Leni Gas & Oil lifted by news of Spain production off-take deal with BP

A big vote of confidence for Leni Gas & Oil PLC (AIM: LGO): the group announced completion of a heads of agreement with BP’s (LSE: BP) Spanish unit to negotiate a crude oil sales agreement to offtake its current and future Spain production to BP's Castellón refinery on the east coast of the country.

Investors liked the news, sending the stock up 13.3 percent in early deals.

The heads of agreement sets out the non-binding obligations and parameters for a proposed crude oil sales agreement to offtake the majority of the company's Spain crude production to BP Castellón and how the parties will work together with a view to consummating the proposal.

The planned agreement is for at least five years and shall include the currently producing 100 percent owned Ayoluengo oilfield and future production from other development assets across LGO’s petroleum production and exploration acreage in northern Spain which covers an area of over 550 square kilometres. 

According to the company website, Ayoluengo is the largest Spanish onshore oilfield with mean STOIIP (Stock Tank Oil Initially In Place) of 104 million barrels (mmbbls).  It had historical production of 17 mmbbls of 37 API oil. LGO is currently producing 130 barrels of oil per day and has initiated a major secondary recovery program to increase recovery and lift production above 1,000 bpd and identify in-fill drilling targets.

The delivery schedule regarding the BP Espana offtake is expected to be steadily increased in parallel with the development programs of LGO to increase production from all of the current and future production assets in Spain.  The delivery pricing shall be at a premium to current pricing and shall be formula driven based primarily on spot commodity price index and the crude oil specification from the various producing assets.

Both companies are currently undertaking feasibility studies to engineer the facilities upgrades required to commence crude oil offtake in the fourth quarter of 2010.

Chairman David Lenigas said: “The potential tenure of this agreement provides LGO with long term revenue security in Spain, and shall allow us to accelerate the financing and development of both current and future producing assets in Spain.  The completion of the long term offtake agreement with BP will be a milestone for the company, which shall underpin the value of LGO's Spain assets and compliment our development plans to accelerate multiple production assets."

"Work is near completion on updating the total Spain resources and exploitation plan subsequent to a comprehensive geological re-interpretation of our acreage using new seismic re-processing.  The re-interpretation has identified additional hydrocarbon formations in the Lower Jurassic in addition to our existing production formations in the Lower Cretaceous and Upper Jurassic," he added."

In March, LGO announced its decision to divest its Hungarian assets, considered non-core as a result of the on-going reserves and resource review. It held a 14.54% stake in ZalaGasCo Kft and 7.27% of PetroHungaria Kft. The group and its advisers concluded neither venture will provide a material return on the company's Hungary investment of €2m. The company had therefore decided to relinquish its interest in both ZalaGasCo and PetroHungaria, and write off the Hungary investment.

Subsequently, the emerging resource company has assets in Spain, the Gulf of Mexico, Trinidad and Malta.  It holds 100% of the Ayoluengo field through its wholly owned Spanish subsidiary Compañia Petrolifera de Sedano.  The company owns 28.94% in Byron Energy, which in turn owns varying working interests, between 10% and 25%, in the Eugene Island joint venture in the Gulf of Mexico.

In Trinidad the company owns a 50% interest in both the Icacos Deep prospect and the Icacos oilfield. LGO also has a 10% stake in the Malta Southern Offshore exploration play.

http://www.proactiveinvestors.co.uk/companies/news/16303/leni-gas-oil-lifted-by-news-of-spain-production-off-take-deal-with-bp--16303.html