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Afren to Farm Into Oml 115 Offshore Nigeria

Source: 1/27/2010, Location: Africa

Afren has entered into a Joint Venture Agreement (JVA) with Oriental Energy Resources and Energy Equity Resources (EER) for participation in the exploration, appraisal and development of OML 115 offshore South East Nigeria, adjoining the Ebok and Okwok development area.

- Farm-in agreement with EER to acquire 81.25 per cent. of its 40 per cent. legal interest in OML 115 (32.5 per cent.)

- Located offshore South East Nigeria, adjacent and on trend with Afren and Oriental’s Ebok and Okwok fields

- Afren has identified significant exploration potential at the deeper Qua Iboe level, a regionally prolific reservoir productive at the nearby Zafiro field

- Gross mean resources potential estimate of 270 mmbbls

- Extension of Afren’s partnership with Oriental on the Ebok and Okwok appraisal and developments; will benefit from further sub surface synergies with the opportunity for Afren to apply its enhanced understanding of the regional geology

- Total upfront cash cost of US$6 million including signature bonus and license extension fees, in addition to the requirement to drill one firm exploration well at an estimated cost of US$30 million.

- Drilling to commence with one exploration well scheduled for H2 2010

Commercial terms
Under the terms of the farm-in agreement with EER, Afren as Technical Advisor will acquire a 32.5 per cent. legal interest. The effective economic interest of between 77 and 100 per cent. reverts to between 81.25 and 65 per cent. (post cost recovery associated with the initial exploration work programme). Following cost recovery by both Afren and EER, Afren’s effective economic interest will revert to between 32.5 and 40.625 per cent. of field revenues. Afren has undertaken to fund the drilling of one exploration well, after which Afren and EER will jointly fund costs pro-rata (81.25 per cent. and 18.75 per cent. respectively).

Following the farm-in to develop the nearby Ebok Field with Oriental in March 2008, Afren had entered into a collaborative agreement with Oriental to pursue other assets in the region. Afren subsequently farmed-in to the Okwok field in August 2009 and OML 115 represents another important milestone within the collaboration agreement. OML 115 benefits from the Nigerian Royalty Tax Fiscal terms.

OML 115 is in the translational structural setting of the prolific offshore eastern Niger Delta, surrounding the Afren - Oriental operated Ebok and Okwok development area and close to the giant Zafiro Complex. The southern portion of the Okwok structure (Okwok South) extends into OML 115 and significant additional prospectivity has been defined within the channelized Qua Iboe system. Afren estimates gross unrisked resource potential of 270 mmbbls based on prospectivity defined to date.

Forward work programme
The near-term work programme will consist of:

- Detailed sub-surface technical studies to determine an optimum exploration or appraisal well location; and Preparations for an exploration well to spud in H2 2010.

- Synergies with the Ebok development – creating a production 'hub'

Following recent appraisal success on the Ebok field, Afren has confirmed a 116 mmbbls development with upside to 182 mmbbls (304 mmbbls including Okwok). There is the potential to create a production hub around a joint Ebok – Okwok – OML115 development, offering significant synergies including joint storage and export operations together with shared services.

Osman Shahenshah, Chief Executive of Afren, commented:
'We are delighted to have further extended our collaboration with Oriental to include OML 115, and at the same time enter into a Joint Venture partnership with EER. OML 115 represents an attractive exploration opportunity at minimal up front cost, adjacent to the Ebok and Okwok fields, where we have enjoyed considerable appraisal success. The close proximity of OML 115 to the Ebok - Okwok complex will provide a pre-existing export solution for any development on the block.'

Alhaji Mohammed Indimi, Chairman of Oriental, commented:
'The relationship with Afren keeps growing from strength-to-strength, with OML 115 representing our third successive collaboration. Oriental believes that Afren’s increased presence in the broader Ebok - Okwok - OML 115 complex will bring significant synergies to the successful and ongoing appraisal and development of the area, offering significant long term reserves and production growth.'

Osamede Okhomina, Chief Executive of Energy Equity Resources, commented:
'EER is pleased to welcome Afren into the OML 115 Joint Venture. We are excited by the opportunity and look forward to unlocking the substantial resource potential at OML 115.'

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