San Leon notes some progress at OML 18 in Nigeria

The AIM-traded firm said current oil production at the project, including 50% of the Awoba field, was approximately 53,000 barrels of oil per day (bopd) before downtime and pipeline losses - down approximately 3,000 bopd since the operational update last April.

In 2017, OML 18 produced 40,360 bopd before pipeline losses, or 50,450 bopd before pipeline losses on a producing day basis.

During that year, average oil sales after downtime and disputed pipeline losses were 26,440 bopd, compared with 30,969 bopd in 2016.

The company said the discrepancy between the sales and production numbers, and delays in production increases, continued largely to be attributable to three main factors - workover and drilling progress, production downtime, and estimated pipeline losses.

Each of those was being addressed by Eroton, the operator of OML 18, the board confirmed.

Current gas sales were approximately 50 million standard cubic feet per day (mmscf/d), and in 2017 the average gas sales were 45.2mmscf/d, after downtime.

Production at OML 18 had continued uninterrupted by any security issues in 2017, San Leon confirmed.

During January this year, however, illegal bunkering activity caused a fire on a non-operational well on the Buguma field.

That did not affect production, and there were no casualties, with the fire swiftly brought under control by Eroton without a reportable spill.

The Krakama field was brought into production in January last year on schedule, San Leon noted, with well activity on the field yet to commence.

Current oil production from Krakama was approximately 4,500 bopd.

The Buguma Creek field, previously expected to go online in the fourth quarter of 2017 with production transported in bulk to the Krakama facility, was now expected online during the third quarter of 2018.

Field development plans for Akaso, Cawthorne Channel and Alakiri had been submitted to the Nigerian National Petroleum Company, San Leon reported, with approval expected during the first quarter of 2018.

It said Eroton was working on an updated reserves report, with an expectation of adding material oil and condensate volumes.

“San Leon has been part of OML 18 for nearly 18 months,” commented San Leon CEO Oisin Fanning.

“The pressure on production levels caused by a scarcity of capital available to OML 18 for investment in well activity, together with securing permissions, has been exacerbated by downtime and pipeline losses caused by external factors.

“This has resulted in materially lower production and sales volumes compared with those assumed and documented in the admission document.”

Fanning said the company was looking forward to receiving the new competent person's report, which would form a new basis for evaluating the development plans, forward production profile and economics of the OML 18 project.

“Most importantly, these issues are not expected to affect, materially, the long-term field performance, whilst in the shorter term San Leon has a number of protections in place for receiving loan note repayments which are expected to be approximately $19m per quarter.”

The company was anticipating a turnaround in OML 18's net production after downtime and pipeline losses once several events have occurred, Fanning explained.

“First, capital needs to be available at Eroton level for well activity. This may include the receipt of NNPC arrears payments, and external finance, for instance.

“Secondly, rig-based activity needs to begin, in combination with the non-rig workovers already occurring - this is expected materially to increase gross production.

“Thirdly, the alternative crude evacuation and storage facilities must be installed, which the company expects to bring the combined downtime plus pipeline losses to below 10%.”

That would provide a large boost to net oil production, Fanning concluded.