Lion said it would outlay US$8 million to acquire a 20% interest in a company holding a 70% interest in the Main Pass-59 (MP-59), a producing oil field in the Gulf of Mexico operated by a major international oil company. This equates to an effective 14% net interest in the oil field.
Canadian-based International PetroReal Oil Corporation announced in May this year it would acquire the 70% stake in MP-59 owned by USA-based Ridgelake Energy, Inc, for US$78 million.
PetroReal has now agreed to on-sell 20% of its planned 70% ownership of the field to Lion Energy. All sale agreements over the acreage are expected to be finalised early in the New Year, subject to due diligence.
The Gulf of Mexico acquisition would give Lion Energy stakes in two international producing oil fields, adding to its 2.5% interest in the onshore Oseil field in Indonesia’s Seram PSC.
“The acquisition is expected to generate pre-tax revenue entitlements net to Lion Energy totalling more than US$25 million over the next six years,” the company’s chairman, Joe Mercorella, said today.
“Production should continue from the field for the next 20-30 years, subject to the amount of additional reserves proven by further drilling, so in every sense, the Gulf of Mexico will become our powerhouse.”
Operating costs and development expenses were likely to be funded from cash flows derived through the MP-59 investment, so the acquisition would provide a substantial revenue and earnings upside in a low-risk and proven oil province, with exposure to a world-class operating partner, Mercorella said.
“In addition, we are acquiring proven producing oil reserves in an area where the considerable developed infrastructure ensures operating costs are highly reasonable,” he said.
The acquisition will more than double Lion Energy’s daily production to over 1,000 barrels of oil per day (bopd) by mid 2005.
Lion Energy said it had a three-pronged funding strategy to meet plans to fund its US$8 million obligation. It would use proceeds of US$4.35 million (A$5.65 million) from the recently announced proposed sale of its producing but mature Bula oil field in Indonesia, as well as about US$1.1 million (A$1.43 million) from the sale of oil inventory at Bula, plus a private placement of up to 295 million ordinary shares at one cent per share, or other securities, in Lion Energy, to a maximum of A$2.95 million.
The Main Pass-59 field is due to resume production later this month after the completion of repairs to the platform and facilities of damage sustained in the recent Hurricane Ivan.
Mercorella said the MP-59 partners planned to increase production through a debottlenecking program in the first half of 2005 designed to boost output to more than 4,000 bopd, with development drilling expected to lift this figure to more than 6,000 bopd.
“Lion Energy’s net entitlement from this production upgrade will be between 560-840 bopd, in addition to our net entitlement of 450 bopd from Indonesia,” Mercorella said.
“Sales of these oil entitlements will put Lion Energy into a much healthier cash flow position.”
The MP-59 field is operated by a major international oil company and is located off the Louisiana coast in US federal waters. It currently has 15 wells and 17 active oil completions on one platform and one satellite structure, located in 70 feet of water.
The field was producing approximately 2,700 barrels of oil and 0.8 million cubic feet of gas per day before production was suspended ahead of Hurricane Ivan.
Independent reserve evaluations by Schlumberger, R.A.Lenser & Associates and Ryder Scott identified net proven reserves to the Ridgelake interest of 8.2-14.4 million barrels of oil and 4.5-7.6 billion cubic feet of gas. In addition Ridgelake estimates that there are up to 17.4 million barrels of probable and possible net reserves to be proven up by further drilling.
Gas is entrained with the oil and represents about 10% of the value of the MP-59 field.
Lion Energy shareholders will vote on January 7, 2005, on the proposed Bula field sale. But the Gulf of Mexico acquisition is not subject to shareholder approval.