United Oil & Gas signs option agreement in Benin

Oil and gas exploration and development company United Oil & Gas announced on Monday that it has signed an option agreement with Elephant Oil, to farm in to their Block B onshore acreage in Benin, potentially taking a 20% interest in the production sharing agreement.

The AIM-traded firm said the Bénin onshore Block B was located in the Dahomey Embayment, and covered an area of 4,590 square kilometres, or around 1.1 million acres.

It explained that the block was located to the west of Bénin's capital Cotonou, continuing to the Togo border.

The Dahomey Embayment of onshore Benin is a frontier area, United said, with no wells drilled in it to date.

However, the licence was surrounded by prolific hydrocarbon producing regions, and there were “excellent” positive indications of a working petroleum system, the board explained.

Not only had a working system been demonstrated in the Shelfal area offshore Benin, with the Seme and Dahomey fields containing approximately 100 million barrel reserves, but wells drilled along the coast in the same Dahomey Embayment in onshore Ghana and Nigeria had encountered hydrocarbons, it pointed out.

“Indeed, oil and gas seeps have been reported from water wells within Benin Block B, and an extensive tar belt, potentially indicating the migration of oil through the targeted Cretaceous stratigraphy of Block B, has been reported to the north east of the area,” the United Oil & Gas board said in its statement.

At this point, it said the Block B licence data was limited to a single seismic line and a CGG-acquired airborne Falcon Gravity Gradiometer survey.

It said the data suggested the presence of numerous large structures in the licence, with the potential to hold more than 200 million barrels.

The Allada structure had already been identified by Elephant Oil as a prospect.

Under the farm-in option agreement, United agreed to fund passive seismic and field studies up to a value of $0.18m.

The completion of the passive seismic programme was being targeted for April.

United said the goal of the proposed work programme would be to calibrate the depth to basement, and obtain further information on the oil and gas seeps.

That would further de-risk maturity and migration in the area ahead of the completion of a final decision to exercise the farm-in option.

If United chose to exercise the option, then the company would farm into the production sharing contract for a 20% interest and would be responsible to fund 30% of the non-drilling and 20% of the drilling costs in the phase 1 work programme, as approved under the production sharing contract.

United would also pay Elephant $0.26m, representing one-quarter of the pro rata past costs expended by Elephant on the prospect, with the remaining $0.78m paid in three equal six-monthly instalments.

“We are delighted to take a position in this exciting new opportunity,” said United chief executive officer Brian Larkin.

“The new licence is a great fit with the United business model, where we are continuing to build a portfolio of near-term low risk assets and a viable producing business based in Europe, with carefully selected frontier exploration licences with transformational upside in South America and Africa.

“United has, for some time, stated that our technical and commercial teams have been actively assessing a number of new opportunities that are development and production focussed.”

Larkin said that a number of those more mature opportunities were under non-disclosure agreements, and nearing advanced stages of due diligence and commercial negotiation.

“However, when this early stage, high-impact opportunity in Benin came to our attention, we immediately considered ourselves fortunate to be able to take a position instantly bulking up and adding further diversification to our high-impact portfolio offerings.

“This agreement in Benin is additional to our existing pipeline of potential near-term acquisitions and joint ventures.”

As with the company’s assets in Jamaica, Larkin said the scale of the new licence in Benin and its proximity to other working hydrocarbon systems lend it to having “huge potential” high-impact upside, with early data suggesting the presence of numerous large structures.

“Through working in Ghana and the Cote d'Ivoire, the United management has significant experience of Western Africa.

“As with our other frontier exploration acreage in Jamaica, we believe that Benin can be transformational for United and it is indeed a testament to the technical and commercial skills of the wider team in being able to identify and assess such exceptional opportunities and speedily onboard these to the growing United portfolio.

“This excellent opportunity has been added to our portfolio at a very small initial commitment and is one which we look forward to continuing to update investors upon as we work with our new partners to further derisk and eventually market this exciting new play.”