines in excess of $80 million for the Company, we are optimally positioned to deliver significant growth within an accelerated timescale. Both Owena and Guarantee will be valuable partners to Sirius in its pursuit of its Marginal Fields strategy, and Sirius looks forward to working with both companies."
Sirius Petroleum plc
Ed Johnson, CEO
Jamie Bligh, IR
+44 (0) 20 7451 9800
Strand Hanson Limited (Nominated Adviser and Broker)
James Harris / James Spinney
+44 (0) 20 7409 3494
John Bick / Justine James
+44 (0) 20 7193 7463
+44 (0) 7872 061 007
Sirius Petroleum Strategy
The Company's investment strategy has been to target discovered oil fields in Nigeria. These fields may fall below IOC commerciality threshold (typically 100mmbbl at a minimum) and frequently have no development plan despite having proved and probable reserves. There are over 6 billion barrels of discovered undeveloped resources in Nigeria, which presents a very significant opportunity set for companies such as Sirius, and this absolute level of accessible resource is further enhanced by the uniquely advantageous fiscal terms enjoyed by indigenous companies and their partners. Sirius's specific strategy is to target Marginal Fields with genuine Proven and Probable oil Reserves and potentially rapid timescales to first oil, at attractive entry prices and with limited exposure to pure contingent resources or exploration. These criteria will allow Sirius to deploy capital optimally to ensure maximum returns to shareholders over the lifecycle of the business. Sirius believes that its partnerships with Owena Oil and Gas, Guarantee Petroleum, Dajo Oil, Frontier Oil, Bolad Energy Company and RT5 Petroleum will enable the Company to access a pipeline of suitable oil fields in Nigeria, either through existing designated Marginal Fields or from forthcoming divestitures from the major oil companies present in Nigeria.
The pending Petroleum Industry Bill ("PIB") is expected to further improve fiscal regimes for indigenous companies and enable preferential access for indigenous companies to onshore and shallow offshore licensing. The Department of Petroleum Resources has stated there will be another marginal field bid round held in Q4 2011 which will be exclusive to indigenous companies and it is the stated intention of various of Sirius' partners to participate in this bid round.
Information on Owena and Guarantee - The Ororo Field Partners
Owena Oil and Gas is a government vehicle owned by Ondo State set up to hold interests in Ondo State's oil and gas assets. Ondo State is an oil producing state in the South West of Nigeria where many of Chevron's assets are in production, and Owena continues to enjoy preferential access to oil fields in the state thanks to the Nigerian government's push to allocate proven oil fields to indigenous Nigerian companies.
Yele Ogundipe, Chairman of Owena, is the Commissioner for Finance for Ondo State. The Managing Director, Goke Adeniyi, is the Senior Special Advisor (Oil & Gas) for Ondo State having previously worked at Schlumberger Nigeria for a number of years before retiring as its Managing Director in 2008. Chevron, the international oil major, has been operating in the coastal area of the state, and has continued to enjoy a peaceful and mutual relationship with the government and people of the area.
According to the Governor, Ondo State is one of the most peaceful states in the oil-rich regions of the country and his administration will continue to sustain it for the benefit of the state and the country.
Guarantee Petroleum, an indigenous company designated as Operator of the Ororo field, is well-placed to participate in the marginal field programme. The Chairman, Dr Samuel. O. Omobomi graduated with a Ph.D. in Economics from New York University and sits on the board of several companies including West African Breweries Ltd, Peugeot Automobile Nigeria Ltd, Wema Bank Plc, and Ecobank Nigeria Plc. Other board members include Professor Emmanuel. A. Fayose, a professor of geology and an exploration geologist, and Mr Odion Abayomi Unuigbe who retired as the Financial Controller of Corporate Trust Group, Lagos before he left to start his Accounting Practice.