Bowleven has entered into a revised option agreement with Vitol in respect of the Etinde Permit, offshore Cameroon.
Under the agreement, which replaces the previous option arrangement, Vitol have an option to acquire a 10 percent participating interest in block MLHP-7, Etinde, in return for funding an agreed $50 million gross appraisal work program. The option expires on the earlier of (i) the spud date of the next appraisal well on block MLHP-7 or (ii) 31 March 2011. The option arrangement excludes blocks MLHP-5 and MLHP-6, Etinde, where the Sapele-1 exploration well is currently being drilled. Bowleven will retain operatorship of all three blocks.
The nature of the option and its applicability to only block MLHP-7 reflects Vitol's primary focus on appraisal and development activities and the understandable requirement for further technical work to be completed prior to a firm future development and appraisal plan being agreed on the IE and IF field areas. In this regard, work is ongoing integrating the results of the recent IE-3 appraisal well and on the processing and interpretation of the newly acquired 3D seismic over the IF field area.
Bowleven and Vitol currently have participating interests of 75 percent and 25 percent respectively in the Etinde Permit. In the event of option exercise, Bowleven's participating interest in block MLHP-7 would be 65 percent with effect from the date of exercise, with its participating interest in blocks MLHP-5 and MLHP-6 remaining at 75 percent. All participating interests are expressed prior to the exercise of any state back-in rights.
The Etinde PSC effectively restricts the equity that can be transferred to a new participant to a minimum of 25 percent (pre state back-in). Consequently by retaining a greater equity position Bowleven retains the flexibility to bring in a further partner, if deemed appropriate, whilst still retaining a material ongoing position.
Bowleven estimates that it will have approximately $80 million of cash and no debt on completing the Sapele-1 exploration well (excluding testing). This excludes approximately $35 million proceeds anticipated from the disposal of EOV, offshore Gabon. Once the remainder of the existing Vitol $100 million carry is exhausted, Vitol will continue to fund activities across the Etinde Permit in accordance with their existing 25 percent equity interest.
The Etinde joint venture is currently drilling the high impact Sapele-1 exploration well on block MLHP-5 (Bowleven participating interest 75 percent). Update announcements on drilling activities will be made as appropriate.
Kevin Hart, Chief Executive of Bowleven commented, "We are delighted to have agreed a revised option arrangement with Vitol that is mutually beneficial. It highlights the enhanced value of our existing discoveries on MLHP-7 and also ensures that Bowleven retains a significant equity interest in the Douala basin, an emerging exploration province that is increasingly capturing industry attention. This includes the high impact Sapele-1 exploration well that is currently drilling on block MLHP-5, Etinde. With an estimated $80 million in cash post Sapele-1 drilling and an additional $35 million disposal proceeds anticipated we are well positioned to fund our 2011 work program. The higher equity interest we have retained across the Etinde acreage affords the opportunity to bring in additional partners if deemed appropriate."
Ian Taylor, President and CEO of the Vitol Group commented, "The principal focus of Vitol's participation in Etinde is to move the existing discovered resource base towards development sanction. The extension to the option exercise date gives the joint venture additional time to evaluate the extensive data recently acquired from the IE-3 appraisal well and other activities, before agreeing the optimal next steps to progress the acreage towards development."
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