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Eland Oil & Gas Provides OML 40 Production Update

Source: www.gulfoilandgas.com 1/7/2013, Location: Africa

Eland Oil & Gas plc issues the following update on activities for the OML 40 Licence, located in on shore Nigeria (OML 40).

Background

OML 40 was originally licensed by Shell in 1964 and production commenced in 1975 at an initial rate of circa 12,000 bopd and produced continuously until the production facility was shut-in in March 2006.

Elcrest Exploration and Production Nigeria Limited (Elcrest), a Joint Venture Company established by Eland in partnership with indigenous Nigerian company Starcrest Nigeria Energy Limited (Starcrest), in which Eland presently holds a 45% interest, acquired a 45% equity stake in OML 40 on August 31 2012. Elcrest, supported by Eland, Starcrest and together with the State Oil Company, NPDC (together the "Partners"), are planning on the full development of OML 40 after restoring production through the existing production facilities and to export the oil via the Shell operated export terminal at Forcados.

The immediate objective is to re-commission OML 40 production facilities with a target gross production of 2,500 bopd before the end of the 1st quarter 2013, and then to increase production through further development, appraisal and exploration to reach a target gross production of 50,000 bopd within four years.

Operational

The Partners have approved the budget and work programme for 2013 totaling $126 million which anticipates the restart of production by the end of the 1st quarter 2013 and the commencement of development drilling of new production wells at the start of the 3rd quarter 2013. The Company is fully funded through expected cash flow, current cash reserves and the debt facility from the Standard Chartered Bank.

Interpretation of the data set acquired from Shell has been underway since completion of the acquisition of OML 40, and an updated CPR will be issued and published by end February 2013. To date, the interpretation of the data set, which includes 3D seismic covering 75% of the license area, is proving very exciting both in terms of the potential for reserve increases and in the prospective resources that will be drilled in 2013/2014.

The Company has recently opened a London office and continues to build the management team in Nigeria and in the UK and continues to evaluate additional growth opportunities in Nigeria.

Financial

During the 4th quarter of 2012, the Company, on behalf of Elcrest, negotiated a standby Letter of Credit facility for up to $14 million with Standard Chartered bank. This facility was utilised to provide NPDC, Elcrest's partner in OML 40, with the security that Elcrest would meet all its cash call requirements. The satisfaction of outstanding conditions relating to the main line credit facility with Standard Chartered Bank of $22 million were also progressed during the 4th quarter of 2012 and are expected to be completed well ahead of any draw down of the facility.

The completion of the purchase by Eland of the additional 4% equity interest in Elcrest was delayed as a result of the Letter of Credit negotiation and is now planned to be completed in January 2013.

The Company closed the year with cash deposits of $22.5 million, the majority of which will be utilised for the purchase of the additional 4% interest in Elcrest and the re-commissioning of OML 40 to re-start production by the end of the 1st quarter of 2013.

Les Blair, CEO of Eland Oil & Gas, commented today,
"I am pleased with the progress made during the four months since we joined AIM and acquired our interest in OML 40. With the budget and work programme now approved and finance in place, we can quickly progress the remedial and infrastructure work necessary to restart production. Our objective is to be producing at an initial rate of 2,500 bopd by the end of the first quarter."

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