United Buys Egyptian Production (Update)
(Adds detail about gas, para 1)
AIM-listed United Oil & Gas is to pay $16mn in a reverse takeover for Rockhopper’s Egyptian assets, with financing from BP agreed for up to half the total, it said July 23. The assets include a 22% non-operated position in the producing Abu Sennan concession onshore Egypt and it said the “transformational” acquisition would deliver over 1,100 barrels of oil equivalent (boe)/day of net low-cost production with 2.64mn boe net proven plus probable reserves. About a quarter of Abu Sennan's production was gas in the year to December 31, 2018.
United and BP have entered into an offtake agreement regarding United's future oil and gas production and an equity placing is planned to fund the rest, of which up to $5mn may be taken up by Rockhopper Exploration in new ordinary shares in United.
Kuwait Energy, the operator, is seeking bids for the construction of a sales gas pipeline from Al-Jahraa field to the gas plant at El Salmiya. Rockhopper has only been in Egypt since it bought the stake for $11.9mn three years ago and has since earned $4mn or so in cash-flow, making a profit of about $8mn for investing in production elsewhere, including Sea Lion off the Falkland Island. It is also involved in an Italian arbitration case.
United believes there is significant potential to increase production through an infill drilling programme which is currently in progress. This has already been reported by Rockhopper Egypt to have boosted gross production by over 1,000 boepd since the beginning of the year, compared to average gross production of 3,700 boepd for 2018. Most recently reported (end-2018) working interest 2P reserves are 2.64mn boe (net entitlement 1.12mn boe), although this does not take into account the recent drilling results (see below).
In addition to the seven production concessions, the Abu Sennan concession also contains a 653km2 exploration area, with a significant prospect and lead inventory. The historic drilling success rate on the concession has been 80%.
The concession partners are Kuwait Energy (25% and operator), Global Connect (25%) and Dover Investments (28%).
"Not only will [the deal] deliver our first production, positive cashflow and significant reserves it also offers very promising infill and exploration upside," United CEO Brian Larkin said. “Having reviewed many opportunities in the last 18 months, Rockhopper Egypt was by far and away the most exciting opportunity and the best strategic fit for our business…. In addition, we are very pleased with BP's support for the deal, through the provision of acquisition finance, and we look forward to developing future business together.”
He said the production deal would contribute to United’s significant development potential and supported the management’s goal of building a full cycle, oil and gas exploration and production company which delivers exceptional value for our shareholders.
Rockhopper’s website says an “active drilling programme for 2019 is underway including one exploration well, two in-fill oil producer wells and a second water injection well on the Al Jahraa field.” In June, it said its latest well at Abu Sennan had found multiple pay zones in four reservoirs, maintaining the momentum during 2018 where it was successful in three out of four wells.