Eland Oil & Gas PLC OML 40 and Ubima Competent Persons Report (8045S)

TIDMELA

RNS Number : 8045S

Eland Oil & Gas PLC

14 March 2019

14 March 2019

Eland Oil & Gas Plc ("Eland" or the "Company")

OML 40 and Ubima Competent Persons Report

Eland Oil & Gas PLC (AIM:ELA), an oil & gas production and development company operating in West Africa with an initial focus on Nigeria, is pleased to announce the results of a new competent persons report ("CPR" or "Report") provided by Netherland, Sewell & Associates Inc. ("NSAI") as at 31 December 2018.

OML 40 licence

 
      --   Gross OML 40 Reserves, following 2018 gross production of 
            6.5 million barrels of oil: 
                -   Proved ("1P") of 42.9 million barrels ("MMB"), an increase 
                     of 8% since the 31 December 2017 CPR 
                -   Proved plus Probable ("2P") of 82.2 MMB, a 1% decrease 
                -   Proved plus Probable plus Possible ("3P") of 116.8 
                     MMB, a 1% decrease 
      --   Eland's Net (Entitlement*) Present Value at a 10% discount 
            rate with a flat price deck of $71.16 per barrel of oil 
                -   1P of US$ 473.9 million, an increase of 68.2% 
                -   2P of US$ 568.9 million, an increase of 35.7% 
                -   3P of US$ 620.7 million, an increase of 28.1% 
 

* Net entitlement is based on treating Eland funding of the Starcrest Nigeria Energy Limited share of Elcrest E&P Nigeria Limited as a carried working interest, resulting in an Eland participating interest of 45 percent before payout of the loans and 20.25 percent after payout.

Since the previous independent CPR for OML 40 which had an effective date of 31 December 2017, the Opuama field has produced 6.5 million gross barrels of oil.

Despite record Opuama field production, proved oil reserves increased by 3.3 million barrels. The minor reduction in 2P reserves reflects that the Opuama field proved plus probable reserves replacement, as a result of the 2018 drilling campaign, has been limited to approximately 80% of production volumes. Eland will continue to assess reservoir performance of the current well stock with a view to identifying volumetric upside potential, particularly in the flank areas of the field.

NSAI has also increased its estimates of Contingent Resource (2C) for OML 40 by 25% from 40.4 million barrels to 50.7 million barrels of oil gross. This increase follows a re-evaluation of the 1989 Abiala-1 discovery leading to an upward revision from 16.1 million barrels to 26.4 million barrels gross of oil. Eland expects to drill an appraisal well on Abiala in 2020. The upside (3C) estimate for Abiala is 80.5 million barrels gross recoverable.

The 2P NPV10 Net (Entitlement*) ascribed in the CPR of $569 million has risen significantly from the prior year. This change is mainly driven by commercial and development assumptions, such as a higher oil price deck, updated work programme and development costs, changes in the fiscal tax rate and for the first time the value of Elcrest's tax losses incurred while the Company was in Pioneer status. The tax losses, including capital allowances, as at 31 December 2018 will be utilised over the coming years with the effect of deferring Petroleum Profits Tax (PPT) payable in Nigeria. In addition, it is the view of our tax advisors that the Company will benefit from the existing new entrant tax rate of 65.75% for five years following the end of Pioneer status period which ends on 30 April 2019. The NSAI report previously included the assumption that the Company would be liable for Petroleum Profits at 85% following the end of Pioneer status.

Ubima licence (Eland Working Interest 40%)

 
       --   Gross Ubima Reserves 
                 -   Proved ("1P") of 6.2 million barrels, an increase of 
                      634% 
                 -   Proved plus Probable ("2P") of 9.3 MMB, an increase 
                      of 285% 
                 -   Proved plus Probable plus Possible ("3P") of 13.1 MMB, 
                      an increase of 298% 
      --    Eland's Net (Entitlement) Present Value at a 10% discount 
             rate with a flat price deck of $71.16 per barrel of oil 
                 -   1P of US$ 17.2 million, an increase of 673% 
                 -   2P of US$ 31.4 million, an increase of 200% 
                 -   3P of US$ 39.7 million, an increase of 165% 
 

The most recent CPR for the Ubima licence had an effective date of April 2016. At this time AGR TRACS International Limited estimated gross 2P reserves of 2.4 million barrels of oil. In 2018 Eland and its partner successfully re-entered and tested the Ubima-1 discovery well. The new CPR by NSAI estimates gross 2P reserves of 9.3 million barrels representing an almost fourfold increase. NSAI also calculates an NPV net to Eland of over $31 million compared to $10m in the previous CPR.

Aggregated across both licences, the 1P and 2P Reserves Replacement Ratio are 233% and 188% respectively.

George Maxwell, CEO of Eland, commented:

"I am pleased to announce updated CPRs for the Company's OML 40 and Ubima licences. These show great progress in both licences, is a testimony to the high quality of the assets and also the significant investments we have made in each. After such a successful year with record production volumes it is very satisfying to record a 2P Reserves Replacement Ratio of 188%.

We have always believed that OML 40 had significantly more to offer than simply the Opuama and Gbetiokun fields. We will be drilling our first near field exploration well on the licence later this year with the Amobe prospect, followed next year by appraisal drilling on Abiala. These two wells have the potential to more than double the licence's current 2P reserves base. At Ubima, I look forward to the initial phase of development for this field in 2019 following the fourfold increase in reserves estimates."

I am delighted that the CPRs ascribes a value for Eland's share of 2P reserves in OML 40 and Ubima of approximately $600 million, suggesting there is still material potential upside within the Company".

For further information:

Eland Oil & Gas PLC ([phone])

www.elandoilandgas.com

George Maxwell, CEO

Ronald Bain, CFO

Finlay Thomson, IR

Peel Hunt LLP, Nominated Adviser & Joint Broker ([phone])

Richard Crichton / David McKeown

Stifel Nicolaus Europe Limited, Joint Broker ([phone])

Callum Stewart / Nicholas Rhodes / Ashton Clanfield

Camarco ([phone])

Billy Clegg / Georgia Edmonds / Tom Huddart

In accordance with the guidelines of the AIM Market of the London Stock Exchange, Yannis Korakakis, MSc of Leoben University, with 32 years of experience in the oil and gas sector, is a Petroleum Engineer and member of the Society of Petroleum Engineers who meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

Notes to editors:

Eland Oil & Gas is an AIM-listed independent oil and gas company focused on production and development in West Africa, particularly the highly prolific Niger Delta region of Nigeria.

Through its joint venture company Elcrest, Eland's core asset is a 45% interest in OML 40 which is in the Northwest Niger Delta approximately 75 km northwest of Warri and has an area of 498 km(2).

In addition, the Company has a 40% interest in the Ubima Field, onshore Niger Delta, in the northern part of Rivers State.

The OML 40 licence holds gross 2P reserves of 82.2 million barrels, gross 2C contingent resources of 50.7 million barrels and a best estimate of 252.1 million barrels of gross un-risked prospective resources*

The Ubima field holds gross 2P reserves of 9.3 million barrels of oil and gross 2C resource estimates of 4.2 million barrels*

Net production figures relate to Elcrest Exploration and Production Nigeria Ltd ("Elcrest"), Eland's joint venture company. Production rates, when oil is exported via Forcados, are as measured at the Opuama PD meter, are subject to reconciliation and will differ from sales volumes.

*Netherland, Sewell & Associates Inc CPR report 31 December 2018*

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

In compiling the announcement, the Company has used the definitions and guidelines as set forth in the 2007 Petroleum Resources Management System ('PRMS') approved by the Society of Petroleum Engineers (SPE).

OML 40 SUMMARY OF OIL RESERVES AS AT 31 DECEMBER 2018

 
                               Oil Reserves (MB)                         Future Net Revenues 
                                                                                 (M$) 
              ---------------------------------------------------     ------------------------- 
                        Gross                 Net Entitlement*                         Present 
                                                                                        Worth 
                                                                                        at 10% 
              ------------------------     ----------------------                    ---------- 
 Category        Before       After           After         %             Total 
                Royalties    Royalties       Royalties 
---------     -----------  -----------     -----------  ---------     -------------  ---------- 
 1P             42,870.7     34,296.6        13,040.9     38.0%        572,697.4      473,920.1 
 2P             82,205.0     65,764.0        18,952.4     28.8%        681,692.7      568,876.9 
 3P            116,761.6     93,409.3        24,287.8     26.0%        760,145.1      620,731.2 
---------     -----------  -----------     -----------  ---------     -----------  ------------ 
 
 

*Net entitlement is based on treating Eland funding of the Starcrest Nigeria Energy Limited share of Elcrest E&P Nigeria Limited as a carried working interest, resulting in an Eland participating interest of 45 percent before payout of the loans and 20.25 percent after payout.

Since the last CPR dated 31(st) December 2017, Opuama reserves have declined by 1.3 MMB from 45.4 MMB to 44.1 MMB, however within this time period over 6.5 MMB have been produced, representing an upwards reserves revision of 5.2 MMB. Reserves at Gbetiokun have increased marginally from 38.0 MMB to 38.1 MMB.

OML 40 GROSS LEASE CONTINGENT RESOURCES (UNRISKED)

 
   1C of 21.0 MMB 
   2C of 50.7 MMB 
   3C of 117.5 MMB 
 

OML 40 GROSS LEASE PROSPECTIVE RESOURCES (UNRISKED)

 
   Low Estimate of 79.3 MMB 
   Best Estimate of 252.1 MMB 
   High Estimate of 772.4 MMB 
 

UBIMA SUMMARY OF OIL RESERVES AS AT 31 DECEMBER 2018

 
                            Oil Reserves (MB)                      Future Net Revenues 
                                                                           (M$) 
             -----------------------------------------------    ------------------------- 
                       Gross               Net Entitlement                  Present Worth 
                                                                                at 10% 
             ------------------------    -------------------               -------------- 
 Category       Before       After          After        %        Total* 
               Royalties    Royalties      Royalties 
---------    -----------  -----------    -----------  ------    ---------  -------------- 
 1P            6,178.5      5,437.0        4,128.7     75.9%     37,443.6     17,157.5 
 2P            9,315.4      8,197.6        5,389.4     65.7%     52,459.0     31,403.7 
 3P            13,066.8     11,498.8       6,820.8     59.3%     66,665.5     39,688.5 
---------    -----------  -----------    -----------  ------    ---------  -------------- 
 

*Future net revenue is inclusive of revenue generated through financing repayment

UBIMA SUMMARY OF GROSS LEASE CONTINGENT RESOURCES (UNRISKED)

 
   1C of 0.7 MMB 
   2C of 4.2 MMB 
   3C of 8.2 MMB 
 

PRICING ASSUMPTIONS

This oil price used in this report is based on a Brent Crude price of $70.00 per barrel and is adjusted for quality, transportation fees, and market differentials. The adjusted oil price of $71.16 per barrel is held constant throughout the lives of the properties.

GLOSSARY

 
 US$                    United States Dollars 
 %                      Percent 
 1C                     Low estimate scenario of contingent resources 
 2C                     Best estimate scenario of contingent resources 
 3C                     High estimate scenario of contingent resources 
 1P                     Proved 
 2P                     Proved plus probable 
 3P                     Proven plus probable plus possible 
 2D or 2D Seismic       Seismic data which is acquired along a line 
                         with a "Shot and Receiver" con guration that 
                         allows the signal-to-noise ratio to be enhanced 
                         by linear stacking of the re ections caused 
                         by subsurface interfaces between rocks with 
                         different acoustic properties 
 3D or 3D Seismic       Seismic data which is acquired in a multi-azimutual 
                         pattern and processed such that the signal-to-noise 
                         ratio is enhanced by three dimensional stacking 
                         of the re ections caused by subsurface interfaces 
                         between rocks with different acoustic properties 
 bbl / bbls             barrel / barrels 
 Contingent Resources   Those quantities of petroleum estimated, as 
                         of a given date, to be potentially recoverable 
                         from known accumulations by application of 
                         development projects but which are not currently 
                         considered to be commercially recoverable 
                         due to one or more contingencies. Contingent 
                         Resources are a class of discovered Recoverable 
                         Resources. 
 CPR                    The reserves and resources evaluation provided 
                         by Netherland, Sewell & Associates Inc. as 
                         at 18 November 2015 
 MB                     Thousand barrels 
 MMB                    Million barrels 
 Mmtsb                  Million stock tank barrels 
  NPV10                  Net present value at a 10% discount rate 
 
   OML 40                 Oil Mining Lease 40 
 
   Prospective            Those quantities of petroleum estimated, as 
   Resources              of a given date, to be potentially recoverable 
                          from undiscovered accumulations by application 
                          of future development projects. Prospective 
                          Resources have both an associated chance of 
                          recovery and a chance of development. Prospective 
                          Resources are further subdivided in accordance 
                          with the level of certainty associated with 
                          the recoverable estimates assuming their discovery 
                          and development and may be sub-classi ed based 
                          on project maturity 
 Proved Reserves        Those quantities of petroleum, which by analysis 
  ('Proved')             and geoscience, can be estimated with reasonable 
                         certainty to be commercially recoverable. 
                         It is likely that the actual remaining quantities 
                         recovered will exceed the estimated Proved 
                         Reserves 
 Probable Reserves      Those additional reserves that are less likely 
  ('Probable')           to be recovered than Proved Reserves but more 
                         certain to be recovered than Possible Reserves. 
                         It is equally likely that actual remaining 
                         quantities recovered will be greater than 
                         or less than the sum of the estimated proved 
                         plus Probable Reserves 
 Possible Reserves      Those additional reserves which analysis and 
  ('Possible')           geoscience and engineering data suggest are 
                         less likely to be recovered than Probable 
                         Reserves. The total quantities ultimately 
                         recovered from the project have a low probability 
                         to exceed the sum of proved plus probable 
                         plus Possible Reserves 
 

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March 14, 2019 03:00 ET (07:00 GMT)