Equator, the exploration and development oil and gas company with projects in the highly prospective offshore basins of The Gulf of Guinea, offshore West Africa announced an update on the Company's progress on a number of initiatives. The Company's stated ongoing strategy is to optimize the value of and secure funding for its interests offshore West Africa in the best interests of all stakeholders. This strategy is progressing satisfactorily as the farm-out of 20 per cent of the Company's interest in OPL 323 held by Equator Exploration Nigeria 323 Limited ('323 Ltd') to BG Exploration and Production (Nigeria) Limited ('BG') is progressing and is now in the final stages. 323 Ltd is now at the point of seeking the signatures of its partners on the transfer deed and the documents to amend the joint venture agreements prior to submission to the Nigerian authorities for final approval.
Also, Equator has received offers from a number of entities to farm-in to its interest held in OPL 321 by Equator Exploration Nigeria 321 Limited. The Company is currently evaluating these offers and is confident that agreement will shortly be reached with at least one of these entities.
Equator continues to seek ways to monetize all or part of its interests held by Equator Exploration JDZ Block 2 Limited in JDZ Block 2 and also in the Company's two option blocks in the Exclusive Economic Zone of São Tomé e Príncipe ('EEZ').
Equator also announced that it has reached a settlement with its bidding partners regarding the remaining net profits interests in both OPL 321 and OPL 323. Equator confirms that it now has the full 30% economic interest in both blocks out of which the farm-out of 20% of OPL 323 is in its final stages and the farm-out of OPL 321 has yet to be agreed. In settlement, a relatively small cash payment will be made from the proceeds of the farm-out of OPL 323 to the partners who bid with us for the blocks in 2005. The bidding partners have also been granted a total of 5.6 million warrants, priced at 8 pence, over common shares in the Company.
The arbitration process held in London between Equator Exploration (OML 122) Limited ('OML 122 Ltd') and Peak Petroleum Industries Nigeria Limited ('Peak'), was undertaken in accordance with the terms of the Bilabri Settlement Agreement ('BSA'), details of which were announced on 28 September 2007, is now concluded. A final award, which is enforceable in Nigeria under Nigerian Law, was issued on 27 May 2008 by the Arbitrator in favour of OML 122 Ltd in the total sum of US$123 million plus interest ('Final Award').
Prior to the grant of the Final Award, Peak had made several representations to the Company that it will be able to and intends to satisfy in full, the terms of the BSA at the latest by the middle of June 2008. With this in mind and in order not to frustrate Peak's current financing initiative, the Directors of Equator have taken the view that it would be prudent and in the interests of the Company's stakeholders to achieve settlement under the BSA before enforcing the Final Award. Although OML 122 Ltd is presently taking steps to register the Final Award in the Nigerian courts, it will however not seek to enforce its claim in the Nigerian courts until after the middle of June 2008, at which time the Company will reassess its position if settlement under the BSA is not realized.
Equator remains in contact with Dolphin Drilling Limited, BW Offshore Limited ('BW') and other suppliers from the suspension of the Bilabri development as the farm-outs noted above and the potential settlements under the Final Award or the BSA move closer to completion. Determination of the contingent liability to BW of up to US$ 58 million, noted in the Company's Interim Accounts for 2007, of which US$20 million has already been paid, which may result from the termination of the charter agreement for the Floating Production, Storage and Offtake Unit by BW, is the subject of legal proceedings in the British Virgin Islands. However, in order to ensure that the interests of all of the Company's stakeholders are safeguarded, the Company is currently in discussions with BW.
Directors of Equator believe that completion of the farm-outs will provide the Company with significant additional working capital of approximately US$80 million. In addition it will eliminate the future cash requirements of approximately US$27 million under the committed exploration work programs for the residual interests that will be held by the Company in both OPL 321 and OPL 323. It is also believed that following the proposed farm-outs and the resolution of the net profits interests, the Company will have residual interests in each of OPL 321 and OPL 323 of at least 10 %. These, together with the interest in JDZ Block 2 and the two option on blocks in the EEZ, provide an exploration portfolio with significant upside potential.
Directors currently expect exploration drilling to commence on OPL 321 and OPL 323 late in 2009 and on JDZ Block 2 in 2010. The Directors also believe that delineation of the blocks in the EEZ is unlikely to be completed prior to first quarter 2009.
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