The company’s operations on the Bilabri Field development continued to suffer from ongoing security issues, including further kidnappings of rig personnel, which resulted in protracted inactivity and culminated in the termination of both the drilling rig contract and the FPSO contract.
This has put completion of the development by Equator in significant doubt. In September, Equator agreed to transfer the responsibility of completing the project to its partner and operator of the block, Peak Petroleum Industries Limited, while retaining a smaller interest in future oil and gas production.
In the light of the uncertainties surrounding the recoverability of the costs Equator has incurred to date on OML 122, on both Bilabri and Owanare, the company considers that, as a matter of financial prudence, a further provision should be made. Equator, therefore, made provision for U.S. $70 million in the first half of 2007, in addition to the $200 million provision made in 2006.
However, against the disappointments on the Bilabri development, Equator has been successful in farming out a portion of its interest in deepwater Block OPL 323 to BG Exploration and Production Nigeria Limited, which subject to Nigerian government approval, will bring in a total of up to $75 million in cash and carry on exploration and appraisal costs.
As a consequence of concluding a settlement with Peak, whereby Peak will take over the operation and financing of OML 122, the board has implemented a strategy to optimize the value of its exploration assets through a process of farm outs, sales and carried interests. This will allow a realignment of the organization with the reduction in operational activity.
It is expected that the revised organization will be fully implemented by early 2008. The company firmly believes that this restructuring is in the best interests of all stakeholders, as it will reduce the funding requirements in the medium term while the company maximizes the value of Equator assets.
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