Shares in Lekoil Limited (LON:LEK) gushed higher on Monday after its joint venture (JV) with investment vehicle Green Energy International signed a memorandum of understanding (MOU) for the development of the Otakikpo project in Nigeria.
The West Africa-focused oiler said the MOU had been signed with Schlumberger Limited (NYSE:SLB), the world’s largest oilfield services company, and another firm identified as the subsidiary of a “major international oil company” which has operated in Nigeria for over 50 years.
The MOU covers a comprehensive infrastructure sharing and drilling programme around a group of marginal field assets at Otakikpo, with the phased development plan consisting of five new wells to be drilled at the project, expanded processing infrastructure and the construction of an export pipeline.
Lekoil said its JV would partake in field development costs while project and asset management costs would be shared between the JV and the owners and operators of other fields participating in the project.
The JV was expected to incur capital expenditure of around US$170mln, of which Lekoil would fund US$68mln.
Meanwhile, Lekoil said the JV would enter an exclusive offtake agreement with the oil major for the sale of any crude produced at the project.
Pending due diligence and a final investment decision, site mobilisations were tentatively scheduled for the late-third quarter of 2019.
Lekan Akinyanmi, Lekoil’s chief executive, said the MOU was a “significant milestone” for the company as it secured the necessary funding to drill additional wells and “unlock further value” at the Otakikpo project.
“We look forward to the transformation of operations infrastructure and an opportunity to earning revenue along the value chain", Akinyanmi said.
Commenting on the news, analysts at SP Angel said while precise details of the MOU were yet to be established, on the face of it the agreement looked like "a good deal for Lekoil".
The news sent the shares up 28.5% to 4.8p in late-morning.