Norsk Hydro favoured bidder on Nigerian oil and gas field

Oct 22, 2004 02:00 AM

Norsk Hydro is the favoured bidder on a Nigerian oil and gas field and should sign a contract finalizing the deal within weeks, sources close to the deal said. If it wins the bid it placed, it would mark Hydro's entry into Nigeria.
Hydro would act as operator, partnering with US-based Syntroleum and Sovereign Oil & Gas to develop Nigerian Yinka Folawiyo Petroleum's Aje field off the coast of western Nigeria, the sources added.

A Syntroleum spokesman later said, "We haven't received an offer from Norsk Hydro and we will continue to work with all interested parties."
Asked if Norsk Hydro had made any informal bids or was in negotiations, the spokesman declined to comment, and wouldn't say what companies were interested.
"We have not made any decision yet, and the bidding office is still open," he said.

According to Syntroleum, two test wells on the Aje field show the potential to produce 40,000 bpd of light, sweet crude and 20,000 bpd of gas-to-liquid products and natural gas liquids. The GTL process converts natural gas into extremely pure, synthetic crude oil virtually free of contaminants such as sulphur, aromatics and metals. Syntroleum plans to process the GTL on a barge.
Following the spin-off of its Agri division Yara in March, Hydro has been flush with cash and company strategists have consistently said they were looking for acquisitions that would increase its production. In its third-quarter earnings report, the company showed cash reserves totalling more than 31.8 bn Norwegian kroner ($ 1 = NOK 6.5097). One analyst said it "must be burning a hole in their pocket."

No price for the Nigerian project has been disclosed. Company analysts have expressed concern that acquisitions in a high-oil price environment might prompt Hydro to overpay for assets. Kjetil Solbraekke, Hydro's senior vice president of business development, assured investors, however, the company would only make acquisitions to build shareholder value.
The company wouldn't comment about the potential Aje deal, but Solbraekke said earlier he was confident Hydro would be seeing contracts signed by Christmas. He also said Hydro was considering opportunities in the Gulf of Guinea -- an area that includes the Nigerian coastal waters. If successful, Hydro could sign the deal by the end of this year, sources said.

Hydro is expected to buy a 60 % stake of the shares assigned for foreign investors, representing a majority in the Aje field, a source said. The Aje field lies within the Oil Mining Lease 113, covering around 454,000 acres.
Joe Brouso, president of Sovereign Oil & Gas said Aje "could very well be significant volumes."
"It has the proven potential with the first two wells to be a very significant accumulation," he said. "It's a large structure with very good pay zones, and the first two wells were on the outer edge of the structure.”
"We require one more well to confirm that," he added.

Sovereign has an exclusive agreement with Syntroleum to find and buy equity positions for Syntroleum in already-discovered stranded natural gas assets, the company said. Brouso said it seeks assets with a minimum of 1.5 tcf of gas.
The drilling of the third well is subject to a finalized partnership, government approval of the project and hiring a drilling rig, Brouso said. He said Sovereign was working on a schedule for the well to be drilled by the third quarter 2005.

Longer term, a contract for the OML 113 license would allow further development of the 454,000 acre block, a source close to the deal said.
"If we get this one under our belt, then we hope to develop more in the Benin Basin," he said.
Hydro also said in its earnings report it expects results from three drilling operations -- in the Barents Sea, the Gulf of Mexico and in Iran -- in late 2004 or early 2005. Analysts say the results may represent an end to a poor exploration period for Hydro.

Source: RigZone
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