LEKOIL has agreed to acquire, subject to the receipt of the required consents, via Lekoil 276 Limited ("Lekoil 276" which is a 100 per cent. owned subsidiary of Lekoil Nigeria), a 45 per cent. participating interest in the Production Sharing Contract ("PSC") in relation to the Oil Prospecting Licence 276, covering a territory located onshore in the eastern Niger Delta basin (the "Licence"). The agreed acquisition, from Newcross Petroleum Limited ("Newcross"), is for a total staged consideration of US$5million (the "Consideration"), which is payable subject to the milestones listed in the highlights below (the "Acquisition"). Lekoil 276 will also enter into an Interim Governance Agreement with Newcross and Albright Waves Petroleum Development Limited ("Albright") setting out the terms on which Lekoil 276 will provide technical support to the PSC.

 The Acquisition is consistent with the Company's continuing strategy to assemble a balanced portfolio of oil and gas interests, which already include production (Otakikpo), appraisal (OPL310) and high impact exploration assets in known basins (OPL325).

 The Licence is covered by approximately 150 sq. km of 3D seismic, shot in 2008 by BGP Inc., a subsidiary of China National Petroleum Company (CNPC), as well as various 2D seismic surveys.  It is in close proximity to three existing producing fields, all less than 20 kilometres away:

· Effiat-Abana in OML114
· Stubb Creek straddling OML13 and the Licence
· Uquo in OML67

Newcross has previously identified ten prospects and seven leads in the area covered by the Licence. Four wells have been drilled in the License area, resulting in four discoveries (two oil and two gas):

· Uda; drilled in 1972 (oil & gas discovery)
· Okposo-East; drilled in 1980 (oil & gas discovery)
· Mbo; drilled in 1990 (gas discovery)
· Davy Bank; drilled in 1986 (gas discovery)

Preliminary resource estimates by Newcross, based on data from these four wells, reported gross recoverable volumes of 29 million barrels of oil and 333 Bcf of gas, upside of 33 million barrels of oil and 476 Bcf of gas (recoverable). LEKOIL has verified these estimates internally, but also intends to commission an independent Competent Persons Report in due course. LEKOIL sees a clear opportunity for re-entering one or more of these discovery wells, with the potential for rapid monetization of resources due to existing export facilities nearby. 

The Company expects to finance the Acquisition and the costs of the future asset work programme (the "Programme") with a combination of its existing financial resources and a financing solution with a strategic industry partner - discussions about which have already commenced.

Further Detail on the Acquisition

• Lekoil 276 Limited to acquire, subject to the receipt of the required consents, a 45 per cent. participating interest in the PSC from Newcross and to serve as Technical Partner; other holders of participating interests in the PSC are Newcross holding 45 per cent. participating interest (and Newcross is also the current operator) and Albright holding the remaining 10 per cent.
• Four wells have been previously drilled leading to existing discoveries and three existing producing fields are less than 20 kilometres away with proven export options.
• The Acquisition is conditional upon, among other things, the extension of the term of the Licence and the PSC, obtaining the consent of the Nigerian National Petroleum Corporation ("NNPC") and obtaining the approval of the Minister of Petroleum Resources of the Federal Republic of Nigeria (the "Ministerial Approval").
• The application for extension has been filed with NNPC and awaits approval from both NNPC and ultimately the Minister of Petroleum Resources
• The Consideration is payable as follows:

o US$750,000 to be held in escrow starting from the extension of the term of the Licence and to be released upon receipt of the Ministerial Approval;
o US$2.75 million to be paid after the Ministerial Approval is obtained and upon occurrence of the conversion of the Licence to Oil Mining Lease ("OML"); and
o US$1.5 million, to be paid within three months after the receipt of first crude oil sale proceeds from continuous commercial production from the PSC.

• Lekoil 276 has also agreed to fund the costs of the Programme attributable to Newcross and Albright and expects to recover all such carried costs ("Cost Recovery"), more specifically:

o exact capital requirements for the Programme will be finalised once the extension for the Licence is received;
o the Company does not anticipate any substantial capital expenditure to be required for the Programme for the remainder of 2019; and
o Cost Recovery will be from crude oil sale proceeds structured as follows:

Ø 80 per cent. of Newcross and Albright Cost Oil; and
Ø 70 per cent. of Newcross and Albright Profit Oil.

Commenting, Lekan Akinyanmi, LEKOIL's CEO, said,
"The acquisition of an interest in the OPL276 PSC represents an excellent opportunity to further build our growing production base in line with our stated strategy to create a balanced portfolio of assets. With the completion of this, LEKOIL will have acquired a potential near-term producing asset with significant resource potential. We are optimistic about the prospects here, which have shallow reservoirs and are cost efficient to develop. Our focus will now shift to moving plans quickly forward for oil and gas production. We look forward to working with our partners to unlock additional value for our investors."

The Licence Background

The Licence was formerly operated by Shell Petroleum Development Corporation (SPDC) as OML 14 until 2004. It is located in the eastern Niger Delta basin at the estuary of the Calabar River, within a transition zone, which consists of dry, flat land, fresh water rain forest swamps, mangrove swamps and beaches in Akwa Ibom State. The asset is partly onshore (land and swamp) and partly shallow marine (tidal river estuary) block, comprising 524 sq. km, of which around 250 sq.km is located offshore and 274 sq.km is located onshore. Discoveries have previously been made in the Licence (Uda, Okposo East, Mbo and Davy Bank Fields). The Licence is in the PSC signed in 2006, with Nigerian National Petroleum Corporation as the Licence holder and, prior to the Acquisition, Newcross (90 per cent., Operator) and Albright (10 per cent., Local Content Vehicle) as the contractor parties. As per unaudited management accounts prepared by Newcross, as at 31 July 2019, the Licence reported total assets of US$55 million.

Link to Lekoil Nigeria country profile